TARP and HAMP failed to halt foreclosures

In his latest quarterly report to Congress, special inspector general Neil Barofsky said that the Troubled Asset Relief Program, or TARP, has failed to boost bank lending as well as halt the spread of foreclosures -- two key aims of the sprawling program. "Whether these goals can effectively be met through existing TARP programs is very much an open question at this time," Barofsky said in the report. Since Congress enacted TARP, lending to both consumers and businesses has continued to decline. Earlier this month, the Treasury Department reported that the 22 banks that got the most aid from the government's various bailout programs have actually cut their small business loan balances by $12.5 billion since April.

The Obama administration did propose a joint program between the Treasury Department and the Small Business Administration in October to make capital cheaper for community banks that commit to increasing their small business lending, but three months later the government is still drafting guidelines for that initiative. Barofsky, whose office has been closely tracking the evolution of TARP, also criticized the Obama administration's Home Affordable Modification Program. Even as Treasury allocated $35.5 billion towards that foreclosure-prevention program as of the end of last year, only 66,500 homeowners have received permanent modifications, with another 787,200 homeowners in trial modifications. There is no sign that the rate of foreclosures is slowing down anytime soon. Earlier this month, RealtyTrac, the online marketer of foreclosed homes, reported that foreclosure filings surged to a record 3 million in 2009, up 21% from 2008. There was at least one bit of good news from Barofsky's latest report however. He acknowledged that while the ultimate cost will still be "substantial" for American taxpayers, it will be less than originally estimated.

New $3.8 trillion budget

Today President Obama will reveal a $3.8 trillion budget for 2011. The budget proposes new tax breaks and incentives for small businesses that hire new employees or boost wages, which would cost $30 billion. There would also be tax breaks for small businesses that make new investments. The budget includes a one-year extension of Making Work Pay tax breaks, delivered as a part of last year's stimulus package. This credit resulted in slightly higher paychecks for 110 million families, according to the White House. It would make permanent tax cuts passed during the Bush administration for all except high-income households. Other spending hikes will include: $17 billion more for Pell Grants to help students pay for college and $6 billion for "clean energy technologies."

The administration would also spend $734 million to install 1,000 new full body scanners at airports. The budget also calls for a relatively small three-year cap on non-defense discretionary spending. Critics, like the budget watchdog group OMB Watch -- which called the move "emptying a sea with a teaspoon" -- point out that the cap is on a small part of the total budget, leaving room for big increases on war, military and national security spending. In fact, the president's budget will call for billions more in spending increases for defense, diplomacy and homeland security agencies, even though House Speaker Nancy Pelosi said last week that some defense spending should also be subject to the freeze. White House budget chief Peter Orszag claims that the White House's guiding philosophy is: "Don't make the situation any worse." Shame they didn't think that one up before...

DSNews.com - Fannie Mae seller assistance program

Fannie Mae has announced a temporary seller-assistance program under which people purchasing a property through HomePath, Fannie Mae’s REO disposition operation, will receive up to 3.5 percent of the final sales price, which can be applied toward closing costs or used to purchase appliances for their new home. The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010, the company said. In addition, many Fannie Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, with as little as 3 percent down. “Attracting qualified buyers to the market and reducing the inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover,” said Terry Edwards, EVP of credit portfolio management for Fannie Mae. “Many families are taking advantage of the federal homebuyer tax credit to buy a new home so this is a great time for Fanni e Mae to offer some additional help.”

According to the GSE’s most recent quarterly filing, Fannie Mae acquired 98,428 homes through foreclosure during the first nine months of last year and sold 89,691 REO properties during the same period. But at the end of September, Fannie Mae still had 72,275 REO properties on its books, marking a 7 percent increase year-over-year. Furthermore, Fannie Mae’s monthly summary shows significant growth in seriously delinquent single-family mortgages held or guaranteed by the company. Up from 2.13 percent in November 2008, loans three or more months behind in payments or in the foreclosure process soared to 5.29 percent in November 2009.

Obama and his job count

In the ongoing circus of the White House's elusive "jobs saved or created," administration officials claimed Saturday that its stimulus plan directly funded 599,108 jobs in the fourth quarter. The figure is based on about 160,000 reports from state, local and corporate recipients that have spent stimulus money to keep teachers in schools and cops on the street, as well as to rebuild roads, launch green energy initiatives and fund other projects. That spending represents one-fifth of total stimulus spending to date. In total, the economic stimulus program has boosted employment by 1.5 million to 2 million jobs, the president's chief economic adviser said in mid-January. But unlike the figure reported Saturday, that number is derived from a mathematical formula based on how much money has flowed out the federal door and includes both the direct and indirect hires. A total of $263.3 billion has been paid to states, contractors and other recipients or distributed in tax breaks . Recipients' reports cover $57.9 billion of that spending, according to the White House. Since it was enacted last February, Republicans have repeatedly attacked the $862 billion effort as a colossal waste of taxpayer dollars that has not created meaningful, long-term employment. "Americans deserve more than fictitious claims that don't match the reality of what they are going through," said Kevin Smith, spokesman for House Minority Leader John Boehner, R-Ohio.

Fannie Mae hits 5.29% delinquency rate

Fannie Mae reported a serious delinquency rate for its mortgage portfolio of 5.29% in November 2009, the latest month of data, the highest in recent memory. That number grew from 4.98% in October and more than doubled the 2.13% in November 2008, according to its monthly summary. For December 2009, the entire Fannie book of business grew at an annualized rate of 9.7% in December to $3.2bn. For all of 2009, the book grew 4.2%. Fannie’s mortgage-backed securities (MBS) and other guarantees totaled $2.82bn in December. It issued $55.3m in MBS – up from $40.3m in November – bringing its total issuance for the year to $807.8m. Fannie’s gross mortgage portfolio grew at an annualized rate of 37.6% in December and stood at $772.5m at the end of the year. Wilshire Credit Corp., the mortgage servicer bought by IBM in October, is set receive a substantial servicing portfolio from Fannie and catch the servicing rights to a portion of these delinquencies. In fact, the mortgage
finance industry is abuzz over a rumored change to the way Fannie and its brother GSE Freddie Mac would assign and manage mortgage servicing rights.
 

STATE OF HAWAII 2010 LEGISLATIVE SESSION - WEEK ONE

This year, the legislative session will adjourn one week earlier, in April. This has not compromised the amount of bills introduced this session, with over 2000 bills combined in the House and Senate. HAR has already testified on 10 bill in only the first week. Some topics of interest include our:

OPPOSITION in requiring a tax clearance for real estate licensees as a condition to renew or acquire a license;
OPPOSITION in requiring an archaeological inventory survey prior to the sale or offer of sale of any property in the State of undeveloped
land;
SUPPORT in regulating the profession of exchange accommodators;
OPPOSITION in establishing the DEBDT special fund and imposes a surcharge of $20 upon every fee charged by certain departments for certain business and commerce related services;
SUPPORT in establishing a temporary tax credit for residential construction and remodeling projects; and
OPPOSITION in imposing a General Excise Tax at the rate of 1% on the gross proceeds from certain real property sales, less a deduction for real estate salespersons' commissions and Conveyance Tax paid on the sale.
 

U.S. Supreme Court Eliminates Corporate Campaign Finance Ban
The Supreme Court of the United States considered the constitutionality of a ban on corporations making independent expenditures in federal candidate elections. To download the Supreme Court’s decision, click here.

In summary, Federal election law generally prohibits corporations from using corporate treasury funds to make contributions to, or expenditures in support of or opposition to, federal candidates. In a revolutionary ruling, the Supreme Court overturned decades of precedent, explicitly overruled two of its own relatively recent rulings, and declared that corporations have First Amendment rights to participate in federal election campaigns by making “independent expenditures” using corporate treasury rather than PAC funds.

While the decision and the various concurrences and dissent are lengthy and complex, the bottom line is simple and straightforward: Corporations may now make unlimited “independent expenditures,”

MORTGAGE RATES UPDATE

Rates are up about an .125% this week over last, but not much movement in the market rates overall.

The great news is that we are getting some very fast approvals with some of our investors; under 24 hours in final approval turn times. There are several investors who just don’t have a clue how to operate with the new Good Faith Estimate requirements and there turn times are up over 7 days or more. Luckily we know just what investors they are and we are trying to steer clear of them for you.

Per Data Quick News the inventory of properties in all counties appears to be way down, which should help to stabilize values. Last year there was an actual increase in Los Angeles and Orange County of approximately 1.1%. This is a step in the right direction as these two counties tend to be the leaders in real estate market directions. In their article they stated “The median paid for all Southland houses and condos sold in December was $289,000, up 1.4 percent from $285,000 in November and up 4 percent from $278,000 a year earlier. The last time the median increased year-over-year was in August 2007, when it rose 2.7 percent to $500,000, near its peak.”

You can read the entire article at http://www.dqnews.com/Articles/2010/News/California/Southern-CA/RRSCA100119.aspx

Freddie Mac mortgage refinance purchases rise 41%

The volume of refinance loans bought by mortgage giant Freddie Mac swelled 41% in December from the previous month to $27.3 billion. In November, Freddie bought $19.3 billion of refinance loans, a 7% gain from October. Freddie’s total mortgage portfolio grew at an annualized rate of 5.7% in the month, while at the same time the aggregate unpaid principal balance of the mortgage-related investments portfolio slid to $755.3 billion, from $761.8bn at the end of November. Purchases and issuance totaled $44 billion in December, bringing the full-year 2009 total to $548.37 billion.

The delinquency rate in Freddie’s single-family portfolio grew 15 basis points to 3.87%, while the multifamily delinquency rate was virtually flat at 0.15% in December. A year earlier, the single-family portfolio was 1.72% delinquent, while the multifamily portfolio was 0.03% delinquent. Freddie’s guaranteed participation certificates and structured securities issued increased at an annualized rate of 5.9% in December. Issuance for the month included $4.4bn of guarantees under the Housing Finance Agencies (HFA) initiative, in which the Treasury Department bears initial losses on these securities up to 35% of the program-wide issuance.

HAMP's last stand

Yesterday the Treasury Department announced new guidelines that will require applicants to provide all paperwork before getting a trial modification. The new policy should make it easier for homeowners to qualify for permanent assistance under President's Obama foreclosure prevention plan, even though it makes it harder for them to start the process. Borrowers have been complaining that their loan servicers constantly ask for additional documents and lose their forms. Servicers, meanwhile, say that borrowers are not handing in all that's needed. The new rules, which start June 1, will shift the paperwork burden from the back end to the front end of the process. Distressed borrowers will have to fill out a three-page request form that asks them to explain their hardship and list their income and expenses.

They will also have to sign an IRS 4506-T form that allows servicers to pull their tax returns. Both forms are available on the Making Home Affordable program's Web site. Applicants will also have to verify their income. For those earning a salary, two recent pay stubs will be sufficient. Other earnings, such as income from self-employment, benefits, or rental properties, must still be documented. Servicers must acknowledge receipt within 10 business days and, if the file is complete, let the borrower know within 30 days if he or she is approved for the trial modification. If the documentation is incomplete, the servicer must tell the borrower what is outstanding. Those who are approved for trial adjustments and make three timely payments will be automatically converted to long-term modifications. Both servicers and housing experts applaud the move, saying that borrowers will now have a better sense of their chances for permanent help. "It will not lead to more modificat ions, but it will lead to more certainty," said Howard Glaser, head of The Glaser Group, a financial services analytics firm. At least now everyone's bluff is being called…

GDP up

According to a Federal Reserve report, The nation's gross domestic product (GDP) rose at a 5.7% annual rate in the fourth quarter. The growth in the fourth quarter was the highest since the third quarter of 2003, and economists surveyed by Briefing.com had only forecast growth of 4.7%. The economy rose at 2.2% annual pace in the third quarter of last year, but even with the strong growth in the second half of 2009, the economy shrunk by 2.4% last year. That was the biggest drop in 63 years and first annual decline for the economy since 1991. The GDP report doesn't mark an official end of the recession. That determination will be made by the National Bureau of Economic Research, and that group typically waits months -- if not more than a year -- to declare when recessions ended and began. But two straight quarters of economic growth is typically a sign of a recovery, and most economists agree that the recession ended at some point in the middle of 2009.

The Federal Reserve even used the word "recovery" in the statement following its latest meeting earlier this week. Much of the improvement was driven by a turnaround in inventories…3.4 percentage points of growth in the fourth quarter came from the change in inventories. A pickup in auto production was a significant part of the inventory turnaround, even though auto sales themselves only rose modestly. An 18% jump in the value of exports also played a major role in the economy's rebound, contributing nearly 2 percentage points of growth. Sung Won Sohn, economics professor at Cal State University Channel Islands, said there was good news in the report, but cautioned that the economy is unlikely to keep growing at such a strong pace. "The not-so-good news is that most of the growth came from temporary factors such as inventories and government stimulus which can't be sustained," he said. Federal spending on stimulus does not show up on any one line of the GDP report. In f act, government spending contributed nothing to growth by itself, even though tax cuts and spending by businesses that received stimulus dollars helped to feed temporary growth in the third and fourth quarters.

DSNews.com - Commercial real estate an opportunity?

According to the CCIM Institute and the Real Estate Research Corporation (RERC), commercial real estate is positioning itself to be an attractive investment on a risk-adjusted basis in 2010 and 2011. Property prices in the retail and apartment sectors showed moderate increases in the fourth quarter of 2009, breaking the string of significant price declines during the previous 12 months. In addition, CCIM and RERC said weighted average capitalization rates for the office, industrial, retail, and apartment sectors increased by 20 to 30 basis points in the fourth quarter.

The RERC/CCIM Investment Trends Quarterly Report showed that 12-month trailing transaction volume increased slightly in the apartment and retail sectors, hinting that volume may be starting to bottom out for these property types. While transaction volume for the office and industrial sectors continued to decline in the fourth quarter, it did so at a much slower rate than in the previous three quarters, the groups said. "The latter part of 2008 and all of 2009 were definitely the shock years, and we’re looking to 2010 as the recovery year," said Richard Juge, the 2010 president of the CCIM Institute. "We will see more activity, perhaps not in gross dollar levels, but in the volume of deals that close in 2010. This is the time to buy."

Economic outlook brightens a bit

According to a survey published yesterday by Towers Watson, a global human resources consultancy, 92% of employers plan to expand payrolls this year. Unfortunately the survey also found that 36% of employers are planning "targeted workforce reductions" this year, down from the 58% that have cut workers since the financial crisis began in 2008. "While there are signs of improvement, it's clear we're not going back to 'business as usual' anytime soon," Laura Sejen, a rewards practice leader at Towers Watson, said in a statement. While the weak job market has made it easier for businesses to retain workers over the last year, 51% said it will be harder to keep employees from jumping ship a year from now. The survey also highlighted how the weak economy has forced employees to remain in the workforce longer and save less for retirement.

Over half of the businesses in the survey said the number of employees working past their desired retirement age has increased over the last year, and one third expect that trend to continue. Almost a third of companies reported that employees have on average reduced their contributions to 401(k) plans from pre-financial crisis levels, and 51% have seen an increase in hardship withdrawals. Employers also indicated that health care costs have gone up and will continue to rise in 2011. Despite the challenging economy, 55% of employers believe worker productivity had risen compared with pre-financial crisis levels, and 48% expect productivity will continue to rise by next year. The survey was conducted in early January with 118 mostly large employers in the United States and 459 employers globally.

Tax credit for jobs

President Obama plans to propose a $33 billion tax credit to encourage small businesses to hire workers and raise wages in 2010, according to an administration official. The plan was alluded by Obama in the State of the Union address, where he claimed he would make jobs priority number one. It will grant a $5,000 tax credit for every net new worker hired in calendar 2010. The amount will be capped at $500,000 per firm to make sure that the bulk of the benefits go to small businesses.

In addition to the jobs credit, firms increasing wages or hours for their workers will be reimbursed for the social security payroll taxes they pay on the real increase in their payrolls. This measure is included in the $500,000 cap to make sure the benefits stay focused mostly on small businesses. Obama will propose to pay for the plan with savings from a $700 billion bank bailout fund, the official said, but made plain that this would be up to the Congress to decide. In addition, Obama wants to use a further $30 billion from TARP to aid the flow of credit through community banks to small businesses. The White House said there would be more details on this aspect of Obama's job strategy in the coming weeks.

Diana Olick of CNBC spoke with Rick Sharga of RealtyTrac, and he elaborated on the formal report we talked about above, giving her his thoughts on the coming year and 2011. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices. "Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation). Olick: "There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bu sh administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal."

2009 foreclosures - mainly sunbelt but spreading

RealtyTrac, the Irvine, California-based real estate data company, says in its Year-End 2009 Metropolitan Foreclosure Market Report that cities in four Sun Belt states accounted for all top 20 foreclosure rates in 2009 among metropolitan areas with a population of 200,000 or more. California accounted for nine of the top 20 metro foreclosure rates, followed by Florida with eight, Nevada with two and Arizona with one. Outside these states, the highest-ranked was Boise City-Nampa, Idaho at No. 24 with 4.66 percent of its housing units receiving at least one foreclosure notice in 2009. "The first wave of foreclosures was driven by home prices that were unsustainable and unbelievably poor lending practices, but now we have a second wave of foreclosures that it is being driven by unemployment," Rick Sharga, senior vice president at RealtyTrac, said in an interview. "Foreclosures will likely increase in some of the secondary markets that are the most heavily impacted by unemplo yment," he said. James J. Saccacio, chief executive officer of RealtyTrac, says "Areas like Provo, Utah, Fayetteville, Ark., Portland, Ore., and Rockford, Ill., all posted foreclosure rates above the U.S. average in 2009, and markets like Honolulu, Minneapolis and Seattle saw foreclosure activity increase at more than twice the national pace over the past 12 months — although all three of those markets still had 2009 foreclosure rates that were at or below the U.S. average." Unemployment started driving foreclosures in late 2009 and will not crest until the end of 2010, he said. Negative equity has also been one of the biggest banes of homeowners, making many unqualified for home loan refinancing and preventing some from selling.

Initial jobless claims down

The Labor Department says in its weekly report that there were 470,000 initial job claims filed in the week ended Jan. 23, down 8,000 from a revised 478,000 the previous week. A consensus estimate of economists surveyed by Briefing.com expected new claims to fall to 450,000. The 4-week moving average of initial claims was 456,250, up 9,500 from the previous week's revised average of 446,750. The report said 4,602,000 people filed continuing claims in the week ended Jan. 16, the most recent data available. That's down 57,000 from the preceding week's revised 4,659,000 claims. The 4-week moving average for ongoing claims fell by 94,250 to 4,669,250 from the previous week's revised 4,763,500, but, as usual, the drop may just mean that more filers are dropping off those rolls into extended benefits. In November, Congress passed an extension of federally paid benefits for up to 99 weeks. But the law only helps those who have used up their first 26 weeks of benefits by the end of 2009, so depending on the state, not everyone will receive benefits for the entire 99-week span. The House and the Senate passed measures in December to extend the filing deadline through the end of February.

Fed keeps interest rates low

Yesterday the Federal Reserve left interest rates near zero and vowed to keep them there for a while to nurture an economic recovery held back by stubbornly high unemployment. The policy statement reflected a somewhat brighter tone than it had at the previous meeting in December. "Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating,'' the Fed said. In the December statement, the Fed had said economic activity "has continued to pick up.'' The decision to hold rates steady was 9-1, with Kansas City Federal Reserve Bank President Thomas Hoenig dissenting because he wanted the central bank to eliminate a phrase vowing to keep rates exceptionally low for an extended period. However, the Fed dropped a reference that had been included in December's statement which said the housing sector ''has shown some signs of improvement over recent months. ''The Fed repeated its intention to allow purchasing of some $1.43 trillion in housing-linked debt to conclude as scheduled by the end of March, but added: "The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.''

SOTU

In his State of the Union (SOTU) address last night, President Obama said his administration will focus on accelerating hiring in the short run and, in the longer term, on fostering sustainable jobs that grow wages. The administration's effort will center on tax incentives for small businesses: cutting levies on small businesses and extending the bonus depreciation tax incentive for companies that purchase equipment, Obama also wants to invest in infrastructure. He believes pouring more money into road, bridge, rail and water projects is a good way to build jobs quickly and improve the economy in the long term. Obama also wants to spend more in energy projects, including encouraging families to retrofit their homes with energy-saving measures, building new nuclear power plants, investing in biofuels and clean coal technology, and passing an energy and climate bill.

Other economic items on Obama's agenda that include doubling exports in the next five years, passing reform measures that will foster a strong, healthy financial market, and putting a large fluffy Teddy Bear on each American's pillow. Ok, I just made up the last one, but why not throw it into the massive wish list? Oh, and the president also highlighted the achievements of his $862 billion stimulus package, which he said boosted employment by 2 million jobs -- including 300,000 in education and 200,000 in construction and clean energy -- since it was enacted nearly a year ago. Using the latest vague reporting criteria of this ongoing job-saving-and-creating series of claims, that's a lowball claim - shouldn't it be in the trillions of jobs saved, created, or just imagined? And of course he vowed not to back down from efforts to revamp the U.S. healthcare system. Ugh.

DSNews.com - housing supply declining

New data from Altos Research shows that housing supplies have been steadily declining for the last 16 months. The company says there are 20 percent fewer homes for sale now than there were in 2008. Some fear this decline is because banks have been holding back their repossessed properties, but Altos doesn’t expect this so-called shadow inventory to result in a real estate day of reckoning in 2010 as some market observers have warned. In fact, Scott Sambucci, VP of data analytics at Altos Research, says the industry won’t see any effects from the supply of homes lurking in the darkness until inventory levels pick up.

And he doesn’t foresee that happening anytime soon, primarily because banks have no immediate motivation to offload these assets from their balance sheets, and are keenly aware that a sudden jump in the number of homes on the market could be detrimental to already-fragile property values. With a smaller selection of inventory, buyers will pay a higher price, and Sambucci says he’s already seen definite evidence of a price floor in 2009. Home price statistics started out 2010 on a good foot, according to Altos’ data, with seven-day moving averages within the company’s index bouncing off their lows and starting to tick up. In addition, the number of homes with price reductions and the magnitude of these discounts are diminishing, although Sambucci says that could indicate buyers’ willingness to pay more or it could just mean sellers are becoming more realistic about what they can get. Either way, price reduction stats, while still elevated, are moving in the right d irection, he says.

New Home Sales Drop

On the heels of the S&P/Case-Shiller report yesterday, the Commerce Department said sales fell 7.6 percent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined. Analysts polled by Reuters had expected new home sales to increase to a 370,000 unit annual pace from November's previously reported 355,000 units. New home sales for the whole of 2009 fell 22.9 percent to a record low 374,000 units, but despite the slump in sales there were a few bright spots in today's report. The median sale price for a new home rose 5.2 percent last month from November to $221,300, the highest in seven months and the biggest rise since April 2009. Compared to December 2008, the median sale price fell 3.6 percent. The number of new homes on the market last month dropped 1.7 percent to 231,000 units, the lowest level since April 1971. However, December's weak sales pace left the supply of homes available fo r sale at 8.1 months' worth, the highest since June 2009, from 7.6 months in November.

BOA signs up on "piggyback mortgage" plan

As part of its $75 billion foreclosure-prevention program the Obama administration has been offering lenders who made so-called "piggyback" mortgages incentives to lower payments or eliminate the loans entirely. Second loans allowed consumers to make a little or no down payment and they were all the rage while property values were on the rise. Now, however, they are an obstacle to alleviating the housing crisis. That's because piggyback lenders -- fearing they won't be repaid -- can veto a borrower's efforts to modify their primary mortgage. The trouble with Obama's offer is that no one was interested until Tuesday, when Bank of America (BOA) signed up. If more lenders follow Bank of America it could clear the way for more mortgage companies to cut borrowers' principal balances on their primary loans, but administration officials appear wary of subsidizing such reductions with taxpayer money, because it could spark yet another backlash from critics who claim it's unfair
to people who are still paying their mortgages on time and a bailout for banks that made reckless loans. But many experts say dramatic changes are needed. "Unless you modify principal, there is absolutely no hope of restructuring mortgages on a mass scale to keep people in their homes," Daniel Alpert, managing director of the New York investment bank Westwood Capital LLC said earlier this month. "Eventually their hand will be forced."

Stimulus $75 billion more expensive than first believed

The American Recovery and Reinvestment Act, passed in February 2009, was initially believed to have a price tag of $787 billion. The Congressional Budget Office (CBO) said the Recovery Act's effects on government spending and revenues have closely followed its initial estimate for 2009 and 2010, but the addition of skyrocketing unemployment compensation costs has hiked its forecast Tuesday for how much the stimulus bill will add to the nation's deficit, raising its estimate by $75 billion to $862 billion. In the CBO's initial estimate for the Recovery Act, the unemployment rate was expected to cap at 9%, but the rate rose above 9% in May and soared above 10% in October. The vast majority of the increased deficit impact is linked to anticipated spending in 2011 to 2019. Nearly half of the additional $75 billion comes from more spending on food stamp benefits than originally anticipated. CBO said in its February 2009 estimate that the government would spend $20 billion on inc reased food stamp benefits through 2019, but it now believes that amount will be closer to $54 billion. It now appears to the Budget Office that stimulus will have a larger impact on the deficit in the years to come based on changing economic factors since the bill was signed into law 11 months ago. What a surprise.

Mortgage Applications Decrease

U.S. mortgage applications fell for the first time in four weeks, reflecting a dramatic drop in demand for home refinancing loans, data from an industry group showed today. The Mortgage Bankers Association's (MBA) Market Composite Index for the week ending January 22, 2010 decreased 10.9 percent on a seasonally adjusted basis from one week earlier and, on an unadjusted basis, decreased 10.1 percent compared with the previous week and decreased 19.8 percent compared with the same week one year earlier. The Refinance Index decreased 15.1 percent from the previous week and the seasonally adjusted Purchase Index decreased 3.3 percent from one week earlier. The unadjusted Purchase Index increased 2.8 percent compared with the previous week and was 4.5 percent lower than the same week one year ago.

The four week moving average for the seasonally adjusted Market Index is up 2.6 percent. The four week moving average is up 1.3 percent for the seasonally adjusted Purchase Index, while this average is up 2.8 percent for the Refinance Index. The refinance share of mortgage activity decreased to 67.6 percent of total applications from 71.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4.7 percent from 4.1 percent of total applications from the previous week. “Refinance activity fell substantially last week,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today’s rates.”

SOTU tonight

Administration officials say President Obama intends to use today's State of the Union address to put a new focus on his jobs agenda as he tries to regain the confidence of a disheartened electorate. He will make small-business hiring the centerpiece of that message, pressing Congress to act on a slate of tax cuts that have languished for months. Mr. Obama will call for eliminating capital-gains taxes on investments in small businesses. He will redouble efforts to give small employers a tax credit for new hires. And he will call for extending bigger tax breaks to those that purchase new facilities and equipment. Many of the proposals date back to his campaign but have drawn little notice in a Congress preoccupied with other matters, such as overhauling health care.

According to a new Wall Street Journal/NBC poll, Americans think the president has paid too much attention to health care and not enough to the economy. Ya think? The speech will also promise a list of other initiatives for 2010. Mr. Obama will announce a salary freeze for senior White House officials and eliminate bonuses for all political appointees. According to the poll, business leaders want to see more measures to spur trade, infrastructure development and lending to small and midsize businesses. In addition, the tax credits to be promoted by the president Wednesday have been too long in the pipeline, they say. Many of the small-business proposals have been rejected by Congress already. The House passed a job-creation package that didn't mention Mr. Obama's proposed hiring tax credit. The number of Americans who feel that the country is headed in the wrong direction has risen to 58%, the highest number since before Mr. Obama's inauguration. Moreover, Mr. Obama's n ew overall approval rating of 50% might look better than recent polls, but given the survey's margin of error, the new rating is statistically similar to his 47% approval in December. Forty-four percent say they disapprove of the job he is doing.

Home prices down

The S&P/Case-Shiller 20-city home price index recorded a decline of 0.2% in November from October. Prices were down 5.3% compared with 12 months ago. Experts had forecast that prices would be off by only 5% compared with last November, according to Briefing.com. The lone good news is that the rates of year-over-year declines have continued to shrink. "While we continue to see broad improvement in home prices as measured by the annual rate, the latest data show a far more mixed picture when you look at other details." said David M. Blitzer, spokesman for Standard & Poor's. "Only five of the markets saw price increases in November versus October." Four markets covered by the index -- Charlotte, Las Vegas, Seattle and Tampa -- hit their lowest index levels in four years, according to Blitzer. Any gains they recorded in recent months have been erased. The five markets that showed month-over-month gains were led by Phoenix, where prices rose 1.1%. Thirteen markets had declines , with Chicago being the biggest loser at 1.1% down. Miami and Dallas showed no change. "We have a very fragile housing system," said Michael Carey, an economist with Calyon Securities in New York. He worried that as the government withdraws support from the housing market, prices could begin slipping again. That would put more homeowners into the position of owing more on their mortgage than their home is worth and could lead to another wave of foreclosures.

Obama to freeze discretionary spending

According to two senior administration officials, President Obama will announce in tomorrow's State of the Union address that he's proposing to save $250 billion by freezing all nonsecurity federal discretionary spending for three years. The freeze would exempt the budgets of the departments of Defense, Homeland Security, and Veterans Affairs, along with some international programs. All the details will be officially unveiled February 1 when the president publicly releases his next budget blueprint for fiscal year 2011 -- which starts October 1 -- and beyond. Under the proposal, which would need to be approved by both houses of Congress, all federal discretionary spending would be frozen at its current level of $447 billion per year. Within that parameter, however, individual federal agencies would have the power to give some programs increases, while cutting money elsewhere.

The move will spark a major debate within the president's own party, with senior Democrats already saying the cuts would be tough to swallow. A senior Senate Democratic aide said it will prompt a major fight after the Bush administration "underfunded domestic programs for so long. Why would we want to play into the Republicans' hands like this?" Immediate Republican reaction was split, with some senior GOP aides saying the freeze is something they could support, while others said it did not go nearly far enough. "Given Washington Democrats' unprecedented spending binge, this is like announcing you're going on a diet after winning a pie-eating contest," said Michael Steel, a spokesman for House Minority Leader John Boehner, R-Ohio. "Will the budget still double the debt over five years and triple it over 10? That's the bottom line."

Strategic default

Tishman Speyer Properties and its primary partner BlackRock Inc. decided over the weekend to turn over the 56-building Peter Cooper Village and Stuyvesant Town, once viewed as one of Manhattan's most valuable residential properties, to creditors rather than pursue other options including potentially putting it into bankruptcy. The joint venture bought the property at the height of the market for $5.4 billion. Now, thanks to falling values in commercial and residential real estate, it's worth about $2 billion. The move came after the venture was unable to restructure the $4.4 billion in debt used to help finance its top-of-the-market purchase, and means that the owners won't use bankruptcy as a defensive strategy to keep control. In addition to the first mortgage, there is $1.4 billion of junior, or "mezzanine," debt on the property and some holders of that debt have also been maneuvering for control in recent weeks. Some junior creditors may try to replace the Tishman ventur e as owners by agreeing to pay the debt service on the first mortgage. If CW Capital takes over, the mezzanine investors likely will suffer a big loss.

Now the question is, "who will take the keys on behalf of which level of debt," said Mark Edelstein, head of the real-estate group at law firm Morrison & Foerster LLP. According to a person familiar with the situation, the Tishman venture has reached out to CW Capital to start the property-transfer process. Until the weekend, the Tishman partnership was considering various options including potentially putting the property into bankruptcy protection, according to people familiar with the matter. But on Saturday, the group decided to give it up to creditors. "We make this decision as we feel a battle over the property or a contested bankruptcy proceeding is not in the long-term interest of the property, its residents, our partnership or the City," the venture said in a statement. Diana Olick has a question: "Apparently it's just good business. So why is it not just good business for homeowners to walk away from their mortgages? [Homeowner] borrowers are looking at the same
negative equity and loss on investment, simply on a smaller scale. Somehow it's fine for commercial investors, but not for individuals?

Retail sales to rise - a bit - in 2010

A 2010 forecast from the National Retail Federation (NRF) says retail sales should rise 2.5 percent this year, marking an expected improvement from a 2.5 percent drop in 2009 and a 1.3 percent increase in 2008. Excluding the past two years of recession, a 2.5 percent rise in retail industry sales would mark the lowest year-over-year increase since 1995, when the trade group began tracking such figures. "I wouldn't describe this as a very strong year," said NRF Chief Economist Rosalind Wells in an interview. The data covers retail industry sales, excluding automobiles, gas stations, and restaurants. "We're not going to have a V-shaped recovery in the economy, and we won't have a V-shaped recovery in consumer spending or retail sales. It's a slow return to a more normal level," Wells said. For 2010, Wells expects consumers to keep a frugal mind-set with a focus on values. That should help sales at discount retailers, warehouse clubs and off-priced retailers. "The hope is that as the year goes on, we'll see improvement in the job market. When that happens, we'll see a better consumer confidence level, we'll see higher incomes, and that will all contribute to making consumers feel better and loosening up the pocket book," Wells said.

Principal reduction in 2010?

With more than half of all modified loans expected to re-default in 2010, servicers are likely to increase the use of principal forgiveness, according to rating agency DBRS. Despite a growing number of government-backed modifications, DBRS noted that mortgages that are more than 60 days delinquent typically also comprise more than half of modified loans on the books after six months. “[This] 50% re-default rate on modifications continues to be staggering given the income verifications and trial modifications being done by many servicers,” the agency said in the commentary today.

That trend shows no sign of relenting, as Amherst Securities Group noted “tragic” re-default rates in November. Laurie Goodman of Amherst has said the fundamentals of certain modification programs put them at a disposition for unsuccessful modification. The Treasury Department’s Home Affordable Modification Program (HAMP), for example, is “destined to fail” she said, as it does not address negative equity issues even after principal reduction. DBRS said modifications that forgive mortgage debt will likely become the preferred loss mitigation strategy for servicers during 2010. DBRS also expects the US government to continue the call for large-scale loan modifications this year.

Housing sales down

The National Association of Realtors' (NAR) report says existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008. For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 percent higher than the 4,913,000 transactions recorded in 2008; it was the first annual sales gain since 2005. Economists polled by Thomson Reuters say sales of previously occupied US homes completed in December fell 7.3 percent to a seasonally adjusted annual rate of 6.06 million, down from 6.54 million in November. Last year, first-time buyers were the main driver of the housing market, but their presence is on the decline, according to a survey of real estate agents released last week by research firm Campbell Communications. NAR practitioner survey shows first-ti me buyers purchased 43 percent of homes in December, down from 51 percent in November and 47 percent in October. Repeat buyers rose to 42 percent of transactions in December from 37 percent in November; the remaining sales were to investors. "The majority of people who are going to use [the $8000 tax credit] have used it already," said Thomas Popik, who conducted the survey.

Missing Loan Mod paperwork may mean 450,000 more in foreclosure

Hundreds of thousands of homeowners who are making lower mortgage payments on a trial basis are at risk of being kicked out of President Obama's foreclosure-prevention program. The goal is to clear up the backlog of borrowers stuck in trial modifications, in which a homeowner's monthly payments are lowered to no more than 31% of pre-tax income, but it has some bank regulators concerned. Mortgage servicers have until Jan. 31 to review all trial modifications that have been underway under the Home Affordable Modification Program (HAMP). During the review period, servicers must determine whether borrowers have made all their payments and have handed in all the necessary paperwork. Those who haven't will get letters giving them 30 days to comply. The Treasury Dept. said it would issue new guidelines next week, but wouldn't give details. "About 450,000 homeowners currently have HAMP trial modifications and have demonstrated a willingness and ability to make timely payments for at
least three months," said Richard Neiman, superintendent of the New York State Banking Department. "Now, unfortunately and very alarmingly, these same homeowners face the prospect of foreclosure strictly on account of documentation issues," he said. Paperwork has been a major stumbling block for the president's foreclosure-prevention program. Homeowners complain that their servicers continuously lose the documents they send in, while financial institutions argue that borrowers have not been sending in their paperwork. The Treasury Dept. said it would issue new guidelines next week, but wouldn't give details.

Bank bashing and presidential politics

President Obama's proposals to place new limits on the size and activities of big banks has experts perplexed as to how his plan will work. Moreover, it was unclear if the twin proposals — to ban banks with federally insured deposits from casting risky bets in the markets, and to resist further consolidation in the financial industry — would have done anything to stop the financial crisis in 2008. In fact, it looks like the president is just playing populist politics and bank bashing, since as soon as he announced the plan, he walked away and left the details to congress to wrangle over. In the meantime in the real world, shares of big banks — potentially the biggest losers should the proposals be enacted — fell sharply, dragging the broader market down by about 2 percent. But even then Mr. Obama — still stinging from the Democrats’ loss of the Massachusetts seat formerly held by Senator Edward M. Kennedy — ramped up his populist approach, one week after he p roposed a new tax on large financial institutions to recoup projected losses from the 2008 bailout. Mr. Obama said the banks had nearly wrecked the economy by taking “huge, reckless risks in pursuit of quick profits and massive bonuses.” All that might be true, even though the bonuses are a drop in the bucket compared to the trillions of dollars of cash this administration is shoveling into the furnace with little to show for it, but is this really the right time to destroy the banks and the stock market in a fit of rage? For no real gain?

NABE - Economic outlook better

In a quarterly survey by the National Association for Business Economics (NABE), all 75 respondents expect gains in gross domestic product (GDP) this year, and 61% expect growth to exceed 2%. In the last survey in October, fewer than half of respondents expected 2%-plus growth. "NABE's January 2010 Industry Survey provides new evidence that the U.S. recovery from the Great Recession continues, albeit at a slow pace," said William Strauss, a senior economist at the Federal Reserve Bank of Chicago, who helped conduct the analysis for the report. The outlooks were particularly strong for the financial and services sectors, with about 40% of economists expecting those industries to add jobs. Less than 15% of economists from the goods-producing and transportation sectors expect those industries to hire workers. Signs point to a mildly easing credit crunch, with 35% of respondents reporting that credit conditions are "adversely impacting" their businesses -- a high number, but do wn substantially from the last two reports.

Home prices falling

Many experts project home prices, which started to rise last summer, will fall again over the winter. That's because foreclosures make up a larger proportion of sales during the winter months, when fewer sellers choose to put their homes on the market. According to First American CoreLogic’s Loan Performance Home Price Index (HPI), home prices declined 5.7% year-over-year in November. That’s an improvement from October’s year-over-year decline of 7.6%, but prices also declined 0.2% in November compared to October. Excluding distressed sales, prices declined 5.1% year-over-year in November, compared to a 5.7% decline in non-distressed sales prices in October. Including distressed transactions, the HPI has fallen 30.0% nationally through November from its peak in April 2006. Excluding distressed properties, the national HPI has fallen 21.8% from the same peak, First American CoreLogic said. Nevada experienced the worst year-over-year price decline at 22.5%, followed b y Arizona (14.9%), Florida (13.7%), Michigan (12.6%) and Idaho (11%). Excluding distressed sales, the worst five states for year-over-year price declines were only slightly different. Nevada (19.7%) still holds the top spot, followed by Arizona (14.1%), Florida (12.3%), Michigan (10.6%) and West Virginia (9.6%).

Mortgage Rates Improve, Stocks Fall

While the economic data released this week had little impact, mortgage rates were heavily influenced by two big stories. One was an announcement that China will take steps to slow its economic growth and the other was President Obama's proposed new restrictions on the activities of financial institutions. Both measures are expected to lead to slower economic growth in the US, which hurt the stock market but helped fixed income markets. As a result, mortgage rates ended a little lower.

During the week, China released a report showing that its Gross Domestic Product (GDP) grew at an 8.7% pace in 2009. Rapid growth generally leads to higher inflation. In an effort to slow its economy and prevent inflation, China announced that it is going to curb bank lending. China currently has the third largest economy and is responsible for a significant percentage of global economic growth, so the effects of a slowdown in China will be felt around the world. In the US, President Obama proposed to limit the size and activities of large banks to reduce the risks to the financial system as a whole. If passed by Congress, this too would lead to slower growth for many large US financial services firms. The potential for slower economic growth and the resulting reduction in inflationary pressures was favorable for mortgage rates.

FHA & HUD Announce Changes

To build capital and reduce risk, the FHA announced that it will raise insurance rates and tighten credit score requirements. The major changes include increasing upfront premiums from 1.75% to 2.25%, reducing the maximum seller contribution from 6% to 3%, and increasing the level of FICO scores from 500 to 580 below which a down payment of 10% is required. At this point, the expected timing of the upfront premium increase will be in the spring, and the other changes will take place over the summer.

HUD has announced a temporary waiver of its regulations providing that a loan will not be eligible for FHA insurance if the contract of sale for the purchase of the property is executed within 90 days of the prior acquisition by the seller, and the seller does not come under any of the exemptions that apply to the 90-day rule. This waiver will take effect with case numbers assigned on and after February 1, 2010, and is limited to sales meeting the following conditions:

1. All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. Some ways that the lender can ensure that there is no inappropriate collusion is to assess and determine the following:

a. The seller holds title to the property;
b. LLC’s, corporations, or trusts that are serving as sellers were established and operated in accordance with applicable state and Federal law;
c. No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12-month time frame;
d. The property was marketed openly and fairly, via MLS, auction, For Sale by Owner, or developer marketing. A sales contract that refers to an “assignment of contract of sale” may be a red flag.

2. When the sales price of the property is 20% or more over and above the seller’s acquisition cost, the waiver will apply only if the lender:

a. Justifies the increase in value by obtaining documentation which verifies the seller has completed sufficient legitimate renovation, repair, and rehab work to substantiate the increase in value; or, in cases where no such work is performed, the appraiser provides appropriate commentary regarding the increase in value since the prior title transfer; AND
b. Obtains a property inspection and provides it to the purchaser prior to closing. The lender may charge the borrower for this inspection.

3. When the sales price of the property is 50% or more over and above the seller’s acquisition cost, the waiver will apply only if a second appraisal is obtained

Also Notable:

December Core PPI inflation increased just 0.9% from one year ago
The Senate is expected to vote on Bernanke's reappointment next week
The Treasury will auction $118 billion in 2-yr, 5-yr, and 7-yr securities next week
The Fed purchased $12 billion in agency MBS during the week ending 1/20
 

Average 30 yr fixed rate:

Last week:
-0.10%


This week:
-0.05%

 

Stocks (weekly):

Dow:
10,400
-200

NASDAQ:
2,250
-50
 

Week Ahead

The biggest story next week will be Wednesday's Fed meeting. No change in rates is expected, but any surprises in the Fed statement could move markets. The Economic Calendar will also be packed next week. Existing Home Sales will come out on Monday, and New Home Sales will be released on Wednesday. Durable Orders, an important indicator of economic growth, will be released on Thursday. Fourth quarter Gross Domestic Product (GDP), the broadest measure of economic activity, will come out on Friday, along with the Chicago PMI manufacturing index. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Yesterday HUD announced a few changes with the upfront MIP, minimum FICO scores and seller concessions. You can view the formal announcement at http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-016

1) The summery is that HUD now requires 2.25% as the upfront MIP on FHA loans. The borrower can finance this fee in their loan amount.

2) The minimum FICO score is now 580 per HUD on a 3.5% down payment. Several banks require a 620 score as their own requirement. If the score is under 580 the borrower must put at least 10% as the down payment.

3) Seller concessions on FHA loans have now been reduced to 3% of the sales price.

Rates have eased a touch this week as investors headed to treasury bonds with triple digit DOW dips this week.

Please let us know if we can help in any way this weekend. Underwriting times are in check now after the holiday and we have had several 21 day closings from start to finish.

Does the US government own Fannie and Freddie?

So far, the White House has resisted calls by Republicans to bring Fannie's and Freddie's obligations onto the government's books, a move that could boost the federal deficit by tens of billions of dollars. At a time when the deficit is already at a postwar high, that could create added urgency for Congress and the administration to address the companies' future. The Congressional Budget Office has reiterated its support for bringing the companies onto the federal budget—and onto the government books—which would effectively mean accounting for their operations in the federal budget as if they were federal agencies. "Recent events clearly indicate a strengthening of the federal government&