This Is Further Proof That The Banks Are Holding Back Inventory- Thus The Price Rise Is Artificial

 

Dutch-owned ING is continuing to dissolve non-insurance related assets as part of its bailout agreement with the government of the Netherlands. The latest announcement deals with the offloading of Alt-A mortgages in the United States. According to an article in the New York Times, the portfolio of mortgage securities, originally valued at 24 billion euros, or about $33 billion, will be sold at an expected $500 million profit for the Dutch government.
Of course, market participants offer some more perspective. The current value of the portfolio is now about 6.4 billion euros or approximately $8.8 billion. Nonetheless, the paper will be welcome to the market.
"We think the unwinding of the portfolio will be welcomed by the non-agency market as it will help relieve the lack of supply," said Greg Reiter, Head of RMBS Research at Wells Fargo Securities.
Adjustable rate mortgages slip in popularity in an environment of rising interest rates. But even so, the Motley Fool says, it can be a great mortgage product.
"The adjustable-rate mortgage, or ARM, may be the best option -- depending on your circumstances," writes Patrick Morris.
"The ARM is a curious one, as it often carries the lowest rate, yet it represented only 4.4% and 6.5% of all mortgages originated in 2009 and 2010 (the most recent years for which the data is available)," he adds.
Over to housing stories, Crain's New York Business ran an article harping on the lack of political action on rising housing costs in the big apple. but offered hope that a new regime may address it head on.
In that market, the less people make, the more they usually have to pay from their incomes for lodging. The issue may make or break the next candidate for mayor, the article points out.
"To keep this housing in good condition and create incentives for owners to keep it affordable for the long term, the next mayor should continue to use his housing agencies to offer low-cost loans and tax incentives to owners for capital repairs and energy-efficiency upgrades that will tamp down operating expenses and rent increases," the article states.
California seems to be doing well on the opposite end of the scale. Several private, high-end multifamily complexes aren't even finished with construction in San Francisco, yet they're already approaching half occupancy. Additionally, The Wall Street Journal talks about the national trend of building with only renters in mind.
For private apartment builders, it's the good times. San Fran is being flooded with young techies with great jobs. Three bedrooms can go into the $5,000 a month range, according to the San Francisco Gate. They may be flush with cash, but that won't equal more room to spread one's wings.
"They and many others moving into Upper Market may be downsizing quite a bit. Units measure as small as 450 square feet - 'teeny-weeny floor plans,' as one real estate blog described them," the article states.
Banks will have to do more to show greater survivability in harsh economic times according to an article in Bloomberg.
The stress test for 2014 will have to show reduced counterparty risk and cushion from large losses in business loans.
"The Fed is using the tests -- based on hypothetical adverse conditions and not forecasts -- to encourage the 30 biggest banks to build capital cushions against economic turmoil," the article states. "Twelve banks will be subject to the capital review for the first time."
The Federal Deposit Insurance Corp. closed no banks going into the weekend.

DeMarco's Job Is Safe- For Now!!!

A procedural vote designed to get Rep. Mel Watt, D-N.C., thrust quickly into the head job at the Federal Housing Finance Agency failed on the Senate floor this morning.
The failed cloture vote initiated by Democratic leaders in the Senate suggests that while Watt’s nomination is not dead, it has been significantly derailed.
If Democrats had obtained the 60-vote threshold in the procedural vote this morning, Watt most likely would have obtained full Senate confirmation within a week, Compass Point Research & Trading said. Achieving that threshold would have meant the Congressman could have obtained the FHFA spot with a simple 51 votes – a simple barrier with Democrats and like-minded Indepedents already set to give him 55 votes, analysts with Compass Point explained.

However, that was not the case. Senate Majority Leader Harry Reid, D-N.V., pushed for cloture to prevent a filibuster and procedural delays. With that vote failing this morning, Watt’s fight for the FHFA leadership post is now much more difficult. Reid's procedural vote failed by four votes, with a final 56-to-42 vote count.
"We do not believe that Senate Majority Leader Reid’s (D-NC) most recent nomination push will end if Rep. Watt’s nomination does not clear the 60-vote threshold today, but it will surely be a body blow to the effort," Compass Point said. "One way or the other, following today’s vote attention is going to quickly turn to Janet Yellen’s nomination to head the Federal Reserve as the Senate Banking Committee is expected to hold its hearing on the nomination as early as November 14."
As for what happens to the Watt vote, it’s likely to go idle for a while since it may be difficult for the administration to make a big public push for Watt ahead of his Feb. 28 filing deadline for his congressional reelection campaign, Compass Point said.
Watt went into the hearing with opposition against him.
While Watt had the backing of the Mortgage Bankers Association, conservative groups like Club for Growth released statements advising Senators to vote against cloture on the Watt nomination.
 "Congressman Mel Watt is not at issue – the policies he will pursue as head of FHFA are," said Club for Growth President Chris Chocola. "Mel Watt will almost certainly pursue a write-down of mortgage debt, which is a massive taxpayer-subsidized bailout that would create a massive moral hazard."
"Make no mistake – a vote for cloture on Mel Watt is simply a vote for a massive taxpayer-funded bailout, and the Club for Growth will treat it as such on our Congressional scorecard," added Chocola.
If Watt had obtained 60 votes this morning, his nomination would have been smooth sailing, and it’s likely he would have had the post as early as next week.
If cloture had been secured, he could have easily obtained the seat with 51 votes.
Today’s vote throws off that momentum.
Analysts with Barclays Securitized Products Research see a few possibilities from this point forward. Sen. Reid can either bring the confirmation up for another vote if Republican support surfaces, or the White House can nominate someone else such as Mark Zandi, chief economist for Moody’s Analytics, whose name has been flown around for some time now.
Other options include a White House recess appointment to make Watt director at the end of the Congressional session in December, or a decision from the administration to elevate one of Ed DeMarco’s current deputies to the position, Barclays noted.

Mortgage Banker's Association Sees Taper

t may be sunny in Washington D.C., the site of the Mortgage Bankers Association 100th Annual Convention & Expo, but predictions by the host's economists on mortgage originations turned very gloomy during a group breakfast with the press.

The MBA told journalists over plates of eggs, bacon and sausage that it would revise upwards its predictions for 2013 mortgage originations to $1.7 trillion from $1.6 trillion.

But the good news ended there.

The $1.08 billion in refinances will drop to $463 billion in 2014. The purchase originations will only rise from $661 billion to $723 billion, according to data provided by the MBA.

The MBA believes rates will keep pushing upward, going well above 5%, and remain that way through 2015. This will place downward pressure on refinances, leaving a gap that purchase mortgage originations can't fill.

"The mortgage market is tapering, even if the Federal Reserve is not," said MBA chief economist Jay Brinkman, in reference to the Fed buying large volumes of mortgage-backed securities. "If the Fed continues the pace of $40 billion a month, they will be buying in excess of 50% of every mortgage in the country."
The news comes amid reports that the Federal Reserve would do better holding these mortgages to maturity rather than selling. However, it is widely predicted the Fed will sell early next year, in order to reduce its record balance sheet of nearly $4 trillion.

Michael Fratantoni, vice president of single-family research and policy, said jobs remain a concern, and that not having one is a primary reason Americans aren't buying homes. And, the numbers may not be telling the whole story.
People have effectively stopped looking for work in many cases, it's the "discouraged worker" phenomenon," Fratantoni said. "You won't see a huge re-entry of people into the job market."

Families Blocked By Investors From Buying Homes- Repost from Bloomberg

Institutional purchases accounted for 14 percent of sales, according to a report today from RealtyTrac. That was the highest share since the real estate data firm began in 2011 to track transactions by that group, which it defines as buyers of 10 or more homes a year. All-cash sales rose to 49 percent from 40 percent in August and 30 percent a year earlier, a sign that rising mortgage rates since May have kept some people out of the market and that smaller investors are stepping up purchases.
“Both investors and traditional buyers are trying to snap up cheap homes before prices go higher, but the investors have the advantage of paying cash and not having to go through a convoluted mortgage process,” said Michael Hanson, a former Federal Reserve economist now working for Bank of America Corp. in New York. “People are being bid out of some markets because of investor demand.”
Wall Street’s influence on the residential real estate market is growing as the biggest investors, Blackstone Group LP (BX) and American Homes 4 Rent (AMH), have together bought about 60,000 homes across the country to benefit from low prices and rental demand from millions of former home owners who have lost properties through foreclosures.
The homeownership rate declined to 65 percent in the first half of this year from a peak of 69.2 percent in June 2004. The level is expected to stabilize at about 63 percent, adding more than 2 million households to the rental population, according to Morgan Stanley analyst Haendel St. Juste.

Pendulum Swings

Families are still able to live in single-family homes with a yard for their kids to play in, said Daren Blomquist, a RealtyTrac vice president. However, they’re sending their money to investor-landlords, rather than paying off a mortgage.
“The pendulum is swinging too far from the direction we saw during the run-up to the mortgage crisis,” Blomquist said in an interview. “Then, we tried to make everyone an owner. Now, we have people who have the income to pay a mortgage and have the desire to own a home who are stuck being renters.”
Blackstone has led hedge funds, private-equity firms and real estate investment trusts raising about $20 billion to purchase as many as 200,000 homes to rent after home prices plunged 35 percent from the 2006 peak.

Mortgage Rates

The ability of investors and cash buyers to outbid traditional home purchasers has grown after a spike in mortgages rates that began in May. The average fixed rate for a 30-year home loan jumped almost a percentage point to a two-year high of 4.58 percent in mid-October, according to data from Freddie Mac.
The average rate for a 30-year fixed mortgage dropped to 4.13 percent this week. It’s risen from 3.35 percent in May.
“There’s a tremendous pressure on inventory in the areas that are being dominated by investors,” said Keith Gumbinger, vice president of HSH.com, a Riverdale, New Jersey-based mortgage website. “People end up wanting to buy a home, but they can’t. All the homes have been converted into rentals.”
Daryl Dennis spends his days helping investors do that. A general contractor for Waypoint Homes, an Oakland, California-based real estate fund that buys more than 50 homes a month in the metro Atlanta market, Dennis oversees plumbers, painters and landscapers on about 20 single-family projects a month.
“The investors are ruling the market,” said Dennis, interviewed by phone while on the job at a project in Canton, Georgia, outside Atlanta. “The little guy can’t win if he’s up against a deep-pocket investor.”

Biggest Chance

The biggest chance for profit comes from buying bank-owned properties that often are sold in bulk, Dennis said. About 10 percent of September sales nationwide were properties that had been repossessed in foreclosures, according to the RealtyTrac report.
Las Vegas had the highest share of those sales, at 21 percent. In the California cities of Riverside and San Bernardino the share was 20 percent of the market, in Cleveland it was 19 percent and in Phoenix it was 18 percent, according to the report.
Atlanta was the top market for institutional investors, who accounted for 29 percent of all home purchases there in September, according to the RealtyTrac report. Las Vegas was second at 27 percent, followed by St. Louis at 25 percent, Jacksonville, Florida, at 23 percent, and Charlotte, North Carolina at 17 percent.

Flipping Houses

Adam Luesse is an investor in St. Louis who paid cash for five houses he turned into rentals. He also buys properties to renovate and resell at a profit, called flipping. He planned to list his latest flip, a two-bedroom home on the west side of the city, for sale today for $140,000.
“When financing became difficult, that pushed the entire lower tier of buyers into rentals,” Luesse said. “They either don’t have the down payment or they don’t have the credit score.”
Nationally, the median monthly rent was at an all-time high of $735 in the second quarter, according to U.S. government data. The rental vacancy rate, which measures the number of empty units, fell to 8.2 percent, the lowest since the first quarter of 2001.
The median price of a distressed residential property, meaning a property in foreclosure or a home already seized by a bank, was $112,000 in September, a discount of 41 percent from the $189,000 median price of a non-distressed property, according to the RealtyTrac report.

Foreclosed Properties

About 49 percent of homes were bought with cash, up from 40 percent in August and 30 percent a year earlier, the report said.
Investor demand for foreclosed homes has driven up prices at a pace not seen since the boom that ended in mid-2006. The S&P/Case-Shiller index of property values in 20 cities increased 12.4 percent in July from a year earlier, the biggest advance since February 2006.
While real estate values nationally are still 21 percent below their peak, investors’ mass purchases are helping push up values in cities hardest hit by the property crash, with a 27.5 percent surge in Las Vegas and gains of 18.5 percent in Atlanta in July from a year earlier.
“The housing market is tilting in favor of deep-pocket institutional investors, especially in cities that were hard-hit with foreclosures,” said RealtyTrac’s Blomquist “These guys will pay as much as they need to get a property and that’s squeezing out families looking for a home to live in.”

Pending home sales fall on declining home affordability

 

The number of real estate contracts signed and recorded declined 5.6% from August to September, as home affordability receded under the influence of higher mortgage rates, home prices and consumer uncertainty, the National Association of Realtors concluded Monday.

The NAR Pending Home Sales Index – a barometer of real estate contract signings – fell from an index score of 107.6 in August to 101.6 in September. It also declined 1.2% from year ago levels when the index hovered at 102.8.
This is the lowest index level reached since December of last year, and NAR is blaming the influence of declining home affordability, lower consumer confidence and a government shutdown that shook up both construction activity and home sales.
"Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity," said Lawrence Yun, NAR’s chief economist. "In addition, government and contract workers were on the sidelines with growing insecurity over lawmakers’ inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases."
The numbers suggest a lackluster fourth quarter, with Yun saying for the first time in 29 months pending home sales failed to come in above year ago levels.
"This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014," he said. "Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year."
Regionally, the pending home sales index fell the most in the Northeast, declining 9.6% to an index score of 76.7. The Midwest index declined 8.3% to 102.3, but remained 5.7% above year ago levels. The South also saw sales slip 0.4% to an index score of 116.2 even though the index is still 2% above year ago levels.
The West sales index fell 9% in September to an index score of 97.3, also down 9.8% from a year earlier.
However, 2013 was a solid year for home sales overall. Numbers recorded in the first part of the year will make 2013 a high performing 12-month period overall.
NAR says total existing-home sales will end up 10% higher when compared to 2012 levels, with 5.1 million sales expected. This could even hold heading into 2014, the latest NAR report says.

Meanwhile, the national median existing-home price is expected to rise 11% to 11.5% for all of 2013, while experiencing a moderate 5% to 6% gain next year.

GSE's report 21.5% drop in purchases from August

The government-sponsored enterprise reports purchases of single-family and multifamily loans totaled $28 billion in September, down 21.5% from August.
Single-family refinancings totaled $16 billion or 62% of all mortgage purchases in September. In August, Freddie purchased or guaranteed $21 billion in refinancing.
Freddie says “relief refinancings” comprised 39% of the $16 billion in refis in September. During the first half of this year, HARP refis made up 56% of relief refinancings.
The GSE purchased $1 billion in multifamily loans in September, which brings the total for the first nine months of this year up to $19 billion.
The GSE also reports that the serious delinquency rate on its single-family guaranty portfolio continued to decline.
The percentage of loans that are 90 days or more past due fell to 2.54% in September, down 6 basis points from August. A year ago, Freddie had a 3.2% serious delinquency rate.

Half of Foreclosed Homes Occupied

Foreclosure sounds like the end of the line, but actual eviction can take months or years -- even after the bank has repossessed a home.

RealtyTrac estimates that 47% of the nation's foreclosed homes are currently occupied. The percentage actually tops 60% in some hot housing markets, like Miami and Los Angeles.

Those still living in repossessed homes include both former owners and renters. Either way, their time in the homes is mortgage and rent free.
To arrive at its estimate, RealtyTrac compared its database of foreclosed homes with postal records showing whether mail was still being collected and whether change-of-address forms had been filed.
Even when occupants leave voluntarily, old owners typically take about two months to vacate.
With renters, it can take a year or more. "If someone has a bona fide rental agreement, we have to abide by that," said Amy Bonitatibus, a spokeswoman for JP Morgan Chase.
Related: California city's drastic foreclosure remedy
One issue, according to Wells Fargo spokesman Tom Goyda, is that the eviction process can take months as it winds through the legal process. The timing varies widely based on local laws and the backlog of cases in individual courts.
Goyda said the bank has been trying to speed up the process by offering cash to prompt occupants to leave.

 

Flashback: Shiller calls the housing crash

In addition, some states, like Alabama and Utah, have so-called redemption periods of up to a year during which former owners can get their home back if they can find the means to pay off their mortgages.
Related: Surprising foreclosure hotspots
And banks may be in no rush to kick people out. They will take their time in markets with a lot of homes for sale and depressed prices. Plus, letting homeowners stick around can help protect homes from abuse.
"Although one thinks lenders take losses by not moving evictions forward, they're still faring better by keeping the properties occupied," said Pauliana Lara of the Consumer Action Law Group in Los Angeles, which works with homeowners to fight foreclosures. "Many foreclosed homes get vandalized or squatters move in."