Bank of America Terrible Customer Satisfaction

I know, I know: you are all just on the edge of your seats trying to figure out how it happened that the nation’s beloved Bank of America could possibly have tanked so horribly in J.D. Power and Associates’ borrower satisfaction survey released last week. However, tank is exactly what BofA did. On a satisfaction scale of 1000, BofA received a 676 – a full 150 points below Quicken Loans, which topped the list of lender scores. But the survey did not just delve into individual lenders’ issues; it also tackled the issues that are creating a negative feeling about the entire lending industry and shed some light on the recent “negative impact in overall satisfaction” in the lending experience.

For starters, approval time has increased by a week since last year; bringing the time it takes a lender to approve a loan to nearly a month. This makes the entire origination process nearly two months if you start the process today. Correspondingly, overall customer satisfaction with the industry has declined by five points, despite RESPA guidelines that “appear to have streamlined and shortened the time from approval to closing,” according to David Lo, who is the director of financial services at J.D. Power. Essentially, efforts to get people into houses once they are approved have not actually been streamlined; the delay has just been shifted so that it takes longer to tell you that you have been approved.

Other ‘surprising’ results of the survey include:

• Customers like “proactive updates” so that they know the status of their loan;
• Borrowers enjoy receiving “welcome acknowledgements” of their loan applications; and
• People like closing on time.

If the lenders really needed this survey, then it’s no wonder they look like the bad guys right now.

Freddie Mac needs another $10.6 billion

Freddie Mac needs another $10.6 billion

Freddie Mac on Wednesday requested another $10.6 billion handout from the federal government.  The housing finance company, which reported an $8 billion quarterly loss, was put into conservatorship by the government during the height of the financial panic in September 2008 along with its twin Fannie Mae. Freddie has already received $50.7 billion from the Treasury Department. Fannie Mae has so far gotten $76.2 billion. Since the housing collapse began in 2008, Freddie and Fannie have been propping up the mortgage market.

The two companies essentially have been given a blank check from the government since Treasury in December lifted a $100 billion limit on the backstop for each. The financial results announced Wednesday by Freddie Mac include a $1.3 billion dividend payment to Treasury, which received stock at the time of the takeover. Freddie suffered a $10.4 billion loss the first quarter a year ago and a fourth-quarter loss of $7.8 billion. But an accounting change this year makes comparisons difficult. The McLean, Va.-based company said it helped more than 71,000 families avoid foreclosure during the quarter and financed more than 390,000 homes and 50,000 units of rental housing. It also helped refinance $68 billion of single-family loans. Chief Executive Charles Haldeman Jr. said he was cautiously optimistic about the future, and added, “We have noted for many months now, housing in America remains fragile with historically high delinquency and foreclosure levels, and high unemployment a
 mong the key risks.”

Senate OKs Amendment That Would End ‘Too Big to Fail’

The U.S. Senate made progress on a financial regulation reform bill on Wednesday, approving two amendments aimed at preventing a repeat of the massive taxpayer bailouts of Wall Street in 2008. By overwhelming votes, the amendments were added to a broader reform bill, along with two other non-controversial measures, but more troublesome issues loomed ahead dealing with consumer protection and regulation of derivatives markets. The Senate voted 93-5 for a plan that would set up a new government protocol for seizing and dismantling large financial firms that are in distress. The measure seeks a middle path between the widely criticised 2008 bailouts of firms such as AIG and the bankruptcy of Lehman Brothers.

Under the plan, the Federal Deposit Insurance Corp would manage an “orderly liquidation” process for troubled firms whose collapse would pose risks to the banking system. The plan excludes a $50 billion liquidation fund previously proposed, opting instead to cover the costs of liquidations from asset sales and, in case of shortfalls, from fees assessed against other large firms. Lawmakers said the plan, if enacted into law, would help end the notion that some firms have become “too big to fail.” It was added to the broader reform bill after Democratic Senator Christopher Dodd and Republican Senator Richard Shelby agreed to it.  They are the chief negotiators in the Senate on the continuing Wall Street reform effort. Both the Dodd-Shelby and Boxer amendments moved the Senate closer to final passage of the bill, which analysts expect to come in a matter of weeks, but numerous additional hurdles remain. More than 80 amendments to the bill had been filed as of late Wednesday, ris
 king gridlock on the Senate floor and challenging the Democratic leadership to work out a procedural plan for debate to proceed under tight time constraints.

Geithner Says Can’t Take All Risks Out of Banking

Treasury Secretary Timothy Geithner said on Thursday that banks must be able to engage in some risk-taking to help their customers and it would be a mistake to remove their ability to do so.  “The lesson of this crisis … is that we cannot make the economy safe by taking functions central to the business of banking, functions necessary to help raise capital for business and help businesses hedge risk, and move them outside banks, and outside the reach of strong regulation,” Geithner says. Some Senate Democrats considering financial reform have urged that banks be compelled to spin off their swaps desks to reduce the levels of risk they engage in. The banking industry and Republicans oppose doing so. A swap is a financial contract in which two parties exchange cash flows on debt, currencies, or other assets, usually to hedge risks, and are highly profitable for banks.

NAR Grants Help Make Homeownership More Affordable for Working Families

Despite today’s tight economy, many areas of the country have not seen a significant drop in their high cost of living. To help meet this critical need for more affordable housing for low- to moderate-income working families, the National Association of Realtors® has awarded more than $3.4 million through the Ira Gribin Workforce Housing Grants program. Teachers, firefighters, police officers, and restaurant and retail workers provide vital community services –however, they often cannot afford to live in the communities where they work. This segment of the population can be shut out of the local housing market in high-cost communities, which can lead to longer commutes, sprawl and traffic congestion.

Ira Gribin Workforce Housing Grants are awarded to state and territorial Realtor® associations to help fund programs that promote safe, decent housing for people with low and moderate incomes.  Grants can be used to support a broad range of workforce housing solutions, including down payment and financial assistance programs, home buyer or Realtor® education, public awareness and advocacy campaigns, and housing construction and rehabilitation. The one-time grants are awarded on a sliding scale based on Realtor® association membership. To date, NAR has awarded grants to 31 Realtor® associations, totaling $3,443,500. The two-year grant program concludes at the end of 2010; applications are due no later than October 31, 2010. For more information about Ira Gribin Workforce Housing Grants, visit  www.realtor.org/IraGribinGrant.

Now on to our real estate investing education section …

Pricing Myths – Top Reasons Sellers Ask Too Much

Summer is typically considered the best time of the year to list a home; vacation time combined with warm weather and a slower pace make it easier for most families to relocate before the beginning of the school year. But with the recent expiration of federal tax credits combined with high unemployment rates, many real estate experts are a bit apprehensive about the upcoming sales season. It doesn’t help that a significant number of sellers insist upon pricing their homes too high when listing…a threat shared by novice short sale investors as well.  Find out the top reasons sellers overprice their homes:

1. Trying to Reach a Mental Mark. Everyone has a number in mind when it comes to selling their home. It tends to look something like this…

Cost of the house + Repairs and Upgrades + Transaction Fees/Agent Fees/Closing Costs etc.. + Desired Profit + “Negotiation premium” = Asking Price

Unfortunately an out of touch asking price rarely leads to negotiation; instead, it simply turns away prospective buyers who move on to the next property. Price right to begin with to attract maximum attention.

2. Trying to maximum profits in order to buy bigger. It’s only natural to want to make the most profit possible and reduce the cost of purchasing the next property. Unfortunately, those ultra-low prices for bigger and better properties also mean your existing home is worth less on the open market. Keep it competitive – and realistic.

3. Trying to keep up with the neighbors. Yes, your neighbors might have obtained x price but that doesn’t mean you will. Although nobody likes to admit to making a bad investment…much less having to discount their pride and joy of a home…keep in mind that the neighbors tend to toss about raw numbers rather than actual “net profits”. Depending upon your individual situation, it’s often possible to under-cut the competition but still make higher percentage of profits in the long run. Taxes, leverage and other situational finances make dramatic differences on earnings. Forget the numbers game and focus on profits instead.

4. Negotiation strategy. Attempting to price high with the expectation of dropping it lower later works great in a rapidly increasing economy…but can dampen even the hottest property during a decline. Put your best foot forward by setting the property at a price that demands attention. If you can’t compete on price alone, try amenities and special finance offers or other incentives.

5. Listening to an untrained agent. Not every agent has the sellers best interest at heart; sometimes they like to have a high priced comparison on the books in order to use as a motivator for other properties. Demand a comprehensive explanation for suggested listing prices including recent comps and current listings. Exclude those that have been on the property for more than six months and establish a price near the bottom 25% to gain the most attention.

HAFA encourages short sales to avoid foreclosure

Short sales give distressed homeowners an exit that doesn’t lead through credit-damaging foreclosure and saves bank’s money compared with taking and selling houses with failed mortgages. That should make them a preferred option. But short sales take longer, often two months longer, and can be nearly impossible if other lenders have liens on the house. So at the urging of the National Association of Realtors, the U.S. Treasury Department came up with a new program to encourage short sales. Home Affordable Foreclosures Alternatives, or HAFA, went into effect April 5, although banks and real estate agents will need time to take full advantage of its provisions. HAFA encourages short sales chiefly by, (a) holding parties to deadlines for various parts of the process (b) providing financial incentives, including $3,000 to help the homeowner relocate; $1,500 for servicers to cover their extra costs; and as much as $2,000 for mortgage security investors who allow as much as $6,0 00 of sale proceeds to go to other lien holders (c) allowing the current mortgage holders to get pre-approved short-sale terms before listing the property for sale (d) requiring that homeowners be fully released from future liability for the first mortgage debt.

Under HAFA, banks must decide within 10 business days whether to approve or deny a requested short sale under the program. Banks already have an inventory of 1.1 million foreclosed houses, recent estimates by LPS Applied Analytics of Jacksonville, Fla., show. Many more will be heading for a short sale or foreclosure. The Mortgage Bankers Association said more than 9 percent of homeowners were behind at least one payment on their mortgages in the fourth quarter. LPS figures 4.8 million are delinquent or already in the start of the foreclosure process. The HAFA program can’t reach many of those houses. Lenders participating in the federal government’s effort to encourage mortgage relief for distressed homeowners — Home Affordable Modification Program — are required to participate in HAFA as well.

Strength in Recovery? Not Yet.

U.S. companies are plowing money back into their businesses at a rate that demonstrates growing confidence in the economy’s recovery, but still leaves questions about its strength. The Commerce Department reported Friday that private investment in equipment and software, everything from machine tools to word-processing programs, rose at a robust annualized rate of 13.4% in the first quarter of 2010, adjusted for inflation. Business investment overall, including money spent on warehouses and office buildings, grew at an inflation-adjusted annualized rate of 4.1%, dragged down by the persistent slump in commercial real estate. The increased spending on equipment and software encouraged hopes that businesses will help lead the economic recovery, generating enough investment and jobs to sustain a recent resurgence in consumer spending. So far, though, it is falling well short of the pace needed to drive the kind of sharp, “V-shaped” recovery that has followed deep recessions in the past. Together with rising exports, the business investment “is enough to generate a sustainable recovery, but not enough to generate a V,” said Nigel Gault, chief U.S. economist at consultancy IHS Global Insight. In the first four quarters after the harsh recession of 1981-82, inflation-adjusted investment in equipment and software rocketed back at an average annualized rate of 21%, helping to drive nearly 8% growth in the broader economy. Most business surveys show optimism rising and many companies planning to boost capital expenditures further in coming months. But disparities remain. Business investment still has a long way to go to reach normal levels. In the first quarter of 2010, net private investment—including capital spending on everything from houses to assembly lines, minus depreciation—stood at 1.6% of economic output, well below the 20-year average of 5.4%. Meanwhile, the smaller firms that tend to account for an outsize share of job growth are facing serious obstacles, as banks shy away from providing credit.

Diana Olick – Bye Bye Home Buyer Tax Credit “

It was the last day of the home buyer tax credit…for the second time. Of course given all the hype on the home builder web sites, you’d think this was the last day of the housing market as we know it. And was it working? Well, hard to say. One guy we spoke to in suburban Maryland just couldn’t get the seller to budge quickly enough. Another in New York City was rushing to get a developer to sign by midnight but there seemed to be some issues. I emailed a Realtor I know out in Burbank, CA, David Fogg, and he responded: “The real story is the intense difficulty qualified people are having in obtaining financing, as well as the appraisal regulations which are hurting many home sales.” So does the housing market implode at midnight? I seriously doubt it, seeing as the tax credit extension already hasn’t had nearly the effect the first credit did last fall. In the run-up to the previous deadline, we saw annualized sales volume rise to nearly 6.5 million units. Volum es then tanked to 5m units by January and were only up to 5.3m by March. I doubt we’re going to get back to 6.5m by April. All this says is that demand was pulled forward, and there just aren’t that many buyers left who are buying solely because of the credit. Most experts I talk to, including the Realtors’ own economist, believe we may see another dip in sales and prices before we are really on the road to recovery. Remember, Spring is historically the busiest market, and we’d probably have seen some bump, tax credit or not. And it’s not like the government is gone from housing entirely, given that the $75 billion mortgage bailout is stemming some of the foreclosure crisis, and Fannie Mae is still offering 3.5% back when you buy one of their foreclosed properties. Housing today is dependent on financing and confidence, and both of those are hanging by a thread. Frankly I’m glad to see the tax credit go, because maybe now we can see the housing market’s true colors, without excuses.”

DSNews.com – Fannie Mae takes a second look at REO Property Sales

Fannie Mae is tightening up its initiative to facilitate the sale of REOs to owner-occupants and entities using public funds, such as local housing and community development agencies. Fannie Mae says these buyers bring permanency and stability to tenuous markets where swollen inventories of foreclosures have taken their toll, and the GSE is making some changes to ensure owner-occupants and public entities have “first look” at its REO homes. Fannie Mae initially rolled out its First Look initiative last fall. Under the program, the GSE only considers offers from those seeking to purchase a home as their primary residence and public entities during the first 15 days that a property is listed. Julia Dugger, Fannie Mae’s senior manager of marketing communications, explained that the execution of the First Look program has been “tricky,” primarily because individual homebuyers and public entities usually can’t view multiple listing services (MLS), and consequently don’t know when the property they’re interested in was actually listed or when the 15-day First Look window ends. To address this snag, Fannie Mae is making some changes to the program. Going forward, First Look will be tracked based on days listed on the GSE’s REO marketing site HomePath.com. Public entities, too, are taking advantage of the no-investor marketplace provided by First Look, particularly those agencies that have been awarded fe deral funding through HUD’s Neighborhood Stabilization Program (NSP) to purchase, rehabilitate, and resell foreclosed and abandoned properties. Beginning today, Fannie Mae is extending the First Look marketing period for its REO homes in Nevada from 15 days to 30 days. Dugger says the GSE may explore lengthening the timeframe in other areas as well.

Goldman CEO acknowledges company ‘role’ in finance crisis

Goldman Sachs’ CEO Lloyd Blankfein said in an interview to CNN, broadcast Sunday that his company bears some blame for the real estate bubble that led to the global financial meltdown. “We made a contribution to the bubble,” adding that executives at the company now “beat ourselves up” for the error, although he said there was a lot of blame to go around. “How did we make a contribution? We’re a lender. We lent money to companies, we lent, we financed real estate ventures that had too much leverage, we made a contribution to leverage,” Blankfein said. “State and local governments took on debts and deficits, the federal government took on big deficits. All made a contribution to the over-leverage — and consumers over-leveraged themselves,” he said. But did we play a role in that? Absolutely we did,” he said. He added: “Did we think we were doing that at the time? No. In hindsight? Yes. Goldman has been roundly berated for having emerged a highly profitable winner in the wake of the financial crisis, while many of its investors took major losses. Blankfein’s concession came just days after a contentious congressional hearing last week at which he and other current and former Goldman employees denied any wrongdoing after a Senate probe alleged fraud that the firm bet heavily against the housing market in 2007 without telling investors who were buying its mortgage-backed securities. Goldman faces a vexing dilemma, legal experts say, as the Justice Department conducts a criminal investigation into whether the financial services giant duped buyers of its securities. Goldman could lose its vaunted reputation for integrity if it admits to wrongdoing as part of a deal to avoid criminal prosecution. The value of Goldman’s stock has fallen $21 billion — a fifth of its market value — si nce the Securities and Exchanges Commission (SEC) alleged that the firm created and sold a mortgage-backed security in 2007 without telling investors that it had been partly shaped by a hedge fund manager who bet that it would fail. Friday, Goldman’s stock fell 9% to $145.20. Now on to our real estate investing education section …

Bank Foreclosures vs Tax Foreclosures – Which is Better?

Tax foreclosures were once all the rage but with media attention on short sales and REO properties, they have recently fallen out of favor. Of course, among savvy real estate buyers and investors, nothing is “off the table” so it’s only fair to spend a bit of time examining the pros and cons associated with each. Tax Foreclosures are Not Tax Deed Sales It’s important to differentiate between tax foreclosures, tax deed sales and other forms of government sponsored property sales. Tax foreclosures are typically the result of unpaid tax or other liens placed on the property (for example, unpaid income taxes). Tax deed sales are often the result of a homeowner failing to pay the local property taxes on a given parcel; after a period of time the taxes are paid by someone else (often an investor) with a guaranteed rate of return ranging from 5 to as high as 18 percent upon redemption. At some point and time in the future, if the original owner does not redeem the property and repay the prior property taxes plus interest, the property may eventually go up for auction.

Pros & Cons

Although tax foreclosure sales may sound simple enough, in reality they are often plagued by problems. For example, unlike short sales or REO properties, the buyer often assumes all prior liability for past due taxes when purchasing the property. Additional liens (including other forms of taxes, HOA fees, etc…) may add thousands to the purchase price of the property. Because the tax lien takes precedent over all other liens, a substantial sum may be required to obtain clear title and clear liens against the property. Remember, there is often a mortgage in addition to the back taxes owed. Tax foreclosures can also be highly competitive; auctions often take place quarterly or once per month with extensive advertising used to attract maximum bidding. Pre-approval is necessary since closing typically takes place within 10 to 30 days after the auction. Bidders may conform to the dictates of the taxing authority rather than negotiate a closing based upon their own individual situation. Of course, the use of leverage, timing and other financial issues may significantly impact the individual rate of return for any type of real estate investment. Be sure to take all considerations into account before moving forward with a tax foreclosure sale. Although both REO and tax foreclosed homes are typically sold in “as is” condition, the bank representative and others typically attempt to provide a thorough review of the property. Tax foreclosures should be extensively scrutinized prior to the sale in order to gain as much information as possible; it’s not unheard of for investors to believe they got a “great deal” and were the lowest bidder only to find out there were zoning irregularities, EPA restrictions or other major issues associated with the property.

Obama’s Loan Modification Program Not Working

The Obama Administration is gearing up to play hardball with mortgage companies that only temporarily lower struggling homeowners’ monthly payments. But as the drive to make more loan modifications permanent kicks off, there’s a weightier question to ask: Can the government’s $50 billion foreclosure-prevention initiative deal with the crisis as it now exists?

The problem the Administration is out to tackle is related to the structure of the Home Affordable Modification Program (HAMP). The first three months of a mortgage rewrite are something of a probation period— and very few homeowners are making it out of that trial. More than 650,000 borrowers have been placed in trial modifications, but as of September, fewer than 2,000 had become permanent.

On Nov. 30, the departments of Treasury and Housing and Urban Development announced that they would no longer take kindly to mortgage firms that don’t make modifications lasting. Teams of officials are headed to the nation’s largest lenders for a closer look at what’s going on, and starting in December public progress reports will include the number of loans being converted to permanent status — an attempt to shame the firms into quicker action. Monetary penalties could follow.

For all the effort being spent on whipping companies into shape, though, there is much less energy going toward addressing the changing nature of foreclosure. HAMP was crafted to deal with the effects of the housing bubble: excessively easy credit let people buy homes they couldn’t really afford and often with loans that carried spiking interest rates and payments.

The major difficulty now is the weak economy and rising joblessness. Under the U.S. government’s plan, a modified loan payment must not account for more than 31% of a family’s income. With unemployment north of 10%, in a growing number of cases, the mortgage isn’t the problem — the lack of a paycheck is. “It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now,” concluded the Congressional Oversight Panel, a group charged with evaluating the program, in an October report.

That’s not to say there aren’t real issues with how trial modifications are (or aren’t) being converted into permanent ones. Housing counselors report that while loan servicers have made progress in certain areas — phone-wait times that used to run up to an hour now might last only 15 minutes — there are still major bottlenecks in getting the final sign-off for a permanent modification. And borrowers are not without fault. Some 375,000 homeowners should be eligible for permanent modifications by the end of the year, according to the Treasury Department, but some 20% of them haven’t provided any of the documentation necessary to complete the process, and twice as many have parts of their paperwork missing.

Still, the larger storm cloud on the horizon is the state of the jobs market. While an out-of-work person can, theoretically, get a loan modification under HAMP by proving eligibility for at least nine months of unemployment benefits, the program isn’t set up to handle someone without a regular stream of income.

Elsewhere, such programs do exist. For example, under the auspices of the Homeowners’ Emergency Mortgage Assistance Program, Pennsylvania will loan its residents up to $60,000 over the course of two years in the wake of life events such as losing a job or falling severely ill. While a homeowner is out of work, the loan is interest-free. In exchange, the state gains a legal right to the house should the owner default on his or her mortgage.

Rising unemployment isn’t the only dynamic HAMP fails to thoroughly take into account.

Another is the changing behavior of people who owe more on their mortgage than their house is worth. According to a recent analysis by the credit bureau Experian and the consultancy Oliver Wyman, nearly 600,000 borrowers might have intentionally defaulted on their mortgages in 2008, twice as many as the year before. The social norm that in previous eras would have prevented people from simply walking away from their homes seems to be eroding — but HAMP puts a low priority on reducing the overall amount a person owes. In fact, among permanent modifications, the average loan amount as compared to home price (the so-called loan-to-value ratio) has increased.

The other big gap in HAMP is the way it deals with— or fails to deal with — people who wouldn’t be in a position to keep their houses even with a modification. Emily Jones, a manager at Neighborhood Housing Services in Boise, Idaho, says about half of all people who walk into her housing-counseling agency fall into that camp. “The goal isn’t to keep the home in every situation,” she says. “The goal is to avoid foreclosure, and in a lot of situations, it’s not in the client’s best interest to try to keep the home and only postpone the inevitable.”

And yet the part of HAMP that would most work to help these people has been incredibly slow to get off the ground. Back in May, the Treasury Department announced that it would issue guidelines on how lenders might speed up dealing with borrowers who simply want to hand back the deed to their house or sell their home for less than is owed on the mortgage (a so-called short sale). Distressed homeowners and housing counselors have long complained about short sales being scuttled by lenders that take too long to respond to a potential buyer’s offer. The plan to beef up the process for these sales, originally announced in May, wasn’t unveiled until Nov. 30 — and doesn’t go into effect until April 5, 2010.

Is there harm done in the government’s leaning on mortgage companies to make trial modifications permanent? Probably not. But there are plenty of other foreclosure-related problems out there that could use some attention too.

 Read more: http://www.time.com/time/business/article/0,8599,1945176,00.html#ixzz0jHyVCxC5

Asylum at Bank of America

Bank of America is starting a program to offer homeowners who owe significantly more than their homes are worth the opportunity to have their loan balances reduced.  The program, which starts in May, would potentially help about 45,000 homeowners nationwide. In launching the effort, Bank of America is jumping into the debate about how to address the millions of homeowners whose mortgages exceed the value of their homes and who have complicated industry and government efforts to prevent foreclosures. The Bank of America plan is limited in scope. Borrowers MUST have missed at least TWO mortgage payments and be severely underwater to qualify, owing 20 percent more than their homes are worth. It is also limited to borrowers with certain types of risky loans, including subprime mortgages or other loans with a two-year adjustable rate.  Bank of America expects to forgive about $3 billion in principal on loans as part of the program. The effort expands a settlement agreement that th
 e bank made with several state attorneys general in 2008 to modify thousands of mortgages and settles a Massachusetts investigation of lending practices by Countrywide Financial, which Bank of America acquired in 2008.  So what happens now?  Joe Sixpack, who up till now has managed to make all his payments in time, reads that he doesn’t qualify precisely BECAUSE he has made all his payments on time, and guess what he does?  This is pure insanity.

Initial job claims down

The Labor Department said today that initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 442,000.  report included annual revisions to the weekly unemployment claims seasonal factors going back to 2005.  Using the old seasonal factors, claims would have dropped only to 453,000, a Labor Department official said. Analysts polled by Reuters had expected claims to slip to 450,000 from a previously reported 457,000 the prior week.  The decline in initial claims last week pushed them into a range that analysts reckon signals labor market stability.  The labor market has lagged the economy’s recovery from its worst downturn since the 1930s, but payrolls are expected to grow this month as the government steps up hiring for the 2010 census. About 8.4 million jobs have been lost since December 2007, when the recession started.  The number of people still receiving benefits after an initial week of aid fell 54,000 to 4.65 million in the week ended March 1
 3, the lowest since December 2008, the Labor Department said. The so-called continuing claims data included the household survey week, from which the unemployment rate is derived.

Mortgage rates up

Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.99 percent for the week ended March 25, up from the previous week’s 4.96 percent, according to a survey released by Freddie Mac the second-largest U.S. mortgage finance company. Mortgage rates are expected to rise when the Fed—the U.S. central bank—stops buying mortgage-related securities at the end of March. The rate for the latest week is also above the year-ago level of 4.85 percent and the record low of 4.71 percent in early December. Freddie Mac started the survey in 1971. “Mortgage rates inched up slightly this week as bond yields rose even further,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

Exit is dangerous

John Taylor, a Stanford University economist and author of a key central banking rule of thumb, will testify before the House Financial Services Committee that the Federal Reserve has not been clear enough about how it intends to unwind its unprecedented monetary easing campaign, and some of the tools it expects to use may not work.  He says the Fed’s unorthodox approach has not only threatened its independence but also made policy making more difficult.  “By taking these extraordinary measures, the Fed has risked losing its independence over monetary policy,” said Taylor, arguing that such steps veered too far into the arena of fiscal policy.  “Unwinding them involves considerable risks,” said Taylor, who was a Treasury official during the Bush administration, in prepared testimony made available on the House committee’s website on Wednesday. Federal Reserve Chairman Ben Bernanke will be the first to testify before the committee, starting at 10 am ET.  The Fed has taken pain
 s to assure investors and the public that it can and will pull back on its zero percent interest rate policy when the times comes, probably through a mixture of draining credit from the banking system, raising the interest it pays on bank reserves, and selling some of its assets. But this approach has serious shortcomings, Martin Goodfriend, a professor of economics at Carnegie Mellon University, will testify.

Social Security underwater

Social Security will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.  Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual.  The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax. Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances.  �€
 œWhen the level of the trust fund gets to zero, you have to cut benefits,” Alan Greenspan, architect of the plan to rescue the Social Security program the last time it got into trouble, in the early 1980s, said yesterday.

Now on to our real estate investing educational section…

Online Real Estate Research

Whether you are interested in buying a short sale across town or across the nation, learning how to use online resources to perform basic research is simple and cost effective. Here are some of the most popular and easy to use sites that buyers and agents alike tend to use when evaluating potential properties.

1. Request a copy of the Homeowners Association guidelines (or condo). Not only will you find out important information about community restrictions, limitations and use patterns but many HOA packages include a welcome letter informing newcomers about utilities, cable, phone and other service providers as well as neighborhood clubs and events. Make a copy to present to potential buyers.

2. Obtain crime statistics. Without a doubt, one of the most important predictors of property value over the long term is the safety of the community. Contact the local police department to request an up-to-date report on types of crime (property crimes, violent crimes etc…) for the zip code in question. Follow up by performing a predator search courtesy of the free search tool at www.familywatchdog.com.

3. Contact the Chamber of Commerce to request a Calendar of Events and learn about local tourist attractions, restaurants, entertainment and other amenities.

4. Rate the schools or request a school report card by visiting www.greatschools.net. Homes in preferred school districts sell for an average of 10% more than comparable homes in less desirable districts!

5. Rate hospitals. Easy access to preferred hospitals also increases the desirability of homes by an average of five to ten percent compared to similar homes in other areas. Determine how good the hospitals are in your new area by visiting non-profit organizations like www.LeapFrog.org  or www.HealthGrades.com.

6. Sign-Up for State and Local Website Information. It’s important to keep up with local trends, events and other pertinent information. Most communities have online newspapers and city/county government websites tend to post everything from tax information to information about small business concerns. Learn about bank branches, major employers, recreation and parks plus much more by having it fed directly to your email or phone.

Mortgage Reform: What is to be done?

Over the past 18 months, the government has taken extraordinary steps to keep the housing market viable.  Home sales reversed their four-year descent, and prices stabilized.  So far.  But it has cost $126 billion to date, and the bill is still growing.  What’s next?  With the Obama administration largely mute on the issue, Congress will hold its first hearing today about how to restructure the mortgage system in the wake of the financial crisis.  “Don’t make the American taxpayer responsible for handling speculative situations or bubbles,” he said.  Rep. Spencher Bachus, ranking Republican on the committee, said in a subsequent CNBC interview that he would prefer government exit the industry entirely.  “We need to phase it out over time,” he said. “America is about competition and innovation. The federal model simply is not the efficient model.”  Working out a new system is likely to take years. For the time being, the market is still resting on three government pillars: Fa
 nnie, Freddie and the Federal Housing Administration.  And even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run agree that the housing recovery remains too fragile for the government to step away anytime soon.  “The first priority is we have to keep financing homes, and we don’t have a way to do that without Fannie and Freddie,” said Peter Wallison, a senior fellow at the conservative American Enterprise Institute. “We have to deal with the realities of where we are today.”  Since the government took over Fannie and Freddie, Obama officials have given few details on their long-term thinking, apart from saying that they want to delay a legislative proposal until next year.

DSNews.com – short sales now number 1

According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, last month distressed properties – those involving homes acquired as part of a foreclosure or pre-foreclosure sale – accounted for 48.1% of the home purchase transactions tracked by the survey.  The February numbers were up significantly from the 37.3% level recorded as recently as November. It was also the highest distressed property market share seen since last July.  Stepped up government efforts, including temporary foreclosure moratoriums and a push to qualify more financially troubled homeowners for mortgage modifications, temporarily reduced the number of distressed properties coming on the housing market in the fall and much of this past winter. But now a growing number of distressed properties appear to be hitting the housing market.  There are three major types of distressed properties: damaged REO, move-in ready REO, and short sales. During the period from
 November to February, sales in all three categories rose. Damaged REO grew from 12.3% to 14.4%; move-in ready REO grew from 12.6% to 16.6%, and short sales grew from 12.4% to 17.1%.  “Short sales now account for the No. 1 category of distressed property,” commented Thomas Popik, research director for Campbell Surveys. “Losses on short sales are typically lower than for REO, and both lenders and the government are pushing programs to facilitate short sales. But as more and more people default or simply want to walk away from their properties, mortgage servicers are having trouble expeditiously processing these complicated transactions.”

More regulation needed

Philadelphia Federal Reserve Bank President Charles Plosser said yesterday that better regulation is needed to dissuade financial market players from taking excessive risks after the “too big to fail problem” undermined discipline.  “The too big to fail problem has essentially removed much of that market discipline,” Plosser told an economic conference in Prague.  “We have to have ways of disciplining the actors in the marketplace so that they don’t take excessive risks, and in many cases the market can do that and do that quite effectively.  But when we protect creditors, when we protect people from failure, we encourage them to take risks.” Bernanke made clear at the weekend that large financial firms continued to play a crucial role in the global economy, and Plosser said different, but not necessarily more regulations were needed. “Government regulation and government oversight will never replace the marketplace officially … when there is regulation they will look for w
 ays around that regulation in order to be successful,” he said.  “We will always as regulators be behind that curve. The only way we can be effective in protecting financial stability is to have regulations and rules that complement and encourage more market discipline, not replace it.”  If only things were as simple as adding more bureaucrats.

DSNews.com – seven more banks fail

The FDIC’s failed bank list jumped to 37 for the year after seven more community banks fell over the weekend – three in Georgia, and one each in Alabama, Minnesota, Ohio, and Utah.  Appalachian Community Bank in Ellijay, Georgia had 10 branch locations, with $1.01 billion in total assets and $917.6 million in deposits.  Bank of Hiawassee, based in Hiawassee, Georgia, ran five branches and had $377.8 million in assets and $339.6 million in deposits.  Century Security Bank in Duluth, Georgia operated two branches and had $96.5 million in assets and $94 million in deposits.  First Lowndes Bank in Fort Deposit, Alabama was a four-branch institution, with $137.2 million in assets and $131.1 million in deposits.  Minnesota’s State Bank of Aurora operated out of a single branch office. It had $28.2 million in assets and $27.8 million in deposits.  The single branch of American National Bank in Parma, Ohio had approximately $70.3 million in assets and $66.8 million in deposits.
  Bank Corp. in Draper, Utah, had $1.6 billion in assets and $1.5 billion in total deposits.

Goodbye to Acorn

The Association of Community Organizers for Reform Now

(ACORN) will no longer darken our doors nationally, after a meeting of the board over the weekend.  The fate of the local branches remains unclear. Although the majority will cease operation on April 1, as the non-profit continues to look for ways to settle its debts, some may rebrand themselves and operate around under a different name.  In an e-mail sent to reporters, ACORN said: “[We] have a great deal to be proud of — from promoting homeownership to helping rebuild New Orleans, from raising wages to winning safer streets, from training community leaders to promoting voter participation— ACORN members have worked hard to create stronger to communities, a more inclusive democracy, and a more just nation.”  ACORN began a turn for the worst when, in September, videos emerged online of ACORN workers allegedly giving some fraudulent advice to filmmaker James O’Keefe and his associate, Hannah Giles.  House Republicans last year began an investigation into how Acorn’s p
 olitical arm was funded. Republican investigators on the House Oversight and Government Reform Committee determined that “there were no firewalls” between Acorn’s federally subsidized housing activities and its political wings, said Kurt Bardella, a spokesman Rep. Darrell Issa, the top Republican on the committee.  Officials of Acorn Housing, created by the main Acorn group in the mid-1980s, have said they had a separate board and budget, though the two organizations shared office space in some cities. Congress last year cut off federal funding for Acorn Housing. Federal money last year provided about three-quarters of the group’s budget of $24 million.  A large offshoot formerly known as Acorn Housing, which counsels low-income homeowners, has changed its name to Affordable Housing Centers of America and plans to continue operations.

Now on to our real estate investing educational section…

Fix that Foreclosure Next Door

Few things are more frustrating than trying to sell a home that sits beside a vacant foreclosure; would be buyers can be frightened away by overgrown lawns, vacant homes and a property that looks abandoned.  Here is what you can – and can’t – legally do to protect your own property values.

1.      Buy the Property Yourself. Perhaps the first line of thought for a short sale investor is whether or not this represents another buying opportunity! In many cases the answer is a resounding yet. Even if you decide to purchase the property yourself, that doesn’t mean it can be ignored. Use the following tips to address urgent issues in order to maximize the successful sale of your current property in the interim.

2.      Notify the Contact Person or Organization. Call the Clerk of the Court to find out who is currently responsible for the property; file a written request outlining the problem and specifying what needs to be performed in order to properly maintain the property. Not only is this helpful when trying to keep the yard and other environmental concerns looking their best but it may also place a bit of urgency under the file for
those considering an eventual bid.

3.      File Formal Complaints. If the property presents a potential health or safety issue…for example, an abandoned pool, contact the local public health unit to file a formal complaint. Be sure to follow up by sending a copy of the complaint to the property manager and/or bank responsible for the upkeep on the home.

4.      Team-Up to Turn On the Heat. Put attention to the problem by collaborating with neighbors, the local Homeowners or Condo association and other interested stakeholders. If the HOA is part of the problem, be sure to file a formal written complaint with the association.

5.      Do It Yourself. Although not advisable, in limited circumstances it is possible to take matters into your own hands in order to mow the yard or address other unusual situations. For example, unless otherwise posted, it is entirely legal to mow the yard or maintain the lawn in most areas of the nation; just be careful since an accident or injury is unlikely to be covered by homeowners insurance.  Remember,  never take it upon yourself to  enter a residence or dwelling even if the home is currently vacant.

New Jumbo Loans Delinquencies

Delinquencies on jumbo loans continue to rise

Jumbo mortgages are those with an initial principal amount of over $417,000 (in most areas of the U.S. or over $729,750 in certain specified areas), a limit set by Fannie Mae and Freddie Mac. Fitch Ratings, a credit rating agency, says the performance of prime jumbo loan performance in the residential mortgage-backed securities (RMBS) category dropped again in January as serious delinquencies (60+ days past due) rose for the 32nd consecutive month and edged closer to 10%. Prime jumbo loan delinquencies have been rising since the second quarter of 2007. In 2009, the delinquency rate nearly tripled during the year. The serious delinquencies rose to 9.6% in January from 9.2% in December.

“The new year has brought no relief from declining jumbo loan performance,” said Fitch managing director Vincent Barberio. “The trend line for delinquencies indicates the 10% level could be reached as early as next month.” California, which has a 44% share of the total jumbo market, saw the delinquency rate rising to 11.3% in January from 10.8% in December. Delinquency rates rose in 4 other states – New York, Florida, Virginia, and New Jersey — which along with California constitute the top 5 states in market share. The jumbo market in the country is valued at $376 billion and dropping. Grant Bailey, a senior director for the RMBS group at Fitch, said: “In the 05, 06, 07 vintages, close to 50% of borrowers are underwater. That keeps a negative pressure on borrowers and, therefore, we keep a negative outlook on delinquencies.”

Mortgage rate continues to remain below 5%

A survey released by Freddie Mac says interest rates on 30-year fixed-rate mortgage averaged 4.95% for the week ending March 11, down from the previous week’s 4.97%. “During a light week of mixed economic reports, mortgage rates eased somewhat,” said Frank Nothaft, Freddie Mac vice president and chief economist. Analysts believe mortgage rates will rise as the year progresses. I still think rates are going up as the rest of the year goes on,” said George Mokrzan, senior economist at Huntington National Bank. “The odds, at this point, point to an improving economy and with that rising interest rates in general.” Homeowners seem to be adopting a wait and watch approach as home inventory rises. Diane Saatchi, senior vice president at Saunders & Associates, said: “Prices will not tick up until buyers agree to pay above six month-ago prices, and it will happen, but meanwhile sellers who want to sell now, need to give in to the market, not their hopes.” The 15-year fixed-ra
 te mortgage averaged 4.32% in the latest week, down from 4.33% the prior week.

Home price decline slows down

Real estate website Trulia.com says homeowners cut prices for about 19% of listings as of March 01, down by 10% from the previous month. This is the first time price reduction levels have dropped below 20% in almost a year. “Consumer engagement on Trulia remains at an all time high, but home sales have dropped nationally during the past few months because there has been a lower sense of urgency to ‘buy now’,” said Pete Flint, Trulia co-founder and CEO. “As we get closer to the government incentives running out, we expect price reductions to increase as sellers begin to feel the pressure to lure buyers in, in advance of the tax credit expiration.” The average discount for a median house was 11% from the original value. The latest data confirms the downward trend in listing price reductions from the beginning of this year. Trulia.com says homes priced at $1 million and above were discounted at an average rate of 14% on the original list price. Trulia collects data f
 rom brokers and agents, third-party providers and multiple-listing services. Undeveloped land and foreclosed properties are excluded from the survey.

Green homes do not find favor with appraisers

Homeowners looking to buy green homes are finding it difficult to convince appraisers to consider the value of energy efficiency equipment while processing the loan application. Lower appraisal value means higher down payment for borrowers. Analysts say this could have a negative impact on equipment manufacturers. “We can’t get lenders to appreciate the value, and if we can’t get the values recognized, manufacturers can’t justify moving these products forward,” said Bill Nolan, a home building consultant. Appraisers say they cannot do much to help. If an equipment costs $50,000 at the time of installation and fetches only $25,000 on resale, the appraisal cannot reflect the full $50,000 value. “It doesn’t do a lot of good to simply add value based on cost,” said David Snook, an appraiser who serves on the real property committee on education for the American Society of Appraisers. “The question is ‘How much will the market pay on resale?’” Homeowners say there is a dea
 rth of appraisers who fully understand how going green adds value. Analysts believe the market participants will appreciate the need for going green in the medium to long-term. “As more American homeowners green their homes, there will be more and more of a premium paid for green homes,” said Ben Kaufman, founder of GreenWorks Realty. “I can imagine a miles-per-gallon type sticker on homes for sale and the marketplace will absolutely favor fuel-efficient homes.”

Retail sales rise unexpectedly in February

According to data released by the Commerce Department, retail sales rose 0.3% in February; this is the fourth gain in the last 5 months. Retail sales excluding autos rose 0.8%. The rise well exceeded estimates made by analysts who expected the winter storms to have a negative impact on retail sales and estimated a drop of 0.2% in retail sales. “The storms were apparently not quite as disruptive as anticipated,” said Adam York, an economist at Wells Fargo Securities. Analysts say consumer spending, which is critical to economic recovery, is showing encouraging signs. “As we start adding jobs in the spring, employees will gain income and hours and retail sales should follow,” said York. Ten of 13 major categories reported an increase in sales in February. Sectors that reported sales increases included restaurants and bars, 0.9%; electronic and appliance stores, 3.7%; food and beverage stores, 1.3%; clothing stores, 0.6%; general merchandise stores, 1.0%; sporting goods,
 hobby, book and music stores, 1.2%; building material and garden supplies dealers, 0.5% and furniture retailers, 0.7%. Retail sales data are an important indicator of consumer spending, which constitutes 70% of the U.S. economy.

Now on to our real estate investing educational section…

Friday File – 15 Minute Resolution & $50,000

Ever wish you had an extra $5,000, $15,000 or even $50,000 available?  It’s not as difficult as you might imagine. Whether using the funds toward a down payment or making necessary repairs, an extra $15,000 or $20,000 tucked away for a rainy day comes in handy for any short sale investor.

This week’s 15 minute short sale resolution will show you how to create an emergency “slush fund” that is able to provide an additional $1k to $25k without the need to work a second (or third) job or other drastic
measures. Like most tools, there is a cost for the convenience so it’s not necessarily something you will use every day…just keep this in the sideline for those “must have” deals.

1.      Collect your driver license and bank account information.
2.      Sit down at the computer and sign-up for a borrower account with one of the peer-to-peer lending sites; www.Prosper.com and www.LendingClub.com are perhaps the most well known and widely used. Typically new borrowers have better luck getting access to quick funding with a larger pool of potential lenders.
3.      Start Small! Take out a small loan at first then pay it back promptly to begin building a better reputation and payment history. This will allow you to borrow larger sums at better interest rates later.
4.      Set-up an automatic repayment schedule with your bank. Automate the repayment schedule so it’s never late and doesn’t require any additional time out of your schedule.
5.      Repeat the process. Once you have built up a sufficient reputation and are able to borrow up to $25,000 at one peer to peer lending site, repeat the process at another. Remember, start slowly with a small loan, repay it then move on to a larger loan in order to build a solid reputation. Eventually you find it relatively simple to borrow up to $25,000 per site whenever desired.

Peer to peer lending is a simple yet effective way to obtain a “signature loan” without the headache and hassle of going to a big bank or trying to save substantial sums that could be used to finance your next short sale property. Despite the relatively higher interest rates, p2p lending provides a fantastic option for short sale investors in need of fast cash. Take 15 minutes to set up the initial account and chances are you will be pleasantly surprised how fast you can have access to serious sums of cash by the end of this year!

11.3 Million Homes Underwater

According to DSNews.com a new study released by First American CoreLogic Tuesday, more than 11.3 million residential properties were in negative equity at the end of 2009. That equates to 24 percent of all homes in the United States with mortgages, up from 23 percent, or 10.7 million homes, at the end of last year’s third quarter. All told, the nation’s homeowners are a combined $801 billion underwater. First American says an additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.  As of the end of last year, Nevada had the highest percentage negative equity, with 70 percent of all of its mortgage properties underwater. It was followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent).

Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6 million, or 41 percent, of all negative equity loans.  “Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”

Freddie Mac loses $6.5 billion

Government-owned mortgage financing firm Freddie Mac lost $6.5 billion in the fourth quarter, up from a loss of $5.4 billion a year ago. The company lost $21.6 billion for the year, an improvement from 2008 losses of $50.1 billion.  Freddie said it ended the quarter with a positive net worth of $4.4 billion, which means that for the third straight quarter it did not need another injection of government cash. Net worth compares a company’s assets to the value of its liabilities.  A year ago Freddie needed $30.8 billion in federal cash as mounting foreclosures on the mortgages Freddie owns or guarantees hurt the company’s finances.  Since the start of the conservatorship Freddie has received $50.7 billion in taxpayer dollars, while Fannie has received $60.9 billion.  Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages.  The two companies loosened their lending standards for borrowers during the
 real estate boom and are reeling from the consequences. Nearly 4% of Freddie’s borrowers have missed at least three payments.

Consumer confidence down

The Conference Board, a New York-based research group, said its Consumer Confidence Index fell to 46.0 in February from 56.5 in January.  According to a Briefing.com consensus survey, economists expected the index to fall slightly to 55.0 from 55.9. The index, which is based on a survey of 5,000 U.S. households, is closely monitored because consumer spending drives two-thirds of the nation’s economic activity.  The overall index remains at historically low levels and is the lowest since April 2009. A reading of above 90 indicates a stable economy, while 100 or greater is an indication of strong growth.  February’s present situation index, which indicates how consumers feel about current economic conditions, hit a 27 year low of 19.4, according to the Conference Board. That means that consumers feel things are worse now than they were during the throes of the financial crisis in the fall of 2008. Expectations for the future also took a turn for the worse in February.

The expectation index, a measure of consumer outlook over the next few months, fell to 63.8 from an upwardly revised 77.3 in January. Only 16.7% of consumers expect to see an improvement in business conciliations over the next 6 months, down from 20.7%. Some 15.3% of those surveyed expect business conditions to get worse over the next six months.  The outlook for the labor market was even more bleak. The percentage of those who expect fewer jobs to become available jumped to 24.6% from 18.9% in January. And only 9.5% of those surveyed anticipated an increase in their incomes, compared to 11.0% in January.

Mortgage rates to rise?

The Fed has been buying mortgage-backed securities since late 2008. But next month it plans to finish its purchase of $1.25 trillion in mortgages, and that could be bad news. There is wide agreement that the removal of this support will mean higher mortgage rates, which could hit housing prices and sales hard. Some even worry that it could cause the broader economic recovery to stall.  The program was the largest single injection of cash into the economy by the Fed during the financial crisis, and it will be the longest-lasting source of funds as well. Even though the Fed intends to stop buying mortgages, few people expect that the central bank will start selling them to private investors any time in the next few years.  even if the Fed holds onto the mortgages it has already purchased, the act of no longer buying additional mortgages is likely to raise mortgage rates in the coming weeks.

Experts say a jump of at least a quarter to a half percentage point is likely.  San Francisco Federal Reserve President Janet Yellen warned of higher rates in a speech Monday.  Fed Chairman Ben Bernanke is likely to take questions about the Fed’s mortgage program when he testifies about economic conditions on Capitol Hill Wednesday and Thursday.  The worries about the Fed pulling back support for housing are compounded by the end of up to $8,000 in tax credits for home buyers. To qualify, buyers face an April 30 deadline to sign a sales contract.  Dean Baker, co-director of the Center for Economic and Policy Research, argues that the Fed’s program and tax credit for home buyers “ended the free fall in home prices.”  But he thinks that the removal of this support could mean that home prices could start to drop by as much as 1% a month again. He also thinks mortgage rates could climb by as much as a percentage point in the coming months.

Banks not lending

While top-tier banks are recovering at a faster clip, last year the rest of the industry posted their sharpest decline in lending since 1942, suggesting that the industry’s continued slide is making it harder for the economy to recover.  According to a quarterly report from the Federal Deposit Insurance Corp, banks fighting for survival, especially those plagued by losses on commercial real estate, are less willing to extend loans, siphoning credit from businesses and consumers.  FDIC Chairman Sheila Bair said banks are “bumping along the bottom of the credit cycle” and that the number of bank failures in 2010 will likely eclipse the 140 recorded last year.  The struggling U.S. banking industry remains a problem for policy makers eager for banks to lend again. Lawmakers on Capitol Hill and administration officials have pushed banks to lend, particularly in light of the billions in taxpayer aid injected into the financial industry over the past two years. Banking groups and th
 eir members counter that they’re under pressure from regulators to be more prudent and that demand from struggling consumers and businesses isn’t there.  Initiatives such as the Obama administration’s $30 billion small-business lending program will rely on banks making loans at a time when many of those same firms are wrestling with a rising tide of commercial real estate problems or being told to add to their reserves by regulators.  The FDIC said that the decline in loan balances in the quarter hit all major categories—from construction to commercial loans and residential mortgages—with the exception of credit card loans.  It remains unclear whether the sharp decline in loans outstanding stems from banks’ tightening standards and a fear of lending or from weak demand from potential borrowers spooked by the downturn. Another cause could be banks actively reducing the size of their loan portfolios, creating a natural decline.

MBA – mortgage applications down

The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 19, 2010 decreased 8.5% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 7.3% compared with the previous week.  The Refinance Index decreased 8.9% from the previous week. The seasonally adjusted Purchase Index decreased 7.3% from one week earlier, putting the index at its lowest level since May 1997. The unadjusted Purchase Index decreased 3.6% compared with the previous week and was 13.4% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 1.6%.  The four week moving average is down 2.1% for the seasonally adjusted Purchase Index, while this average is up 3.2% for the Refinance Index.  The refinance share of mortgage activity decreased to 68.1% of total applications from 69.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased t
 o 4.7% from 4.4% of total applications from the previous week.

NAR – No commercial real estate recovery before 2011

According to the National Association of Realtors (NAR), fallout from the recent recession continued to negatively impact commercial real estate sectors in the fourth quarter, and things are not going to get better anytime soon.  “With the job market expected to turn for the better later this year, we’ll see rising demand for office and warehouse space, but that isn’t likely before 2011,” said Lawrence Yun, NAR chief economist. Yun notes that commercial vacancy rates remain high in most market areas and are depressing rents.  The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 700 local market experts, suggests a flattening level of business activity in upcoming quarters with 55% of members expecting the market to improve in the second quarter.  The SIOR index rose 0.2%age point to 35.5 in the fourth quarter, compared with a level of 100 that represents a balanced marketplace. This is the first ga
 in following 11 consecutive quarterly declines. Although some indicators show that a decline in commercial property values is beginning to flatten, 86% of respondents report prices are below replacement costs.  Nearly nine in 10 survey participants said new commercial development is virtually nonexistent in their market areas, and rent concessions are reported almost everywhere.

Now on to our real estate investing educational section…

Fiscal Survival of the Fittest

Survival of the fittest applies to economics as well as biology – in fact, some would argue the concept is better applied to the financial arena than any other area of study. Unfortunately, it’s a fact few Americans want to face head on…it goes against the steady diet of “American ingenuity” and the (false) belief that any child born in the good old USA can grow up to be anything they want. While there are exceptions to every rule, survival of the fittest is an economic trend currently undergoing the equivalent of an ice-age extinction as one era gives rise to an entirely new one. Research by consulting firm McKinsey found a few unsettling statistics that demonstrate the depth of the problem:

Over 70 percent of currently employed Americans work in jobs for which there is low or declining demand. This includes both blue collar and white collar. Competition for jobs that cannot be shipped overseas (healthcare for example) has created high competition which is driving down wages and promoting part-time, per diem and other “job sharing” situations.

Mainstream stores are doing double-takes as consumers shift spending habits. Not only are brick and mortar stores under heavy competition from online retailers like Amazon but the bleak economy is finally taking a toll. Violating one of the core marketing principles ‘never undercut your own product’, heavy weight’s ranging from Proctor & Gamble to Macy’s are rolling out discount versions of their more expensive popular items. Cost of Tide got you down? Don’t worry, you can now buy Tide Basic…a discount version. Research shows 1/2 of Americans have already reduced spending and 1/3 plan to do so permanently with 18 percent of consumer switching from name brands to generics in the past two years alone.

So, how are Americans spending their money both today and into the near future?

1. Nearly 34 percent of the average household income goes toward housing. Expect this trend to continue as people downsize into affordable housing options.

2. Just over 19 percent goes toward entertainment and/or miscellaneous items…however, as a discretionary item this is subject to volatility.

3. Roughly 17 percent goes toward transportation – a number experts expect to hold steady as people opt for more affordable options.

4. Just under 13 percent goes toward food; a necessity to be sure but one that is subject to “replacement” purchases as people opt for hamburger instead of steak during tough times.

5. Approximately 11 percent on retirement and personal insurance.

6. Nearly 6 percent on healthcare.

Even a precursory look at where Americans spend their money tells the average investor where to spend theirs…housing, entertainment, transportation, food, financial products and healthcare. Those are the big six that run the American economy. Now stop and consider which are available to the average “little guy” investor…stocks and bonds for healthcare, insurance and finance have been decimated in recent years. The auto industry?
Please! Now that’s it’s been nationalized you can count on the same efficiency that brought you the driver license office to run the auto industry. Food is notoriously volatile and forget direct intervention unless you have an unusual level of gardening know how. No, the answer remains the same today as it did 100 years ago…real estate. It’s not easily outsourced, it’s not subject to the market manipulations of stocks and bonds nor is it entirely dependent upon your ability to work yourself into an early grave. It simply requires a willingness to adapt to the new economic environment like all other species that learn to thrive or barely survive.

Help Me Stop Foreclosure

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Owe More Than What You Owe?

Short sales approved by Fannie Mae and Freddie Mac, which own 57% of U.S. mortgages, nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation’s largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.

Short sales are still few compared with foreclosures, but policymakers are looking at such sales to shrink the number of bank-owned homes on the market.

Late last year, the Obama administration added incentives to get short sales done if a borrower is unable to qualify for a modified mortgage as part of the government’s $75-billion effort to help troubled homeowners. Starting in April, the government will pay incentives to lenders and borrowers when a sale is completed.

Many economists view short sales as a way to address a problem that mortgage relief hasn’t fixed: properties that are “under water,” carrying more debt than the home is worth.

“Making short sales easier would go a long way to freeing up the market,” said Richard Green, director of the Lusk Center for Real Estate. “Right now, if people are under water on their house, they are really stuck.”

Short sales remain difficult. Uncertainty over home prices makes properties hard to value, lenders are understaffed and multiple loans on a home can trip up negotiations among creditors.

One factor motivating banks to go along with short sales is that foreclosures typically cost more. Foreclosed properties often sit vacant, susceptible to damage from neglect or vandals. A study by Amherst Securities Group found that prime loans took an average loss of 45% in a foreclosure as opposed to 35% in a short sale.

If you would like more information about “Shortsale” please contact our office at 919-661-3459 or visit us on the web at www.SmartHomeSavers.com