Clear Capital home data market report through March 2014 found that national home prices remained mostly flat over the winter, while distressed saturation over the month remained stable at 21.8%.
Short-term declines in the Midwest and nearly non-existent growth over the quarter were the most concerning elements of the report. The last time the Midwest fell into negative territory was June 2012. Five metro markets showed quarterly declines.
“Our data through the end of March reveals prices remained steady through the final weeks of winter, a sigh of relief to all market participants,” said Alex Villacorta, vice president of research and analytics at Clear Capital. “Yet, national quarterly gains of just 0.7% mean there’s certainly still risk for short-term price declines in some markets. But over the year, we see Phase Three of the recovery unfolding, which we define as moderation across all price tiers.
The report also found that low-price home sales – those under $95,000 – fueled the recovery over the last two years. This deeply discounted sector attracted enough buyers to drive prices up 31.8% from the bottom of the market in 2011.
Low tier home price gains in the last quarter have slowed though, to just 1.2%—a big difference from 3.7% a year ago. Stabilization, with rates of growth not seen since November 2011, could motivate first-time and move-up home buyers to re-engage, Clear Capital reports.
While the recovery took hold, home price gains outpaced growth in the owners’ equivalent of rent in most of 2012 and 2013. As prices continue to moderate in 2014 toward more historical rates of growth, investors will need to dive down into granular data and analysis to find markets where attractive home prices and rental rates still offer competitive investments.
“Analyzing rental rates and home price trends at the national level suggest the current investor pool may start to wane as the rate of home price growth outpaces the rate of owners’ equivalent of rent. Don’t expect investors to exit all at once. Good deals at the micro market level will persist well into 2014,” Villacorta said.
“The key to overall market progress and stability in 2014 will lie in the transition from investor to traditional home buyer demand. While each segment will continue to be important, healthy markets have shown higher rates of traditional home buyer demand and less investor-driven demand,” Villacorta said. Should prices remain stable, home buyer confidence will build, supporting a balanced transition.”
Monday, March 31, 2014
Wednesday, March 26, 2014
3 weights pull the housing recovery down- weather is not one of them
The housing market is recovering, albeit a slow and staggering pace, but it is still improving.
According to Trulia (TRLA) Chief Economist Jed Kolko’s latest Housing Barometer blog, “Of the Housing Barometer’s five indicators, all have improved over the last year except new construction starts. But only rising home prices and falling delinquencies + foreclosures have been steady. The other three measures – sales, starts, and young-adult employment – have zigzagged, both gaining and losing ground over the year.”
So what are the dead weights adding pressure to the strength of the recovery?
In the blog, Kolko defines three variables holding the recovery back.
1. Affordability is getting worse.
But the good news: the delinquency and foreclosure rate is dropping, and young adults are going back to work.
“The less the recovery can depend on the engine of investors, the more the housing market will need to rely on young adults entering the housing market, first as renters – and eventually as buyers,” Kolko said.
According to Trulia (TRLA) Chief Economist Jed Kolko’s latest Housing Barometer blog, “Of the Housing Barometer’s five indicators, all have improved over the last year except new construction starts. But only rising home prices and falling delinquencies + foreclosures have been steady. The other three measures – sales, starts, and young-adult employment – have zigzagged, both gaining and losing ground over the year.”
So what are the dead weights adding pressure to the strength of the recovery?
In the blog, Kolko defines three variables holding the recovery back.
1. Affordability is getting worse.
Kolko mentions that even though it remains cheaper to buy a home than to rent in the 100 largest metros, homeownership is pricier than last year. “And declining affordability is a bigger challenge for first-time home buyers than for current homeowners looking to trade in a home that has also increased in value,” Kolko said.2. Investors are slowly exiting.
Since prices have risen and fewer people are losing homes to foreclosure, Kolko noted that investing-to-rent makes less sense. Previously, investors were a main driver in pushing up home sales and prices, but as they step back, price gains are slowing and sales volumes are sagging, he added.3. The mortgage market is unstable.
Purchase applications and mortgage-based home sales are declining, as rates continue to rise and new regulations are short-term uncertainty. “But this reason may be only a temporary hurdle: rates remain low by historical standards, and the new mortgage rules offer longer-term clarity that should encourage banks to make more loans that are within the new rules,” Kolko said.Although this unusual winter created some burden on the housing market, these reasons are the main drivers behind recent stumbles in sales and starts.
But the good news: the delinquency and foreclosure rate is dropping, and young adults are going back to work.
“The less the recovery can depend on the engine of investors, the more the housing market will need to rely on young adults entering the housing market, first as renters – and eventually as buyers,” Kolko said.
Tuesday, March 25, 2014
Parting FHFA Director DeMarco gives one last call for GSE reform
Federal Housing Finance Agency acting Director Ed DeMarco announced his official departure day will be at the end of April, leaving the permanent helm to Mel Watt after a period of transition.
The FHFA has existed for less than six years, and while DeMarco is stepping away from his desk, he still ends on one final push for Fannie Mae and Freddie Mac reform.
“My earnest hope is that recent legislative initiatives in the House and the Senate lead to the consensus needed to bring such legislation to enactment,” DeMarco said in his parting letter to Watt.
“I have publicly stated numerous times that the conservatorships of Fannie Mae and Freddie Mac were never intended to be a long-term solution. Congress must act to bring the conservatorships to an end and chart the course for a new structure for housing finance,” DeMarco said.
DeMarco took charge of the FHFA in August 2009 and since taking on the position, helped build and shape the FHFA.
The FHFA has existed for less than six years, and while DeMarco is stepping away from his desk, he still ends on one final push for Fannie Mae and Freddie Mac reform.
“My earnest hope is that recent legislative initiatives in the House and the Senate lead to the consensus needed to bring such legislation to enactment,” DeMarco said in his parting letter to Watt.
“I have publicly stated numerous times that the conservatorships of Fannie Mae and Freddie Mac were never intended to be a long-term solution. Congress must act to bring the conservatorships to an end and chart the course for a new structure for housing finance,” DeMarco said.
DeMarco took charge of the FHFA in August 2009 and since taking on the position, helped build and shape the FHFA.
Thursday, March 20, 2014
Fed votes to continue taper, lowers growth expectations
In a near unanimous vote, the Federal Open Market Committee of the central bank elected to continue the taper program of quantitative easing started at the end of 2013 under the former Fed Chair.
The FOMC voted 8-1 to cut its bond-buying program to $55 billion a month from the previous level of $65 billion. This is the third vote to approve and continue tapering, and the first under new Federal Reserve Chair Janet Yellen. Federal Reserve Bank of Minneapolis President Narayana Kocherlakota was the lone dissenter.
“The FOMC currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions,” Yellen said.
She continued, explaining the decision to continue the taper.
“The FOMC currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the committee decided to make a further measured reduction in the pace of its asset purchases,” she said.
Beginning in April, the committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month.
(Download or view the formal announcement here.)
Troubling to those who want more concrete forward guidance on interest rates and QE tied to objective metrics, the Fed also formally changed its standard from the established 6.5% unemployment rate to a hazier “qualitative guidance” determined by a broad range of readings, leaving the Fed freer to act more subjectively.
Questioned about the change in forward guidance, Yellen said, "The reason the committee revised forward guidance is not because we thought it has not been effective. It's very useful...in helping markets understand our expectations in shaping their own. But as the unemployment rate gets closer to 6.5% and to breaching that threshold – markets want to know and the public wants to understand how we will decide what to do. The purpose is to provide more information than we have in the past. As unemployment rate declines below 6.5% we will decide how long to hold" interest rates at close to 0%.
She also reaffirmed that the FOMC is committed to a "2% inflation objective."
The markets immediately responded to the 2 p.m. ET announcement with a massive drop in all the major indices. Treasurys and yield dropped as well.
Stocks and investors clung to Yellen saying there could be a six-month gap before rate hikes after bond buying end, causing all major indices to plummet.
"The committee endorsed the view that it anticipates it will be a considerable period after the asset purchase program ends before it will be appropriate to raise rates," Yellen said in the conference.
The Fed has also downgraded its estimate of domestic economic growth in 2014 from 3.2% to no more than 3%. They also expect the unemployment rate to hit between 6.1%-6.3% by the end of the year, beating the former estimate of 6.3-6.6%.
Yellen said much of the slowdown in the first quarter so far is due to weather, but they also acknowledged the fundamental weakness in the labor market, where downward pressure on the unemployment rate comes more from people leaving the workplace than from job creation.
“Between December and January there was data to be more optimistic of the economic outlook,” Yellen said. “We partly overdid the optimism in January.”
“Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated,” she said.
The central bank also acknowledged that the housing recovery, such as it is, is tepid.
“Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing,” the Fed stated in a written release.
The FOMC voted 8-1 to cut its bond-buying program to $55 billion a month from the previous level of $65 billion. This is the third vote to approve and continue tapering, and the first under new Federal Reserve Chair Janet Yellen. Federal Reserve Bank of Minneapolis President Narayana Kocherlakota was the lone dissenter.
“The FOMC currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions,” Yellen said.
She continued, explaining the decision to continue the taper.
“The FOMC currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the committee decided to make a further measured reduction in the pace of its asset purchases,” she said.
Beginning in April, the committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month.
(Download or view the formal announcement here.)
Troubling to those who want more concrete forward guidance on interest rates and QE tied to objective metrics, the Fed also formally changed its standard from the established 6.5% unemployment rate to a hazier “qualitative guidance” determined by a broad range of readings, leaving the Fed freer to act more subjectively.
Questioned about the change in forward guidance, Yellen said, "The reason the committee revised forward guidance is not because we thought it has not been effective. It's very useful...in helping markets understand our expectations in shaping their own. But as the unemployment rate gets closer to 6.5% and to breaching that threshold – markets want to know and the public wants to understand how we will decide what to do. The purpose is to provide more information than we have in the past. As unemployment rate declines below 6.5% we will decide how long to hold" interest rates at close to 0%.
She also reaffirmed that the FOMC is committed to a "2% inflation objective."
The markets immediately responded to the 2 p.m. ET announcement with a massive drop in all the major indices. Treasurys and yield dropped as well.
Stocks and investors clung to Yellen saying there could be a six-month gap before rate hikes after bond buying end, causing all major indices to plummet.
"The committee endorsed the view that it anticipates it will be a considerable period after the asset purchase program ends before it will be appropriate to raise rates," Yellen said in the conference.
The Fed has also downgraded its estimate of domestic economic growth in 2014 from 3.2% to no more than 3%. They also expect the unemployment rate to hit between 6.1%-6.3% by the end of the year, beating the former estimate of 6.3-6.6%.
Yellen said much of the slowdown in the first quarter so far is due to weather, but they also acknowledged the fundamental weakness in the labor market, where downward pressure on the unemployment rate comes more from people leaving the workplace than from job creation.
“Between December and January there was data to be more optimistic of the economic outlook,” Yellen said. “We partly overdid the optimism in January.”
“Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated,” she said.
The central bank also acknowledged that the housing recovery, such as it is, is tepid.
“Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing,” the Fed stated in a written release.
Monday, March 17, 2014
Are post-crisis credit requirements holding back 1.2M mortgages?
The number of mortgages that could be made if credit conditions and requirements were at traditional, pre-crisis levels could top 1.2 million.
That’s the finding of Laurie Goodman, center director for the Housing Finance Policy Center at the Urban Institute, in a paper the Institute put out on the challenges minority households face in the new credit environment.
“Compared to 2001 lending standards, as many as 1.2 million loans were “missing” in 2012 alone due to lower credit availability—disproportionately impacting African American and Hispanic households,” Goodman writes. “The number of new mortgage loans is at its lowest in more than a decade and borrowers with low FICO scores are shut out. But changes in home purchase loan volume during the boom, bust, and recovery reveal just how much harder minorities are getting hit.”
That finding echoes the sentiment of Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, speaking at the National Community Reinvestment Coalition’s annual conference in Washington, D.C., on Friday.
Gruenberg noted that in the United States, half of all Hispanics and 55% of blacks are “unbanked” or “underbanked.”
Goodman’s study drills deep into disparities among varying ethnic and racial groups, noting that from 2001 to 2012, the share of non-Hispanic whites increased from 68% to 71% of all borrowers and Asian borrowers grew from 4% to 6%. Blacks increased their percentage among all borrowers from 6-8% between 2001 and 2005, but that dropped to 5% by 2012. Hispanic borrowers increased from 9% in 2001 to 13% in 2005, before dropping back below 9% by 2012.
“While all borrowers lost household equity in the Great Recession and are now feeling the crunch of tightening credit, minority borrowers may feel it most. Many of these minority borrowers received the kind of predatory mortgages now forbidden under the Dodd-Frank Act,” Goodman writes. “With the subsequent downturn in prices, particularly in minority neighborhoods, higher minority default rates are not surprising. Now, strict credit standards and lowered FICO scores due to missed payments or foreclosure prevent many of these same borrowers from entering the housing market despite lower prices.”
If 2001 credit availability standards were applied in 2012, more households would be receiving mortgages.
“Today’s credit inaccessibility is locking out African American and Hispanic borrowers disproportionately—at exactly the point in the economic cycle that favors new homeownership,” Goodman says.
In explaining how she and her co-authors of the study concluded that as many as 1.2 million mortgages were not done in 2012 that could have been, Goodman explains that they measured this based on 2001 credit availability levels.
“Based on the upper bound calculation, 1.22 million fewer purchase mortgages were made in 2012 than would have been the case had credit availability remained at 2001 levels,” she writes.
The researchers reached their conclusion as follows: The volume of > 750 FICO loans was down by 18% in 2012 compared with 2001. Assuming that each of the lower FICO buckets would have declined by 18% — rather than declines of 70 and 46% for the < 660 and 660–750 buckets, respectively – if there were no change in credit availability, the total number of loans made to borrowers with FICO scores in the < 660 and 660–750 buckets would have been 1.77 million. The actual number of loans for these groups was1.23 million, a difference of 540,000.
Then they multiplied this difference by 2.23 to match their loan count to HMDA data, allowing them to conclude there are 1.22 million (540,000 × 2.23) missing first lien loans.
“These results illustrate that constrained credit availability has decreased the number of purchase mortgages being made in the current environment, especially for prospective owner-occupants,” Goodman and her co-authors wrote.
That’s the finding of Laurie Goodman, center director for the Housing Finance Policy Center at the Urban Institute, in a paper the Institute put out on the challenges minority households face in the new credit environment.
“Compared to 2001 lending standards, as many as 1.2 million loans were “missing” in 2012 alone due to lower credit availability—disproportionately impacting African American and Hispanic households,” Goodman writes. “The number of new mortgage loans is at its lowest in more than a decade and borrowers with low FICO scores are shut out. But changes in home purchase loan volume during the boom, bust, and recovery reveal just how much harder minorities are getting hit.”
That finding echoes the sentiment of Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, speaking at the National Community Reinvestment Coalition’s annual conference in Washington, D.C., on Friday.
Gruenberg noted that in the United States, half of all Hispanics and 55% of blacks are “unbanked” or “underbanked.”
Goodman’s study drills deep into disparities among varying ethnic and racial groups, noting that from 2001 to 2012, the share of non-Hispanic whites increased from 68% to 71% of all borrowers and Asian borrowers grew from 4% to 6%. Blacks increased their percentage among all borrowers from 6-8% between 2001 and 2005, but that dropped to 5% by 2012. Hispanic borrowers increased from 9% in 2001 to 13% in 2005, before dropping back below 9% by 2012.
“While all borrowers lost household equity in the Great Recession and are now feeling the crunch of tightening credit, minority borrowers may feel it most. Many of these minority borrowers received the kind of predatory mortgages now forbidden under the Dodd-Frank Act,” Goodman writes. “With the subsequent downturn in prices, particularly in minority neighborhoods, higher minority default rates are not surprising. Now, strict credit standards and lowered FICO scores due to missed payments or foreclosure prevent many of these same borrowers from entering the housing market despite lower prices.”
If 2001 credit availability standards were applied in 2012, more households would be receiving mortgages.
“Today’s credit inaccessibility is locking out African American and Hispanic borrowers disproportionately—at exactly the point in the economic cycle that favors new homeownership,” Goodman says.
In explaining how she and her co-authors of the study concluded that as many as 1.2 million mortgages were not done in 2012 that could have been, Goodman explains that they measured this based on 2001 credit availability levels.
“Based on the upper bound calculation, 1.22 million fewer purchase mortgages were made in 2012 than would have been the case had credit availability remained at 2001 levels,” she writes.
The researchers reached their conclusion as follows: The volume of > 750 FICO loans was down by 18% in 2012 compared with 2001. Assuming that each of the lower FICO buckets would have declined by 18% — rather than declines of 70 and 46% for the < 660 and 660–750 buckets, respectively – if there were no change in credit availability, the total number of loans made to borrowers with FICO scores in the < 660 and 660–750 buckets would have been 1.77 million. The actual number of loans for these groups was1.23 million, a difference of 540,000.
Then they multiplied this difference by 2.23 to match their loan count to HMDA data, allowing them to conclude there are 1.22 million (540,000 × 2.23) missing first lien loans.
“These results illustrate that constrained credit availability has decreased the number of purchase mortgages being made in the current environment, especially for prospective owner-occupants,” Goodman and her co-authors wrote.
Monday, March 10, 2014
U.S. Housing Sector Is in Big Trouble
U.S. Housing Sector Is in Big Trouble
Events in the Ukraine have been distracting the global financial markets, but for investors and financial institutions in the U.S., the deteriorating economic fundamentals in the housing sector are probably a more urgent concern.
While many parts of the U.S. economy are growing, the housing sector is increasingly a drag on consumption and job creation. The fault lies not with the market, however, but with ill-considered regulations and bank capital rules.
On the surface, things look o.k. Nationwide, house prices rose 1.2% in the fourth quarter of 2013 according to the Federal Housing Finance Agency's index. This is the tenth consecutive quarterly price increase in the purchase-only, seasonally adjusted index.
But the FHFA's principal economist, Andrew Leventis noted that the appreciation was “more modest than in recent periods,” and cautioned: “It is too early to know whether the lower quarterly growth rate represents the beginning of more normalized price appreciation patterns or a more significant slowdown.”
Most housing indicators suggest that the overall rate of home price appreciation is slowing considerably, with a few of the more attractive markets around the country. accounting for most of the upward momentum. Home prices probably peaked overall in the second quarter of 2013, but the time delay in most of the major data series on housing masks this reality.
For example, the National Association of Realtors reports that existing home sales and median home price information showed gains of 10.4% in prices in January compared to a year earlier, “a slight acceleration from the 9.7 percent year over year gains in December but notably slower than trends in early summer/fall 2013.”
The Realtors report the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower-price tiers, the Realtors' median price had risen by more than the weighted repeat sales index, which computes price change based on repeat sales of the same property.
Only six cities – Dallas, Las Vegas, Miami, San Francisco, Tampa and Washington – posted gains for the month of December, according to the 20-city Case Shiller Index. While average home prices have returned to 2004 levels, 20% to 30% of American homeowners remain either underwater on their mortgages or have too little equity to sell their homes. A lack of supply of homes is actually driving appreciation in many of the hottest markets, but sales volumes remain well below pre-2007 levels.
Applications for home mortgages, including both new purchases and refinancings, are at the lowest levels in more than a decade. While many observers blame rising interest rates for the paucity of new loan applications, factors such as a poor job market, flat to down consumer income and excessive regulation are probably more important. Commercial banks are fleeing the mortgage lending and loan servicing businesses, in large part because of punitive regulations and new Basel III capital requirements which demonize private mortgage lending.
“Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks,” Victoria Finkle writes in American Banker. “The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far.” Those fears are well founded.
The latest data from the Federal Deposit Insurance Corp. confirms that the loan portfolios of commercial banks devoted to housing are running off. For example, the total of 1-4 family loans securitized by all U.S. banks fell almost 5% in the fourth quarter of 2013 to a mere $610 billion. Real estate loans secured by 1-4 family properties held in bank portfolios as of the fourth quarter fell to $2.4 trillion in the last quarter, the lowest level since the fourth quarter of 2004. The FDIC reports that the amount of 1-4 family loans sold into securitizations exceeded originations by almost $30 billion.
As 2014 unfolds, look for lending volumes in 1-4 family mortgages to continue to fall as a lack of demand from consumers and draconian regulations force many lenders out of the market. While leaders such as Wells Fargo have indicated that they will write loans with credit scores in the low 600s range, there are not enough borrowers in the below prime category to make up for the dearth of consumers seeking a mortgage overall. When home prices measures generally start to fall later this year, maybe our beloved public servants in Washington will start to get the message.
Christopher Whalen is an author and investment banker who lives in New York.
Events in the Ukraine have been distracting the global financial markets, but for investors and financial institutions in the U.S., the deteriorating economic fundamentals in the housing sector are probably a more urgent concern.
On the surface, things look o.k. Nationwide, house prices rose 1.2% in the fourth quarter of 2013 according to the Federal Housing Finance Agency's index. This is the tenth consecutive quarterly price increase in the purchase-only, seasonally adjusted index.
But the FHFA's principal economist, Andrew Leventis noted that the appreciation was “more modest than in recent periods,” and cautioned: “It is too early to know whether the lower quarterly growth rate represents the beginning of more normalized price appreciation patterns or a more significant slowdown.”
Most housing indicators suggest that the overall rate of home price appreciation is slowing considerably, with a few of the more attractive markets around the country. accounting for most of the upward momentum. Home prices probably peaked overall in the second quarter of 2013, but the time delay in most of the major data series on housing masks this reality.
For example, the National Association of Realtors reports that existing home sales and median home price information showed gains of 10.4% in prices in January compared to a year earlier, “a slight acceleration from the 9.7 percent year over year gains in December but notably slower than trends in early summer/fall 2013.”
The Realtors report the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower-price tiers, the Realtors' median price had risen by more than the weighted repeat sales index, which computes price change based on repeat sales of the same property.
Only six cities – Dallas, Las Vegas, Miami, San Francisco, Tampa and Washington – posted gains for the month of December, according to the 20-city Case Shiller Index. While average home prices have returned to 2004 levels, 20% to 30% of American homeowners remain either underwater on their mortgages or have too little equity to sell their homes. A lack of supply of homes is actually driving appreciation in many of the hottest markets, but sales volumes remain well below pre-2007 levels.
Applications for home mortgages, including both new purchases and refinancings, are at the lowest levels in more than a decade. While many observers blame rising interest rates for the paucity of new loan applications, factors such as a poor job market, flat to down consumer income and excessive regulation are probably more important. Commercial banks are fleeing the mortgage lending and loan servicing businesses, in large part because of punitive regulations and new Basel III capital requirements which demonize private mortgage lending.
“Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks,” Victoria Finkle writes in American Banker. “The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far.” Those fears are well founded.
The latest data from the Federal Deposit Insurance Corp. confirms that the loan portfolios of commercial banks devoted to housing are running off. For example, the total of 1-4 family loans securitized by all U.S. banks fell almost 5% in the fourth quarter of 2013 to a mere $610 billion. Real estate loans secured by 1-4 family properties held in bank portfolios as of the fourth quarter fell to $2.4 trillion in the last quarter, the lowest level since the fourth quarter of 2004. The FDIC reports that the amount of 1-4 family loans sold into securitizations exceeded originations by almost $30 billion.
As 2014 unfolds, look for lending volumes in 1-4 family mortgages to continue to fall as a lack of demand from consumers and draconian regulations force many lenders out of the market. While leaders such as Wells Fargo have indicated that they will write loans with credit scores in the low 600s range, there are not enough borrowers in the below prime category to make up for the dearth of consumers seeking a mortgage overall. When home prices measures generally start to fall later this year, maybe our beloved public servants in Washington will start to get the message.
Christopher Whalen is an author and investment banker who lives in New York.
Monday, March 3, 2014
Ocwen plans $2 billion in mortgage principal reduction
Ocwen Financial Corporation (OCN) committed to continue its principal forgiveness modification programs to delinquent and underwater borrowers, totaling at least $2 billion over three years, the servicer said in an annual regulatory filing.
The servicer entered a consent judgment agreement with the U.S. District Court for the District of Columbia on Feb. 26, approving the program and several other elements. The agreement was previously announced late last year.
The modification program includes underwater borrowers at imminent risk of default and is designed to be sustainable for homeowners while providing a net present value for mortgage loan investors that is superior to that of foreclosure.
Ocwen will not incur any fees other than operating expense, and principal forgiveness will be determined on a case-by-case basis.
The agreement also revealed another noteworthy factor: Ocwen established a reserve of $66.9 million with respect to its portion of the payment into the consumer relief fund.
“This reserve is expected to cover all of Ocwen’s portion of the consumer relief fund payment,” the filing said.
Additionally, a payment of $127.3 million was approved, which included a fixed amount for administrative expenses, to a consumer relief fund to be disbursed by an independent administrator to eligible borrowers.
In its latest fourth-quarter earnings report, Ocwen was still highly profitable and recorded a net income of $105 million, or 74 cents per share, and revenue of $556 million.
However, due to the company’s heightened regulatory scrutiny, it could face adverse regulatory action, fines or penalties, which could increase its operating expenses, reduce revenues or otherwise adversely affect business.
The servicer entered a consent judgment agreement with the U.S. District Court for the District of Columbia on Feb. 26, approving the program and several other elements. The agreement was previously announced late last year.
The modification program includes underwater borrowers at imminent risk of default and is designed to be sustainable for homeowners while providing a net present value for mortgage loan investors that is superior to that of foreclosure.
Ocwen will not incur any fees other than operating expense, and principal forgiveness will be determined on a case-by-case basis.
The agreement also revealed another noteworthy factor: Ocwen established a reserve of $66.9 million with respect to its portion of the payment into the consumer relief fund.
“This reserve is expected to cover all of Ocwen’s portion of the consumer relief fund payment,” the filing said.
Additionally, a payment of $127.3 million was approved, which included a fixed amount for administrative expenses, to a consumer relief fund to be disbursed by an independent administrator to eligible borrowers.
In its latest fourth-quarter earnings report, Ocwen was still highly profitable and recorded a net income of $105 million, or 74 cents per share, and revenue of $556 million.
However, due to the company’s heightened regulatory scrutiny, it could face adverse regulatory action, fines or penalties, which could increase its operating expenses, reduce revenues or otherwise adversely affect business.
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