Home sales rise to highest level in 3 years

The National Association of Realtors' reported today that existing home sales rose 7.4% to a seasonally adjusted rate of 6.54 million in November from 6.09 million in October, and are 44.1 percent higher than the 4.54 million unit pace in November 2008. But the rise was expected. Lawrence Yun, NAR chief economist, said “This clearly is a rush of first-time buyers not wanting to miss out on the tax credit, but there are many more potential buyers who can enter the market in the months ahead.” Of course, much of November's increase may have to do with the original expiration date of the $8000 tax credit, and now that the deadline pressure has lifted, many analysts expect sales to drop during the winter months. And experts caution that the pain for the housing market isn't over. A record 14 percent of homeowners with a mortgage are either behind on their payments or in foreclosure, and home prices are likely to start falling again as foreclosures make up a larger share
of sales during the winter months, when sellers generally keep their homes off the market.

The good news -- delinquencies down

According to a report issued by the Office of Thrift Supervision and the Comptroller of the Currency, only 18.7% of borrowers who had their loans modified in the second quarter were delinquent three months later. This compares to 30.7% of borrowers in the first quarter. Regulators attribute the drop to their March directive that urged financial institutions to make sure the loan modifications they do are affordable and sustainable. As a result, the percentage of modifications that decreased monthly payments shot up to 78.3% in the second quarter, from 53.5% in the first quarter. More than 60% of homeowners who received modifications in the third quarter of 2008 were delinquent once again a year later, the report showed.

Only 42.7% of adjustments made during that quarter decreased payments. Now, servicers are routinely lowering interest rates, extending the term of the loan and sometimes reducing the principal to make the loan more affordable. "What this shows is if you reduce payments, you have a greater chance for sustainable modifications," said Bryan Hubbard, spokesman for the Comptroller's office. The report's results do not cover the 80,400 trial modifications initiated under President Obama's foreclosure prevention program in the second quarter. Servicers are doing more to help people stay in their homes, assisting more than 680,000 borrowers in the third quarter, the report shows. That's up 68.7% from the second quarter. More people are getting modifications than foreclosures: There were 369,000 newly initiated foreclosures during the quarter. That's the good news in the report.

The bad news -- foreclosures up

The foreclosure problem dwarfs the actions servicers are taking. Only of every six people who were seriously delinquent or in foreclosure received a trial or permanent modification, the report cited above said. Also, servicers remain behind in providing permanent help to borrowers in trial modifications. Only 4% of those in the trial period have been converted as of Nov. 30, and more homeowners -- ominously prime borrowers with the best credit backgrounds -- are falling behind in their payments. Prime borrowers' delinquency rate jumped 19.6% from the previous quarter and 116.2% from a year earlier. Their rate stood at 3.6% at the third quarter's end. That's mainly due to rising unemployment and the weak economy. Some 6.2% of mortgages were at least 60 days delinquent at the end of the third quarter, up 16.7% from the previous quarter and 73.8% from a year earlier. 16% of option adjustable rate mortgages (considered the next ticking time bomb in the housing market) are ser iously delinquent, and nearly 12% are in the process of foreclosure. Finally, the number of foreclosures in process topped 1 million for the first time. That's 3.2% of mortgages, up 9.4% from the previous quarter and 82.4% from the previous year.

Q309 -- slower growth than thought

U.S. economic growth in the third quarter was much weaker than the previously estimated, according to the government's final reading released today. Gross domestic product, the broadest measure of the nation's economic activity, grew at an annual rate of only 2.2% in the three months ending in September. A month ago the estimate was growth of 2.8%, and the initial reading in October was more robust growth of 3.5%. Consumer spending, which accounts for more than two thirds of the nation's economic activity, was much weaker than previously thought. Businesses also didn't do as much to build up inventories of goods as in the previous reading. Most economists believe that growth continued in the last three months of the year. The consensus of 48 top economists surveyed by the National Association of Business Economics in November was that fourth quarter GDP will come in with a 3% growth rate. Given that they've been consistently wrong, I'll believe that when I see it.

New Mortgage document -- "This is a mess"
A complete overhaul of the "good faith estimate" — a standard disclosure document sent to borrowers — under the Real Estate Settlement Procedures Act, known as RESPA, will take effect on Jan. 1, potentially disrupting home sale closings just as housing tries to recover. The new estimate details and defines loan terms and costs, versus undefined line items in the old one. It specifies rate, whether the rate can change, and encourages the borrower to shop around. The trouble is, no one seems to understand it. Bob Rice, president of First Secure Financial in San Bernardino, California, was astounded by what he heard at a brokers' meeting last week.

"The confusion and misunderstandings over RESPA is worse than I thought," said Rice, who sought more education. "Of the 20 or so in attendance, each had a different interpretation of at least one item." For the first time, good faith estimates must match, with few exceptions, costs on closing statements. This means more work and liability for lenders since inputs of lawyers, title companies and brokers increase chances for error. Lenders are looking for more precision than ever from HUD on the guidelines since the estimate puts them on the hook if closing costs vary. Reflecting the uncertainty of lenders and settlement agents, frequently asked questions on HUD's website have soared to 253. "It's a document that just keeps growing, and we're in the final hours of people getting ready," said Jonathan Corr, chief strategy officer at Ellie Mae in Pleasanton, California. "This is a mess," said Bill Dallas, chief executive officer of Skyline Financial Corp. in Calabasas, Cal ifornia.

House prices to bottom in March

First American CoreLogic projects continued short-term housing price declines through the winter, followed by price improvements in the spring. The firm projects the country’s 45 largest markets will decline an additional 4.2%, driven by a surge in foreclosure resales hitting the market. But a decline in unemployment and improvement in inventory levels will help prices bottom out in March 2010 and prices will experience a 1% year-over-year appreciation by October 2010. “We are continuing to see improvements in the year-over-year home price change as prices have remained relatively stable since April,” said First American CoreLogic chief economist Mark Fleming. “The additional government support for the housing market has stimulated demand and restricted supply in 2009.

How these government supports are removed in 2010 and the moderation of pending inventory and negative equity will be critical to the continued stability of the housing market.” National home prices declined 7.8% year-over-year in October, according the firm’s home price index. The decline is less than the 9.5% year-over-year decrease in September. Month-over-month, prices declined 0.7% between September and October. Excluding distressed sales, year-over-year prices declined 5.8% in October, an improvement from the 6.3% year-over-year decline in September. The national HPI is 30.1% below its April 2006 peak. Excluding distressed sales, it’s down 21.5%.

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