WSJ - studies show more short sales opportunity

Two separate studies by John Burns Real Estate Consulting Inc. and Standard & Poor's Financial Services LLC, both conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure. The John Burns study estimates that five million houses and condominiums will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments. The problem is concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas, the study estimates. John Burns, chief executive of the consulting firm, said investor demand for foreclosed homes remained strong. Thus, he said, prices were likely to be about level over the next few years, despite the looming foreclosure supply, if the economy continued to recover
and mortgage interest rates didn't rise sharply.

But if the economy slumped anew and interest rates jumped, he said, "that's going to cause prices to fall further." The S&P study also says that the "overhang" of foreclosed homes expected to go on the market points to lower home prices. Some borrowers are catching up on payments after having their loan terms modified, but S&P says current trends suggest that 70% of such borrowers eventually will redefault. Loan servicers, firms that collect payments and handle foreclosures, seem to have "nearly exhausted the supply of plausible candidates for loan modifications" and will find that many loans are "unredeemable," the S&P study says. As a result, servicers increasingly are looking to arrange "short sales," in which homes are sold for less than their loan balances.

Carter's jobs bill

Increasingly the name "Jimmy Carter" pops up when President Obama is being discussed, and Obama's jobs bill isn't going to put a stop to the comparison. The centerpiece of the bill -- a tax break for companies that make new hires -- is a play straight from Carter's economic policy circa 1977? Then, as now, the economy looked anemic and unemployment was high: 7.8% when Carter entered office, compared with 9.7% now. So just eleven days after his inauguration, the president proposed giving companies a temporary tax break if they hired new employees, calling it the New Jobs Tax Credit. The law went into effect for 1977 and 1978, over which time the unemployment rate fell 2%. Economists today are divided on whether it was a success, and their reasons get at the heart of the current jobs bill debate. The goal of any jobs tax credit is to spur a company to hire when it otherwise wouldn't. The trouble is, it's impossible to distinguish exactly which companies have plans to hire an yway.

Lawmakers can only do their best to design a bill with the right incentives. Critics of Carter's plan -- and Congress' now -- say that the problem with any jobs credit is the potential for waste. It's estimated that of the companies that claimed the tax credit under Carter's plan, two-thirds would have hired those employees regardless of the tax break. Rea Hederman, a senior policy analyst at the Heritage Foundation, says the big beneficiaries of the tax credit this time around would be companies in the big-growth areas of health care and education. Another problem with the 1977-78 effort is that many companies, especially small businesses, didn't even know about the tax credit. A survey by the National Federation of Independent Business found that only 43% of their members knew of the law in January 1978. Unfortunately everyone agrees the latest version of the jobs bill on the Hill isn't going to do much. Bartik estimates that with its $13 billion price tag, the law woul d create 350,000 jobs at best -- a drop in the bucket compared with the over eight million jobs lost since the end of 2007.

DSNews.com - Moody’s forecasts 8% decline in prices

Moody’s Investors Service is forecasting another 8% decline in home prices over the course of 2010 before a bottom in residential property values is reached, largely because of the “underwhelming” success of the administration’s Home Affordable Modification Program (HAMP). When all is said and done, the ratings agency predicts a peak-to-trough drop of 34% in national home prices. That’s actually an improvement over Moody’s estimates last month, when the agency was expecting a total peak-to-trough decline of 37 percent. However, it’s the duration of depreciation that’s the headline grabber. Previously, Moody’s analysts were predicting the price floor to be reached in the third quarter of this year. Now they say it won’t be hit until the end of the fourth quarter. The reason for the extended freefall is the timing of foreclosure sales hitting the market. Market barometers such as the S&P/Case Shiller index and the National Association of Realtors’ exis
ting-home median price have, in fact, shown improvements in recent months, but Moody’s says the progress is short-lived. “We believe that the recent improvement in house prices is a temporary reprieve,” Moody’s said in its latest ResiLandscape report. “A decline in distress sales-including foreclosure, deed in lieu, and short sales-as a share of total home sales is a driving contributor to the gain in house prices.”

Capital One reports rise in defaults

Capital One said the annualized net charge-off rate—debts the company believes it will never collect—for U.S. credit cards rose to 10.41% in January from 10.14% in December. Accounts at least 30 days delinquent—an indicator of future loan losses—were up marginally to 5.80% from 5.78%. Capital One is the third-largest U.S. issuer of Visa branded credit cards, and the fifth-largest issuer of MasterCard branded credit cards. For U.S. auto loans, Capital One's charge-off rate was 4.27% in January, down from 5.68%in December, and the delinquency rate fell to 9.61% from 10.03%. In credit card international operations, including Canada and Britain, the charge-off rate fell to 9.03%from 9.58 percent, while the delinquency rate rose to 6.66% from 6.55%. Capital One routinely kicks off the monthly reporting of credit card charge-offs. JPMorgan Chase, Bank of America, Citigroup, American Express, and Discover Financial Services are expected to report the monthly performance of their credit card portfolios on Tuesday.

Freddie Mac - fixed rate mortgages more popular

Freddie Mac reported yesterday that 95% of refinance loans during the last quarter of last year were of the fixed-rate variety. while traditional 30-year fixed-rate mortgages are still the most preferred product among refinancings, 15-year fixed-rate mortgages gained favor among borrowers who previously held 30-year fixed-rate mortgages, balloon mortgages and ARMs, the GSE said in a statement. “The lowest fixed-rate interest rates in more than a generation, coupled with the comfort that a constant monthly principal and interest payment provides the homeowner, are important drivers in fixed-rate product choice,” said Frank Nothaft, vice president and chief economist for Freddie Mac. “While homeowners are choosing the safety of fixed-rate mortgages in large numbers, at the same time many borrowers are now looking at paying down their mortgage balances faster by choosing a shorter mortgage term of 15 or 20 years instead of 30.” Borrowers also chose to pay down princi pal during refinancing at a record clip in the fourth quarter. Freddie reported at the end of January that 33% of borrowers paid down their original principal by $1,000 or more during the process of refinancing their mortgage — the highest such “cash in” refinancing volume in the history of the GSE’s survey. “When you can only earn a very low interest rate on your CD or money market accounts, and returns on other investments remain extremely uncertain, it can make sense to pay yourself 4.5 or 5% by eliminating some mortgage debt whether by making extra payments or going for a shorter loan term,” Nothaft said.

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