Assist2Sell

WASHINGTON - The pending sales index of existing U.S. homes fell 2.6 percent to 75.7 in June, partly reflecting the end of a federal tax credit for first-time buyers of up to $8,000. The temporary tax credit originally expired June 30, but the federal government extended it to Sept. 30 for buyers who had already signed a contract and were unable to close the sale in time. Closings usually take a month or two after a contract is signed, but the rush of buyers caused additional delays. The pending sales index totaled 77.7 in May and 110.9 in April, when buyers sought to take advantage of the tax credit. The index's current level is 18.6% below June 2009, when it stood at 93.0.

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Foreclosures accounted for a third of all sales -- and sold at a nearly 30% discount -- during the first three months of 2010. According to a new report from RealtyTrac, the marketer of foreclosed properties, 31% of all sales were foreclosures. And homebuyers purchasing those properties paid a whopping 27% less, on average, compared to sales of non-distressed homes. These foreclosure sales include properties sold in short sales or after a bank repossession, known as REOs in industry terms. It does not include transfers from borrowers to banks, as in a sheriff's auction. Foreclosures have become a dominant feature of many real estate markets, finding willing buyers among young bargain hunters and savvy housing market veterans. Foreclosure sales were highest, expectedly in the bubble states of Nevada, Massachusetts, Rhode Island and Florida. Lenders have been trying to manage their inventories of foreclosed homes to prevent them from flooding the market and dragging down prices. The impact of foreclosure sales on the home sales market can have a depreciating effect on the entire inventory out there.

First of all let me say, my heart goes out to all those affected by the gulf oil spill. The effects of this disaster will be felt for years to come. 

With that said, I read the article below and was disturbed. I understand everyone’s first reaction is to figure out how they can help. The question is, where do you draw the line?  Disasters happen on a regular basis. Hurricanes, tornados, earthquakes, floods, wild fires, and blizzards. These events are devastating to all involved. Does the government now determine what disasters warrant relief?   

I think “mother nature” didn’t cause this disaster so the government can point the finger at someone.  Is Fannie going to pass the bill for “relief” on to BP?  Maybe that’s the plan? Get BP to pay for some of our losses?

I think Fannie is opening Pandora’s box with this one. 

CNBC's Diana Olick - Oil and Real Estate: Fannie Mae to the Rescue

“There is no question that while oil has barely brushed the beaches here in Pensacola, the place is awash in fear. But then a ray of hope…from none other than the government-controlled mortgage behemoth Fannie Mae, which is in so much hot water itself that it actually had to delist from the stock market yesterday. "Servicers may immediately suspend or reduce mortgage payments for borrowers whose properties or income are negatively impacted by the Gulf oil spill," goes the press release.

“We want to give homeowners every opportunity to weather this unprecedented disaster, including relief from their mortgage payment if that will help them get back on their feet and stay in their homes,” said Michael J. Williams, President and CEO. “Our policy is in place to support those who are experiencing a disaster-related hardship through no fault of their own and are acting in good faith to meet their mortgage obligation.”

This is part of the company's (or should I say agency's) “Special Relief Measures” policy. Borrowers can get up to 90 days of relief while the servicer "determines the nature and extent of the impact the disaster is having on the condition of the property or on the borrower’s financial condition." And what then? "At the conclusion of that assessment, servicers have additional flexibilities to evaluate the appropriate loss mitigation alternative based on a case-by-case determination, including an additional three months of forbearance, a loan modification or other customized solution."

Sounds great, if this were, like, 1997, and the housing market was otherwise fine and dandy. So many Floridians are already in the midst of trying to get loan modifications and forbearance plans, that I'm just not so sure how you separate it all around here. But then I think about the government, which has been trying to pull itself out of the housing market, and is now just dipping itself right back in. I wonder just how this announcement is going to affect underwater borrowers in Florida, even those who don't live near water. The very process of deciding who is really a victim of oil and who is just a victim of the ongoing housing crisis? Just the mechanics of it! I'm sure far greater minds than mine in the upper levels of our government have already thought of that.”

Pending home sales have risen for three consecutive months, reflecting the broad impact of the home buyer tax credit and favorable housing affordability conditions, according to the National Association of Realtors®. The Pending Home Sales Index, a forward-looking indicator, rose 6.0 percent to 110.9 based on contracts signed in April, from an upwardly revised 104.6 in March, and is 22.4 percent higher than April 2009 when it was 90.6. That follows gains of 7.1 percent in March and 8.3 percent in February. The data reflects contracts and not closings, which usually occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, said “The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs. A big concern surfacing recently is insufficient time to close the deal at the settlement table. However, the recent housing cycle has brought long delays related to the short sales approval process by banks, and from ongoing appraisal issues.”

According to him, homebuyers who responded to tax credits may encounter problems meeting the settlement deadline by June 30.  Because of these market challenges, NAR has asked Congress to provide flexibility on the deadline for closing.

Existing-home sales rose again in April with buyers motivated by the tax credit, improving consumer confidence and favorable affordability conditions, according to the National Association of Realtors®. Existing-home sales, which are completed transactions that include single-family, town homes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, and are 22.8 percent higher than the 4.70 million-unit pace in April 2009. Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving e
 conomy and mortgage interest rates that remain historically low.”

Total housing inventory at the end of April rose 11.5 percent to 4.04 million existing homes available for sale. The national median existing-home price for all housing types was $173,100 in April, up 4.0 percent from April 2009. Distressed homes accounted for 33 percent of sales last month, compared with 35 percent in March. Single-family home sales rose 7.4 percent to a seasonally adjusted annual rate of 5.05 million in April from a pace of 4.70 million in March. NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said buyer traffic is mixed. “It looks like the level of home sales that close in May and June will stay elevated, but many buyers remain in the market even without the tax credit,” she said. “Some Realtors® tell us they are very busy with clients who are entering the market now as a result of improved conditions, while others are welcoming a slowdown from frantic market conditions in recent months.”

The real estate industry is still waiting to see how the market will adjust after the expiration of the first-time homebuyer tax credit, but more consumer incentives are about to be cut, this time from the Federal Housing Administration (FHA). The FHA will reduce allowable seller concessions — the percentage sellers can take from the sales price of a home to fund closing costs — from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set. The closing costs include fees for origination, attorneys, appraisal and inspections, title search, title insurance, credit reports, and more. Down payment assistance is not included as a closing cost. 

Mortgage servicers are growing more and more creative in outreach methods and door-knocking services in an attempt to enter distressed borrowers into workout plans, according to speakers at the sixth annual Texas Mortgage Bankers Association (TMBA) Southern States Servicing Conference.  Rick Roniger, executive vice president and chief operating officer at Westlake, Texas-based First American Loss Mitigation, said servicers used to mail outreach packages with return envelopes included. But when that method failed, servicers turned to increasingly creative rewards-based outreach programs.  These “gimmicks” included mailing coffee mugs with single-serving-sized packages of coffee grounds to borrowers with notes encouraging them to “sit back, relax” and fill out the information about their late mortgage payments, Roniger said.  Soon, servicers sent out field units to engage in a door-hanger service to encourage borrowers to contact their mortgage companies if they had tro
 uble paying.

Door-hanging services soon became door-knocking services, which ultimately produced occasions of field agents knocking on borrowers’ doors and physically handing them a phone to call their servicers.  “If we can talk to people, we can usually reach a workout deal,” said Brad Staley, managing director at Irving-based iServe Servicing, who also spoke at the TMBA conference.  He noted the main challenge in resolving extremely distressed, low-value assets is making contact with the borrowers and maintaining that contact once a workout plan is initiated. Some field services go so far as to knock on borrowers’ doors after normal business hours and on weekend mornings, as well as stake out in cars in front of houses for up to an hour or until the borrowers return home.  If the borrower responds to the outreach efforts, a workout plan can be reached 85-90% of the time, Staley said.

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.”

Freddie Mac said Tuesday that its home price index for conventional mortgages it purchased last year registered a 0.4 percent decline from the fourth quarter of 2008 to the fourth quarter of 2009.

The GSE was quick to point out that this was a much smaller decline than the 9.5 percent drop in home prices recorded in 2008, perhaps signaling much needed stabilization in the marketplace. In the final quarter of 2009, the index was down 1.4 percent relative to the third quarter, on a non-seasonally adjusted basis.

“We normally see a seasonal effect in the fourth quarter price index that reduces its value. A year-over-year comparison largely controls for this,” said Frank Nothaft, Freddie Mac’s chief economist and VP. “Over 2009, the national index dipped slightly – -0.4 percent – and four-of-nine regions posted price gains.”

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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.