Mortgage rates dropped last week

Although mortgage rates rose recently in response to a generally positive outlook on the economy, last week saw rates fall with news of Europe’s economy continuing to crumble and reports of uninspiring March employment numbers.

HSH.com’s mortgage tracker showed the overall rate for 30-year fixed-rate mortgages dropping to an average of 4.30 percent, while 15-year rates dropped to average 3.54 percent.

Fluctuating recovery means fluctuating rates

The economy continues to recover — but with less momentum than has been seen recently.

The Federal Reserve’s most recent meeting indicated a positive assessment of the economy, making it seem unlikely that the Fed will take new measures to expand or institute economic relief programs. The labor market, a key element to economic recovery, slowed considerably from its strong showing in the past three months — new job activity in March was half of the new job activity reported in February.

Spring is likely to see mortgage rates continue to be buffeted about, with no drastic increases or drops, as economic indicators — the state of the economy in Europe, the Fed’s stance on relief programs and the labor market — impact the market and consumer confidence.

(via HSH.com)

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Experts find the silver lining in the market cloud

Good news/bad news

Last week’s Case-Shiller index seemed to be a case of “good news/bad news,” according to economic experts.

Although the index showed housing prices at their lowest level since 2003, many economists feel that in combination with the increase in home sales velocity and an encouraging labor outlook, the falling prices are more a reflection of market clearing out the distressed properties at attractive prices for cash buyers.

Home prices are on the mend

In an article in the LA Times, an economist from Capital Economics was quoted as saying that “home prices were ‘on the mend,’” and that they see home prices stabilizing, the first step in recovery.

 2012 will go down in history as the year that the most severe house price crash on record ended… The improvement in general price trends is being driven by the 13% rise in home sales since last July. In turn, this reflects the strengthening in the economy and signs that banks have become a bit more willing to lend.

Expert opinions see this year as the bottom

Marketbeat, a blog from The Wall Street Journal, gathered a few more opinions from “economists and market observers,” agreeing that the index drop is not a red alert on the crisis and recovery timeline. An economist from MFR points out that in the six years leading up to the market’s peak in 2006, the price index rose by 155% — in the six years since, the index has dropped only 34%. Other economists point to a six-year cycle, in which housing bubbles tend to bottom out six years after peaking.

On the whole, if 2012 sees home sales continue to rise, the distressed property inventory continue to shrink and the job market continue to improve — it could well be the low point on the housing market graph.

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Test program in Nevada, Arizona and New York State

Bank of America Corp. announced that it is launching a test program for one thousand homeowners in Nevada, Arizona and New York — whose loans are distressed and for whom loan modifications have not worked — that will allow them to turn in the deed to their home (deed-in-lieu) in return for the opportunity to rent their home at or below market rates for up to three years.

Bank of America hopes to be able to off-load these homes to investors — as rental properties with income — within three months of the transaction with the borrower. The bank expects the test to yield hard numbers that will show whether this solution is financially preferable to the foreclosure process for loans that have exhausted all modifcation efforts. (via Los Angeles Times Business)

After loan modification options are exhausted

Bank of America’s “Mortgage to Lease” program is being tested with borrowers

…who have been previously offered a variety of possible alternatives to foreclosure — loan modifications, forbearance on payments, short sales and "deeds-in-lieu," where the borrower hands the property title back to the bank and moves out… But they either have not been able to qualify or have not responded to the bank's proposals. They're now essentially at the end of the line — there are no other standard lender remedies available to keep them out of foreclosure.

(via Seattle Times Real Estate)

Investors are jumping on the band-wagon

There has been a significant movement by investors to buy foreclosed properties and turn around and rent them — big name investment institutions like Berkshire Hathaway, Starwood Capital, and Oaktree Capital have all announced their intention to purchase foreclosed homes. And Fannie Mae recently announced that it is going to test a project to sell pools of single-family homes to investors. (via Huffington Post Business)

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Spread between non-distressed and distressed homes narrows

Although prices for both distressed and non-distressed homes declined in 2011, distressed home prices went down less than non-distressed — bringing the total available inventory closer together on the price scale. Radar Logic, a real estate research and analysis firm, reported last week that the recent increase in home sales may not reflect greater demand or buyer confidence as much as it reflects more sellers being motivated to accept lower bids.

Even with sellers’ increasing willingness to take a lower price, tight credit and general concern about home values over time appear to be combining to keep buyers from swarming into what is clearly a “buyers market.”

Existing home inventory lowest in six years

NAR (National Association of Realtors) reported that January’s inventory of 2.31 million existing homes for sale amounts to 6.1 months’ supply — the lowest that inventory has been since 2006. Because those numbers don’t take into account vacant homes not on the market, houses with loans in delinquency, houses in foreclosure or houses with underwater mortgages, the potential supply of available homes remains historically high.

Help and hope from the Fed?

Radar Logic concluded its report by observing that Bernanke’s (Fed Chairman) speech at the NAHB’s show last month held out hope that “the renewed focus of the Fed and the administration will lead to pro-active and innovative programs to address the housing crisis.”

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This week, the iPad app store will welcome the first tablet application for loan originators — MobileLO from On The Go Technology.

The app is designed to allow loan officers and brokers “to enter the data fields of a Uniform Residential Loan Application (Form 1003), generate a Good Faith Estimate and other federal and state-specific disclosure documents, pull the applicant’s credit report and collect electronic signatures.”

When the app hits the store, it will be free, although there is a premium membership available for about $30/month, which will included disclosures, e-signatures and integration with multiple credit reporting vendors.

Andrew WeissMalik, the owner of On The Go, dreamed up the app last year when he realized that the mortgage application process still entailed a clipboard and carbon copies. As he put it, “The fact that in 2011 that’s still going on is just insane to me. That entire model gets replaced with an iPad.”

WeissMalik says that with the app, “You are actually taking an application on the device, you’re pulling credit right then and there and then you can thumb through it with your finger. It’s the neatest feeling to be doing mortgage on a tablet.”

(via American Banker and MobileLO.com)

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Highest Figures Reported in Nearly Two Years

NAR’s index highest since April 2010

Good news from the National Association of Realtors (NAR) — its Pending Home Sales Index went up 2 points in January of this year to reach 97.0, the highest level since April of 2010.

December was better than we thought

The index for December 2011 was also recently revised to reflect a more accurate drop of 1.9 percent, rather than the 3.5 percent originally reported. With January of this year’s 8.0 percent increase in new contracts, experts feel confident in predicting positive sales results for the first quarter of the year.

Improvement rests on mixed geographic trends

While the South and the Northeast saw increases of 7.7 and 7.6 percent respectively, the Midwest and West both fell (3.8 and 4.4 percent respectively) in January.

Along with job growth, the housing market continues to improve

Buyers’ growing confidence in their financial situtation due to the improving employment figures and strengthening economy is bolstering the housing market’s recovery. At the same time, tight credit and gloomy appraisals continue to put the brakes on new momentum.

(Via Realty Times and Reuters)

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Although most types of mortgages fell a bit last week, experts are predicting a rise in rates in the upcoming weeks due to positive trends in the economy and stock market.

30-year fixed: twelve weeks under 4.0 percent

Last week, Freddie Mac reported that rate for 30-year fixed mortgages dropped to 3.87percent — the lowest in over 50 years. By the end of the week, though, the rate climbed a bit to reach 3.95 percent. (via SFGate)

Rising mortgage fees could impact rates

With rates so low, borrowers may not notice or care so much about rising fees associated with getting a mortgage right now. Long-term, however, these rising fees could signal the increasing difficulty — and cost — of securing government backed mortgages.

For instance, lenders pay a guarantee fee to Fannie Mae and Freddie Mac that will be increasing 1/10^th of a percentage point on April first — something banks will pass on to its borrowers through an interest rate increase of around 1/8^th of a percentage point.

If this fee increase does signal a trend in rising mortgage costs, borrowers could be looking at higher and higher origination costs for their loans. (via WSJ’s MarketWatch)

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Who Wins and Who Loses in the $26 Billion Deal

The $26 billion dollar settlement announced earlier this month the Department of Justice and and Attorneys General from every state with the exception of Oklahoma is being hailed a significant victory for consumers and a step forward for the housing market.

Major Lenders Involved in the Settlement

There are five major banks involved in the settlement: Wells Fargo Mortgage, Bank of America, JP Morgan Chase, Ally Financial and Citigroup. These five are responsible for the entire $26 billion, though an as-yet-unnamed additional nine other, smaller, lenders can contribute around another $7 billion to the settlement if they choose.

How Much the Banks Are Really Shelling Out

The reality of the settlement is that the five lenders are directly responsible for paying $5 billion in cash to be allocated to the Feds and the 49 participating states. Another $500 million to $1 billion will be paid by Bank Of America Mortgage to settle claims against its subsidiary, Countrywide — $500 million payable immediately and another $500 million to be paid over three years if certain loan forgiveness targets are not met.

Who’s Paying the Balance

Of the remaining $20 billion, $3 billion will be provided by the banks in the form of mortgage refinance loans for current borrowers. The largest portion of the settlement, $17 billion, will be funded by reducing the returns to investors who bought mortgage backed securities from the banks.

Who Stands to Benefit

Some existing homeowners, assuming their loans are not GSE or FHA-backed, with troubled mortgages might see their balance reduced by up to $20,000 — those principal reductions are expected to take $17 to $20 billion of the settlement. Another $3 to $5 billion is expected to be distributed as checks to around 750,000 former homeowners whose homes were foreclosed on between 2008 and 2011. Remaining funds will be directed toward refinance support and foreclosure preventions programs.

Breaking it Down

The $5 billion for customers who lost their homes due to improper foreclosure works out to about $2,000 per homeowner.  The banks, although they seem to have gotten away with a minimum penalty, did not win much if any legal protection as a result of the settlement — states and homeowners can still can after them individually, as can the Federal Government. With the current estimate of negative equity in the housing market hovering around $700 billion, $26 billion seems like barely a drop in the bucket.

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How US Mortgage Rates Are Impacted by the Eurozone Economy

Although Greece seems far away — and far from involved in the mortgage and housing market challenges faced in the U.S., the fact is that our economies are linked.

Simply put, Greece is bankrupt, which means it can’t pay its debts, including those made by foreign governments and banks.

Although the direct exposure of U.S. banks to bad debt in Greece is not huge, when you combine Greece with four other European countries facing the same challenges (Portugal, Italy, Ireland and Spain — together with Greece, they are referred to as the PIIGS), you have a much more daunting problem.

Banks with defaulting loans face a decreased liquidity challenge — as protecting and preserving existing capital becomes more of a priority. Last week saw several of the Big Five banks calling a halt to three and four-year fixed rate specials due to “global economic concerns.” On the verge of recovering from the last bout of bad loans (our own mortgage crisis), a looming debt crisis — even if it occurs thousands of miles away — is not what our economy needs.

In the coming weeks and months, the Euro Zone’s response to the crisis in Greece, and in the other PIIGS, will trickle down with some force on our economy, impacting loans and mortgages and the housing market recovery.

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Home sales rise as home prices continue to fall

Unemployment rate falls to 8.3%

The unemployment rate in January of this year fell to to its lowest point in nearly three years, since February 2009.  This, along with the number of people jobless (12.8 million) — also the lowest in nearly three years — are good indicators that the economic recovery is impacting the job market. (via The New York Times)

Monthly job creation rate better than it’s been in 5 years

Averaging 163,000 jobs a month, the U.S. job creation rate is the best it’s been since before the recession began — the best 12 month report since 2007. (via WSJ Blogs:Real Time Economics)

Home ownership levels still low, as are home prices

Home ownership continues to drop, reaching 66 percent in the fourth quarter of 2011, according to the U.S. Census Bureau. The peak of home ownership in the country was in the fourth quarter of 2004, when home ownership reached 69.2 percent. Standard & Poor’s/Case-Shiller index shows that average U.S. home prices are at mid-2003 levels. Many experts feel that prices will stabilize sometime in 2013. (via USA Today)

Home sales are on the rise

For the third month in a row last December, however, home sales rose. David Blitzer of S&P noted that home prices would be the last thing to improve, after home sales increase and inventory decreases. As the economy recovers and home buyers begin to have increased access to credit, depressed home prices will continue to encourage home sales, eventually kick-starting the housing market recovery. (via USA Today)

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