Senators warn HUD, Treasury about lingering eminent domain proposals

The eminent domain controversy in Richmond, Calif., continues with several senators publicly asking housing regulators to push back at any proposal that would allow municipalities to offer principal write-downs to underwater borrowers by acquiring their mortgages through eminent domain.  
So what prompted the strongly worded letter four senators mailed to Department of Housing and Urban Development Secretary Shaun Donovan and Treasury Secretary Jack Lew?
The answer apparently is an eminent domain rescue plan that reached a little too far for the senators' liking.
The city of Richmond, Calif., has gone as far as mailing letters to mortgage holders, asking them if the city can buy out their interests in underwater mortgages at a discount.
In the same letter, the city reportedly threatens to take over the mortgages using eminent domain if a deal is not reached.

This particular action prompted the letter from the senators advising Donovan and Lew that the Obama administration has been relatively silent on the issue and should give the mortgage market back-up.

While the senators noted the Federal Housing Finance Agency (FHFA) has publicly voiced its opposition to eminent domain, saying it could “negatively affect the extension of credit to borrowers seeking to become homeowners," the senators believe the Obama administration "has been largely silent on the subject."
The four senators, Pat Toomey (R-Pa.), John Boozman (R-Ark.), Mark Begich (D-AK) and Heidi Heitkamp (D-ND), told Lew and Donovan they want more answers from the Obama administration after a HUD representative told them the housing agency is monitoring the situation, but failed to specify what actions need to be taken.
Fearing eminent domain in Richmond will send shock waves through the housing market, the senators warned regulators of a dire impact on the entire mortgage lending space if eminent domain fully takes root.
To address the issue, the senators want HUD to use its existing authority to prevent the FHA from insuring mortgages on any properties affected by an eminent domain proposal.

Home Values to Rise Only 2.7% by October 2014

Home values have fallen in two consecutive months for the first time since October 2011, according to Zillow data.
The Zillow Home Value Index through October is $162,800, a slight 0.1% drop from the previous month. And even though home price appreciation was up 5.2% on a yearly basis, this represents a much slower pace than the 7% figure that was seen over the summer.
“The months-long period of annual home value appreciation rates in the 6 and 7% range was great while it lasted but we knew it would not continue indefinitely,” said Stan Humphries, chief economist at Zillow. “The slowdown we’ve seen these past few months was expected, and is largely welcome news for a market still struggling to find its natural balance.”
Out of the 388 metropolitan statistical areas covered by Zillow, half experienced monthly home value depreciation in October from September. Among the 30 largest markets Zillow tracks, 10 exhibited a month-over-month drop in home prices, while two more were flat.
Over the next year, national home values are forecasted to increase just 2.7%, which is approximately half the current pace, Zillow says. The biggest declines are projected to occur in St. Louis (down 1.5%), Philadelphia (drop of 0.9%), and New York (decline of 0.7%).
Meanwhile, renting a housing unit continues to be costly in October as it went up from the month before and a year ago by 0.2% and 2.3%, respectively.
“The conditions that led to the robust appreciation experienced earlier this year, including historically low mortgage interest rates, high affordability, low inventory and high demand, are waning,” Humphries says. “In their place, we’re beginning to see more inventory and rising mortgage rates, which will lead to further normalization in the market going forward.”

REO and Foreclosure Sales Rise as Short Sales Fall

After a surge in short sales in late 2011 and early 2012, the favored disposition method for distressed properties is shifting back toward the more traditional foreclosure auction and bank-owned sales.

During October, short sales represented 5.3% of the more than 5.6 million annualized pace of residential sales, according to data from RealtyTrac. This is a 6.3% decline from the previous month and an 11.2% drop from a year ago. The states that had the highest percentage of short sales during October were Nevada (14.2%), Florida (13.6%), Maryland (8.2%), Michigan (6.7%), and Illinois (6.2%).
Meanwhile, foreclosure auction sales to third-parties accounted for 2.5% of all sales, which is nearly double the amount from last October.
REO sales, which were 9.6% of the overall total, increased on a monthly and yearly basis too, from 8.9% and 9.4%, respectively. Markets where bank-owned sales represented at least 20% of its single-family homes, condominiums and townhomes sold include Stockton, Calif., Las Vegas, Cleveland and Riverside, Calif.
“The combination of rapidly rising home prices—along with strong demand from institutional investors and other cash buyers able to buy at the public foreclosure auction or an as-is REO home—means short sales are becoming less favorable for lenders,” said Daren Blomquist, vice president at RealtyTrac.
In October 2012, only 33.9% of all residential sales were cash sales. But this October, they represent 44.2% of the monthly sales, with Florida, Nevada, Georgia, South Carolina, North Carolina, Michigan, Illinois and Ohio all having a higher percentage than the national average.
However, institutional investor purchases are down dramatically in October to 6.8% from 12.1% the prior month and 9.7% a year ago.
The national median sales price of all residential properties was $170,000 in October, RealtyTrac says, up 6% from a year earlier. Meanwhile, a foreclosure or REO housing unit sold for a median price of $110,000

New lending rules set to raise the cost of borrowing: S&P

Analysts prep for extended foreclosure timelines, fewer loan modifications

The January launch of the ability-to-repay rule and the associated qualified-mortgage definition will raise the overall cost of originating home loans, with borrowers taking the brunt of the financial hit, Standard & Poor’s Rating Services said Tuesday.

A few things won’t change, credit analyst Jack Kahan with S&P noted, but the new rules will increase expenses, extend foreclosure timelines and prompt servicers to select the foreclosure option over loan modifications and deeds-in-lieu of foreclosure in future circumstances.

S&P, which looked deeply into how the January launch of the rules will impact mortgage finance, warned that more borrowers are going to have a hard time accessing mortgage credit. And when they do, it will take longer and cost more in some cases.
While originators and aggregators are expected to continue in their origination of non-agency loans using existing credit standards, some originators are going to insist on limiting their risk to only loans that meet the qualified mortgage's 'safe-harbor standard', to ensure the underlying underwriting standards shield the company from litigation risk.

So who will be most impacted by the rules?
S&P says borrowers wanting interest-only products are likely to experience a slowdown in the borrowing process. And, under new underwriting standards, a very specific class of borrowers — those with high net-worth and non-wage incomes — may find it takes a bit more work to get through the originations process in 2014.
The end result will be a market where some lenders have no choice but to originate a few non-QM loans.
Raj Date, a former Consumer Financial Protection Bureau official, recognized room in the non-QM space earlier this year and launched Fenway Summer, a firm that hopes to offer lending solutions to borrowers who fall outside QM.
But no matter how firms respond, the January shift is going to have some impact.
Any expenses related to the changes will be passed onto borrowers, nullifying the basic principal of protecting homeowners from unexpected losses, S&P said when analyzing the slew of new rules.
Prices are expected to go up to cover new processes completed by originators in the underwriting process, the ratings firm said.
"Ironically, originators will need to watch these costs carefully, as they may increase points and fees, which will determine whether a loan can be considered a QM," S&P concluded.

LPS: Foreclosure inventory hits lowest level since 2008

The foreclosure inventory rate is down almost 30% from last year and 26% from the beginning of 2013 as the housing market stabilizes and fewer homes fall into a state of distress, Lender Processing Services (LPS) said Friday.
The company's First Look Mortgage Report from LPS found that the loan delinquency rate fell 2.8% from the prior report to 6.28% in October.
Additionally, after 18 months of continuous decline, the inventory tumbled to its lowest level since the end of 2008 and fell to 1.28 million loans, or just 2.54% of currently active mortgages.
In its mortgage report, LPS took a closer look at loan level data from its database, examining 70% of the overall mortgage market.   
Meanwhile, year-over-year delinquencies dropped 10.69% from October 2012.
The total foreclosure pre-sale inventory rate continued to mend and hit 2.54%, declining 3.23% month-over-month and 29.61% year-over-year.
A spokesperson for LPS noted that while delinquencies are down 2.8% from last month they are not quite at the lows witnessed back in April (6.21%), May (6.08%) or August (6.20%), but they are heading in that direction.
Furthermore, the number of properties 30 or more days past due dipped to 3.152 million, while the number of properties 90 or more days late fell slightly to 1.283 million.
As a whole, the total pipeline of delinquent loans or properties in foreclosure hit 4.43 million.
"Looking at the state-by-state breakdown, Mississippi has overtaken Florida in terms of the largest population of non-current loans, at 15.1% (which correlates to a delinquency rate of 13% - the highest in the nation by far - and a 2.1% foreclosure rate),” LPS added.
Mississippi, Florida, New Jersey, New York and Louisiana are the states with the highest percentage of non-current loans.
On the other end of the spectrum, Colorado, Montana, South Dakota, Arkansas and North Dakota ranked as the states with the lowest percentage of non-current mortgages.

Monday Morning Cup of Coffee: MBS tapering by Christmas is possible, but unlikely

Monday Morning Cup of Coffee is a quick look at the news coming across the HousingWire weekend desk, with more coverage to come on bigger issues.
Some market analysts say all they want for Christmas is a tapering of the Federal Reserve's asset purchases, while others remain uncertain about the issue.
But as CNBC reports, the week ahead could provide a few clues as to the Fed's current position.
The big question is whether the Fed is ready to begin winding down its monthly Treasury and mortgage-backed securities purchases by the end of this year. Past reports suggest it’s unlikely, but CNBC is not ruling out the possibility just yet. Some analysts are even wondering if a December taper is coming, the news agency says.
The answer to that question – or at least a hint of what's to come – could arrive as early as this week even with job numbers still well below preferred levels.
In the days ahead, the markets will hear from Fed Chair Ben Bernanke, who speaks Tuesday in a prelude to the Federal Open Market Committee meeting minutes on Wednesday. If QE tapering is to begin in 2013, those two events could reveal the Fed’s next steps or at least provide investors some clues.
Fitch Ratings is offering bond investors a look at one area of housing that generally remains somewhat off the radar screen. Bonds backed by military housing remain suprisingly stable as occupancy levels hold steady against the backdrop of strong turnover, a recent report from Fitch Ratings finds.
The research firm says "adequate project operations and alignment between currently appropriated basic housing allowances and underwriting projections have created a stable environment."
Housing unit turnover is currently higher than expected, Fitch noted, but average occupancy remains at 95.6%.
Everything is more expensive in San Francisco. But, if you think you can save money by renting instead of buying, think again.
High demand combined with a low housing supply has led to frequent surges in rent within the Northern California metro.
One couple interviewed by the San Francisco-Chronicle is about to watch their monthly rent double from $2,000 a month to $4,000. This steep climb occurred after the couple's landlord obtained an exemption from rent-control regulations. Now the couple – like many others – is having to move from the place they've called home for several years. They only have a few months to find a new rental in the housing-challenged area.
The Volcker Rule enacted by Congress in 2010 to ensure banks separate their trading and depository activities was supposed to be rolled out by this year, but regulators tweaking the rule have yet to finalize it.
What’s holding it up? The National Journal says it’s not the complexity of the rule, but the structure of the prudential regulators themselves.
Apparently, the big issue is the regulators taxed with working together on the Volcker provisions are struggling to come up with a final strategy and rule.
The rule has already missed a few deadlines, and the 2013 deadline may suffer the same fate, the publication suggested.
Nevertheless, a busy week is in store for the housing market, with two key reports coming out in the next few days. The National Association of Homebuilders Housing Market Index is scheduled for release on Monday, followed by the existing home sales report on Wednesday. Click here to access the HousingWire U.S. Economic Calendar.
No additional banks failed in the U.S. last week, according to data from the Federal Deposit Insurance Corp.

Application Volume Down 2%, Likely to Fall Further

Mortgage application volume is likely to fall even further than the nearly 2% it did during the week of Nov. 8, an industry participant comments.

The rate spike which took place last Friday means application volume for this current week will be horrendous, says Brent Nyitray, director of capital markets at iServe Residential Lending. Interest rates have remained at those high levels since then. The 30-year fixed-rate mortgage gained 17 basis points in the week ended Nov. 12 to 4.22%, according to Zillow Mortgage Marketplace.
Friday’s rate movement was a result of the strong employment numbers reported that day, coming on top of stronger-than-expected growth in the gross domestic product reported on Thursday, says Zillow chief economist Stan Humphries as well as HSH.com vice president Keith Gumbinger.
HSH.com’s data have rates 11 basis points higher as of the afternoon of Nov. 12 over the previous week.
Refinance applications declined 2% from the previous week, while purchase applications were down 1% on a seasonally adjusted basis, according to the Mortgage Bankers Association. Purchase applications were down 6% on an unadjusted basis for the same week one year ago.
Refis made up 66% of applications submitted during the week.
The average contract rate for the 30-year conforming FRM (MBA defines this as a loan with a balance of $417,500 or under) for the survey period is 4.44%, a gain of 12 basis points from the previous week. Federal Housing Administration-insured loans had an average contract rate for the week of 4.16%, an increase of nine basis points.
The rate for the jumbo 30-year FRM is up 11 basis points to 4.48% and the rate for the 15-year FRM is up eight basis points to 3.52%.
The average contract rate for the 5/1 adjustable-rate mortgage increased three basis points to 3.11%. ARMs made up just 7% of the week’s applications.