Olick - More foreclosures coming

Diana Olick has climbed on board with an increasing number of people who thinks foreclosures are still going to hit us like a ton of bricks, driving home prices even further down. She quotes Lender Processing Services: "The November Mortgage Monitor report, released by Lender Processing Services, Inc. (NYSE: LPS), reveals a nationwide loan deterioration ratio higher than 3:1 - indicating that for every one loan improved, three more loans are deteriorating... The number of foreclosures on the market continues to stall as foreclosure timelines extend. Nearly 30 percent of properties that have been in foreclosure for 12 months have not yet been put on the market for sale - twice the level of the prior year. Foreclosure inventories continued to climb to record levels. October's foreclosure rate stood at 3.14 percent, a month-over-month increase of 0.7 percent and a year-over-year increase of 85.1 percent." And she quotes Mark Zandi, who we quoted yesterday: "This lull in forec losure sales has resulted in the price gains in the past few months," he told Reuters. "Foreclosure sales will increase, and home prices will resume their decline by early 2010 as mortgage servicers figure out who will not qualify for a modification."

Unemployment down

The Labor Department says the unemployment rate improved to 10% in November, losing only 11,000 jobs -- far below any of the job losses posted over the last 23 months. Economists surveyed by Briefing.com had forecast a loss of 125,000 jobs in November. Economists had forecast it would remain at the 10.2% level reached in October, which had been a 26-year high. The October and September job loss estimates were also revised sharply lower, with October down only 111,000 jobs, rather than the original estimate of a 190,000 loss. However, the report only captures the net loss of jobs and doesn't give a full picture of the large pool of those without work or income. The report showed 15.4 million Americans are now unemployed and seeking work, although that's down 325,000 from the October reading. Another 6 million want jobs but are not counted as part of the labor force because they have stopped looking. Add to that group the 9.2 million who have only found part-time work when
they want full-time jobs or have had their hours cut as a result of the downturn and there are now 30.6 million Americans who are not able to find the full-time job they want or need.

Short sales may be the answer

According to Hope Now, a private sector alliance of mortgage servicers, investors, insurers, and non-profit counselors, total 316,557 foreclosure sales and starts outnumbered modifications more than 4 to 1 and repayment plans about 1.6 to 1. The mortgage servicing industry completed198,373 repayment plans and 73,190 modifications. At the same time, the industry completed 94,450 foreclosure sales and initiated another 222,107 foreclosure starts. Hope Now attributes some of the slow-down in modifications to the Home Affordable Modification Program (HAMP) sponsored by the US Treasury Department. Servicers are pursuing HAMP modifications before repayment plans — slowing down reported repayment plans — and have to wait through HAMP trials before reporting permanent modifications — slowing reported modifications.

“Our number one priority is to convert HAMP modifications, but also do our best to help borrowers with all solutions available,” said executive director Faith Schwartz in a statement. “This sometimes means a graceful exit via short sale or deed in lieu if a borrower has no other options.” Short sales might become more prevalent among servicers, now that Treasury will offer incentives through the Home Affordable Forelclosure Alternatives (HAFA) program. HAFA will complement HAMP by providing financial incentives to servicers, borrowers, and investors that go forward with short sales or deeds-in-lieu of foreclosure, according to a Treasury announcement late Monday.

Death Tax back to stay

The Democrats in Congress have pushed through a vote to permanently extend a 45 percent inheritance tax on estates larger than $3.5 million, canceling a one-year repeal of the tax set to begin next month. Under the bill, estates smaller than $3.5 million would continue to be exempt from the tax, and married couples, with a little estate planning, could exempt a total of $7 million. The bill passed the House by a 225-200 vote. Similar legislation is pending in the Senate, but the health care debate there could preclude action on the estate tax before Congress breaks for holidays later this month. A similar effort is afoot in the Senate, but the health care debate there could preclude action on it before Congress breaks later this month for holidays. There are also disagreements among senators over the tax rate and the size of estates that should be exempt, further clouding the bill's prospects.

Under current law, the federal estate tax is scheduled to temporarily disappear next year before returning in 2011 at an even higher 55 percent rate. During the year without an estate tax, all estates would be subject to capital gains taxes that they now avoid. The quirk in the law, in which the estate tax would disappear for only a year, came out of a series of tax cuts enacted in 2001. Many Republicans, who controlled Congress at the time, wanted to permanently repeal the estate tax then. But they settled on a gradual reduction, with a one-year repeal, to reduce the impact on the federal budget deficit. Rep. Kevin Brady, R-Texas, said the bill does not do enough to protect heirs who inherit family farms and small businesses.

Fannie Mae increases credit requirements

Fannie Mae has increased the minimum borrower credit score from 580 to 620. Brian Faith, a spokesperson at Fannie, confirmed the minimum hike, adding that the adjustment reflects a careful analysis of borrowers’ ability to repay their mortgage obligations over the life of the loan. “Our experience with recently delivered loans with credit scores below 620 is that they reached a level of serious delinquency at a rate approximately nine times higher than other acquisitions during the same period,” Faith said in a statement. Fannie also reduced the allowable debt-to-income (DTI) ratio to 45% when executing loss mitigation efforts under the Home Affordable Modification Program (HAMP). Under HAMP, the US Treasury Department provides allocated capped incentives to servicers for the modification of loans on the verge of foreclosure. Faith said that high DTI ratio loans also have higher levels of serious delinquency. “It’s not enough to help borrowers buy a home – w
e must also ensure that they can stay in the home over the long term,” Faith said.

HOME