Mortgage applications rise from 7-month low

According to the Mortgage Bankers Association (MBA), mortgage applications rose last week after 4 straight weeks of decline. MBA's mortgage applications index, which tracks both purchase and refinance loans, rose to a reading of 548.2 in the week ended June 19; this represents an increase of 6.6% over the earlier week. The rise is from the lowest index reading since November last year. "In terms of home sales and building activity, we've probably reached a bottom," said Keith Hembre, chief economist at First American Funds."But it's highly unlikely there will be a sharp recovery from here."

While the rise in the index may look modest, the housing sector has something to cheer about given the worse times the industry has gone through. "I've seen for the last several months a flattening of the market, which candidly is close to euphoria if you're a new home builder given how bad it has been," said Richard Dugas, chief executive of Pulte Homes, which is among the largest home builders in the U.S. Dugas believes that mortgage rates are still "incredibly good" despite the recent rise from historic lows.

$6 billion available for purchase of foreclosed homes

The Obama administration introduced the Neighborhood Stabilization Program (NSP) for the purpose of helping communities that have suffered from foreclosures and abandonment. The program facilitates purchase and redevelopment of foreclosed and abandoned homes and residential properties. The government has allocated nearly $6 billion for the NSP. The $3.92 billion allocated under the Housing and Economic Recovery Act of 2008 will contribute a large part of the NSP funding.

The NSP funding will go to households earning less than 120% of the median income of the local area, with 25% of the money going to families earning less than half the median. NSP funds may be used for a number of activities including establishing financing mechanisms for purchase, redevelopment of foreclosed homes and residential properties; purchase of abandoned residential properties, demolishing blighted structures, and redeveloping demolished properties. While the program was authorized last year, it has been slow to take off so far. According to Tim Whitright, an NSP program manager in Las Vegas, federal guidelines such as filing request for proposals are cumbersome, and have "slowed down the time line."

MBA lowers mortgage origination forecast

The Mortgage Bankers Association (MBA) has lowered its forecast of the value of mortgage originations in 2009 by 27% to $2.03 trillion, compared to its forecast released in March this year. The drop is on account of lower purchase originations and lower refinancing estimates. MBA says that while home sales have been higher than expected home prices have fallen more than expected, leading to smaller loans. In addition, a rise in distressed-home sales has led to a higher than normal share of all cash home purchases.

MBA's Chief Economist Jay Brinkmann said: "Even with higher projected home sales for all of 2009, the projected lower average home price and higher cash share have combined to lower projected volume of purchase originations." In the recent weeks, refinancing has been hit badly due to rising mortgage rates. MBA says that the Obama administration's Home Affordable Refinance Program has not seen the level of refinancing originally estimated, and the volume of refinancing under the program has so far been "low." "While the number of loans completed under this program is likely to increase, it is difficult to craft a scenario under which origination volumes would come anywhere close to reaching the numbers originally envisioned for the program, particularly under our higher rate environment," MBA said.

Citi restructures salaries; does it conform to TARP restrictions?

Citigroup plans to increase salaries as part of its compensation restructuring initiative. Under the new compensation plan, salaries of top executives could rise as much as 50%. As a recipient of funding under the Troubled Assets Relief Program (TARP), Citi faces restrictions on its bonus payments. Banks have been complaining against TARP restrictions on compensation since they believe compensation is critical to retaining top talent. The government, on its part, believes that "excessive" compensation paid to executives in the financial services sector was one of the factors behind the crisis in the financial markets. The Obama administration has appointed Kenneth Feinberg to oversee the compensation of the top executives at companies which have received federal assistance. Feinberg can reject Citi's new compensation structure if he deems it to be excessive. Citigroup claims the new plan will not result in higher total compensation, just shift how much is fixed (salary) and h ow much is variable (bonuses). Is the new compensation plan in line with TARP requirements? Feinberg will decide.

U.S. CEOs see the economy improving

The chief executive officers of U.S. companies believe that the economy is on the recovery path though they expect cuts in jobs and capital spending in the near-future, according to a Business Roundtable survey. The Business Roundtable CEO Economic Outlook Survey's index rose to 18.5 in the second quarter of 2009, up from a reading of negative 5.0 in the first quarter. A reading of 50 on the index denotes CEOs expect to see economic decline rather than growth. "What we basically see is more visibility in that we don't see us in continued free fall," said Ivan Seidenberg, chairman and CEO of Verizon Communications and chairman of Business Roundtable.

"The signs appear less negative than they were last quarter, but no one is ready to suggest they are going to begin hiring to start growth." CEOs still plan to cut costs by way of lower hiring and reduced capital spending for the next 6 months. 49% of the survey participants said they planned to cut jobs while 51% said they planned to reduce capital spending. The companies which participated in the survey together employ about 10 million people and generate $5 trillion in annual revenue.

Now on to our real estate investor education section...

Fighting Back - BPO Woes

In the past we've covered the basics about BPO's or brokers price opinions since it is one of the most frequently encountered frustrations cited by short sale investors but today we will spend a little time covering a very specific problem...what to do when a BPO is simply too high. There are several reasons a BPO may come in too high including:

- The broker missed important information and details. It's not unusual especially given the work load and back-log of properties to be reviewed. Don't crawl all over their case - instead, make it easy for them by providing a list of critical information and take the time to meet with them in person to showcase essential items of concern.

- The property has been on the market for an extended period of time and prices have continued to decline. This is an increasingly common problem that only makes life more difficult for all involved. To fix this situation you need to request a "listing and showing history" on the property to be provided by the listing agent. Simultaneously acquire an updated list of comp's showing the revised sales prices and then request a new/updated BPO to be performed. As property values in many parts of the country continue to plummet, it's not uncommon to see prices adjusted downward every few months. If a property has been on the market more than three months it's likely to need a revised estimate put into place.

- The broker is just out of touch with the local market. Use a broker that knows the area and history of the local market. After you have been in the business for awhile it will become evident which brokers understand the process and which don't; if you are just starting out, make it a priority to speak with other investors to learn their preferences in dealing with local brokers.

- The house is vacant, vandalized or occupied by squatters/non-paying tenants. Once the house falls into any type of disarray or requires legal/other efforts to remove non-paying tenants the risk involved in taking on the property increases exponentially. Likewise, the price should also reflect that revised level of risk. Demand a full BPO rather than a short/drive by inspection then have the situation fully documented. Lenders are under no desire to play landlord to a property nor take on the financial risk associated with accidents, injuries or litigation.

- The property has not been maintained. Pools, yard maintenance, thunderstorms and other typical maintenance scenarios can quickly transform an acceptable looking home into a major health hazard. As lenders increasingly fall behind in basic maintenance duties, have an updated BPO performed to reflect both the eye-sore and general health hazards associated with the property. Bring a camera to take a few snapshots of your own to notify and document all parties involved...it's an effective way to drive the point home while saying very little.
 

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