Category Archives: Housing

GSEs renting foreclosed properties

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>   
>   (email exchange)
>   
>   On Mon, Mar 1, 2010 at 3:40 PM, wrote:
>   
>   Hi Warren,
>   
>   I believe this is along the lines of your idea a while back to mitigate the
>   foreclosure problem by having the US Gov’t step in and take ownership of the
>   real property and rent the home to the current homeowners. I was sifting
>   through this Goldman piece about GSE reform and it looks like Fannie may be
>   already doing this in a program called ‘deed-for-lease.’ Were you aware of
>   this?
>   

The largest landlord in the nation? How the GSEs deal with loans headed for foreclosure is critical. According to the recent announcement, these loans will be held in their retained portfolios. However, moving this many loans into the portfolio—worth at least US$300bn—would threaten to violate the caps put in place by the Treasury (see Box). One way out of this situation would be to take ownership of the collateral, thereby converting loans, which count against the cap, into real property, which does not. With close to 2 million current and expected delinquent loans this year, how the GSEs dispose of this property will become an important issue. The GSEs will be under political pressure to hold property off the market, and may be inclined to do so in any case if they see property values bottoming. This could mean renting the properties: in November 2009, Fannie Mae announced a ‘deed-for-lease’ program, which allows homeowners to relinquish ownership of the property and rent it instead. In January, Fannie Mae took another step in this direction with the announcement of a policy to allow tenants in Fannie-Mae foreclosed property to rent the property on a month-to-month basis after foreclosure.

Yes, heard they were trying it late in the game, without many takers, but good that they at least did some, thanks!

Prof James Galbraith had presented the idea a year or more ago to a congressional committee. Don’t know if that was the source or not. Never did get any feedback.

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Mortgage Delinquencies Pass 10%

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Looks like nothing is trickling down, at least yet, even with 5.7% real growth. Still going the other way, in fact, for the lowest income groups.

On Wed, Feb 3, 2010 at 9:38 PM, Russell Huntley wrote:

From Jon Prior at HousingWire:

Mortgage Delinquencies Pass 10%: LPS

Home-loan delinquency rates in the US reached 10% in December, up from the record-high 9.97% in November, according to Lender Processing Services … which provides data on mortgage performance.

Accounting for foreclosures in the pipeline, the total non-current rate stands at 13.3% …. When extrapolated for the entire mortgage industry, 7.2m mortgage loans are behind on their payments.

More foreclosures and short sales coming!

Note: the MBA reported the delinquency rate in Q3 was 9.64%; the MBA Q4 delinquency data will be released soon.


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bank ‘hoarding of cash’

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Agreed. And as I’ve been saying since day one. The transmission mechanism he references isn’t broken. It never existed.

The reason banks are ‘hoarding cash’ is that the Fed has exchanged reserve balances for securities it bought in the market place.

The Fed determines reserves/’hoarding’ and not the banks.

From Dave Rosenberg: Look at the charts below and you will see how little effect the policy stimulus is exerting leaving the government continuing with demand-growth policies, such as extended and expanded housing tax credits, and the Fed, Treasury and the FHA doing all it can to keep the credit taps open … and for marginal borrowers at that. So the charts below show what, exactly? That the transmission mechanism from monetary policy to the financial system and the broad economy is still broken fully 2½ years after the first Fed rate cut. Cash on bank balance sheets as a share of total assets is at a three-decade high.

Bank lending to households and businesses has contracted more than 7% from a year ago, an unheard-of rate of decline unless you want to go back to Japan in the 90s or the U.S.A. in the 30s.





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Monetary Policy and the Housing Bubble

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>   
>   (email exchange)
>   
>   On Tue, Dec 29, 2009 at 8:55 AM, wrote:
>   
>   Do you agree with their conclusion that monetary policy (low rates) didn’t affect housing
>   prices?

Yes, seems that way to me, too.

>   
>   I guess they did raise rates from 2003-06.
>   
>   Seems the very low short rates DID contribute to the ability to buy “more house” or qualify for
>   any house.
>   

Maybe some.

>   
>   For me it was the bush 2003 fiscal adjustment- spending increases, retro tax cuts, etc. that got
>   the deficit up to 200 billion by q303 which was about 8% of gdp annual. Then after a few years
>   the sub prime housing fraud started with loan officers on commission pushing fraudulent
>   appraisals and fraudulent income statements that turned the recovery into a mini boom that
>   actually didn’t get all that large before it crashed when the $trillion fraud was discovered.
>   

Fed: “Monetary Policy and the Housing Bubble”

Excerpt:
“Lessons
Our findings are both clear and limited in scope.

We find little evidence that the setting of U.S. monetary policy could have directly accounted for a substantial share of the strength in U.S. housing markets between 2003 and 2006. In particular, the rise in house prices or housing activity during this period was much faster than the pace consistent with the overall macroeconomic environment at that time.

But we also find that housing-specific developments were unusual in this period—and not only with respect to prices and activity. The form of mortgage finance—the prevalence and nature of mortgages with adjustable rates versus fixed rates, the role of other “new” or exotic mortgage features, and the role of different types of lenders and securitization paths—all shifted during this period. These shifts undoubtedly fed on each other, with strong demand for housing and rising house prices spurring unsustainable evolution in the nature and perceived risks associated with mortgage innovations and vice versa. This finding is quite limited in that it describes developments but does not explain why such developments occurred.

Nonetheless, our clear finding that traditional channels of monetary policy accounted for little of the rise in housing markets and that housing-specific factors involved the interaction of shifts in demand and mortgage finance suggest two important lessons for policy and certainly for subsequent research. In particular, our discussion connects to the questions of whether monetary policy should “lean against the wind” in the face of asset price bubbles and of how complimentary financial policies (for example, macroprudential regulation) may interact with monetary policy.”














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CPI/Housing

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Karim writes:

CPI

  • Headline CPI +0.4% and core +0.034%
  • OER -0.1% and volatile items largely offsetting (lodging away from home -1.5% vs tobacco +1% and vehicles +0.8% (after +1.7% prior month))
  • Favorable base effects for core coming in H1 2010 should see y/y drift to 1% from current 1.7%

Housing

  • Starts up 8.9%; largely payback from weak October and driven by multi-family
  • Single family up 2.1% (-7.1% prior) and multi-family up 67.3% (after down cumulative 51% prior 2mths)
  • Permits +6% (versus prior -4.2%)
  • Net/Net housing component of GDP likely to remain flat/slightly positive for next 2-3 quarters


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FNMA tightens lending requirements

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That nagging feeling that 0 rates are deflationary keeps lingering.

The following FNMA news might be even more deflationary than the Dubai news over time. I wonder if Congress was involved in this decision, as FNMA is a public/private partnership:

Fannie Mae to Tighten Lending Standards: Report

Oct. 25 (Reuters) —Fannie Mae plans to raise minimum credit score requirements next month and limit the amount of overall debt that borrowers can carry relative to their incomes, The Washington Post reported on Thursday.

Starting December 12, the automated system that the government-controlled mortgage finance company uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850, the newspaper reported. Previously, the cut-off was 580.

Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts, the newspaper said.

A Fannie Mae spokesman told the newspaper that the limits reflect the company’s recent experience.

Loans to people with credit scores below 620 fell seriously behind at a rate approximately nine times higher than other loans purchased in the same period, Fannie Mae spokesman Brian Faith said. Loans taken out by borrowers with lots of debt also suffer higher levels of serious delinquency, he said.

“It’s not enough to help borrowers buy a home — we must also ensure that they can stay in the home over the long term,” Faith said in a statement to The Washington Post.


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Consumer Confidence

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Not looking good. Looks like something bad did happen back in July.

The combo of modestly rising GDP, with rising unemployment due to productivity is very unattractive politically.

Deficit myths keep them doing anything substantive.

Still wouldn’t surprise me if they announce something dramatic, like they are going to pay for healthcare by cutting back in Afghanistan and elsewhere, which, program merits aside, will not be supportive to demand.

And if gold turns south (no sign of that reversal yet)/dollar spikes whatever optimism is left vanishes with the realization that all the Fed’s horses and men are irrelevant regarding deflation.


Karim writes:

  • As expected, Q3 GDP revised down to 2.8% from 3.5%; inventories close to initial estimate, so no major implications for Q4
  • Case-Shiller home prices up 0.33% m/m; slowest monthly gain since April
  • Richmond fed survey down from 7 to 1; # of employees falls from 2 to -9

Conf Board Survey

  • Headline up from 48.7 to 49.5
  • Labor market differential makes new cycle low: -45.9 to -46.6
  • Plan to buy auto w/in 6mths down from 4.7 to 4.4 (lowest since March)
  • Plan to buy home w/in 6mths from 2.3 to 2.0 (new low for cycle, and lowest since 1982); that’s what you get for $1trn in MBS purchases?!


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Existing Home Sales

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Wonderful, we contrive policy to drive up unemployment and foreclose vast numbers of people out of their homes at firesale prices so others can move in with subsidized down payments to buy them.

The lower prices could be a sign of bid hitting rather than offer lifting.


U.S. Economy: Existing Home Sales Jump 10% as Prices Decline

By Shobhana Chandra

Nov. 23 (Bloomberg) — Sales of existing U.S. homes jumped 10 percent in October to the highest level since February 2007 as Americans rushed to take advantage of a tax credit, cheaper properties and lower mortgage rates.

Purchases rose more than forecast to a 6.1 million annual rate from a 5.54 million pace in September, the National Association of Realtors said today in Washington. The median sales price decreased 7.1 percent from October 2008.

Stocks extended gains on signs the industry at the center of the deepest recession since the 1930s may contribute to a recovery. The extension of a tax credit originally due to expire Nov. 30 and its expansion beyond first-time buyers may fuel further gains in home sales, helping to overcome the drag from rising foreclosures and unemployment.

Existing home sales were forecast to rise to a 5.7 million annual rate, according to the median estimate of 66 economists in a Bloomberg News survey. Estimates ranged from 5.2 million to 6 million, after an initially reported 5.57 million rate in September.

Condos, Co-ops

Sales of existing single-family homes rose 9.7 percent, the biggest gain since 1983, to an annual rate of 5.33 million. Sales of condos and co-ops increased 13.2 percent to a 770,000 rate.

The share of homes sold as foreclosures or otherwise distressed properties rose to 30 percent from 29 percent in September, NAR chief economist Lawrence Yun said in a press conference today.

A “similarly robust” sales gain may occur this month, he said. “With such a sales spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer,” Yun said.

The number of previously owned unsold homes on the market fell 3.7 percent to 3.57 million. At the current sales pace, it would take 7 months to sell those houses, compared with 8 months at the end of the prior month. The months’ supply is the lowest since February 2007.

New-Home Sales

Sales of previously owned homes, which make up more than 90 percent of the market, are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Many economists consider new-home sales, recorded when a contract is signed, a more timely barometer.

The Commerce Department may report on Nov. 25 that new home sales rebounded to a 405,000 annual rate in October, according to the Bloomberg survey.

Home construction seized up last month as builders waited to find out if the first-time homebuyer tax credit would end, a Commerce Department report showed last week. Builders in October broke ground on the fewest houses since April’s record low annual pace.

Sales and construction may get another boost after President Barack Obama on Nov. 6 extended the incentive until April 30. Earlier, buyers had to close the transaction by Nov. 30 to be eligible. The government also expanded the program to include some current owners.

Debt Purchases

Mortgage rates held down by Federal Reserve purchases of housing debt are also spurring a recovery in the housing market. The average rate on a 30-year fixed mortgage fell last week to 4.83 percent, the lowest since May, according to Freddie Mac.

Borrowing costs may remain low as the Fed has signaled it will keep the benchmark interest rate near zero for an “extended period.”

“Activity in the housing sector has increased over recent months,” Fed policy makers said in their Nov. 4 statement. “Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”

The labor market remains a risk for housing. The unemployment rate, which rose to a 26-year high of 10.2 percent last month, will stay above 10 percent through the first half of 2010, a Bloomberg survey showed.

Foreclosure Filings

Foreclosure filings surpassed 300,000 for an eighth straight month in October as rising joblessness made it tougher for homeowners to pay bills, according to RealtyTrac Inc. data.

Some companies see a potential for stronger demand. Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, has signed contracts or options to buy 4,000 land lots in preparation for a market recovery, said Chief Executive Officer Ara K. Hovnanian. The Red Bank, New Jersey-based builder had reduced its land holdings during the recession.

“Prices are ridiculously low in some markets,” he said at a conference in New York on Nov. 17. “That’s not going to stay.”

Sales of existing homes were led by a 14.4 percent jump in the Midwest, today’s report showed. Purchases rose 12.7 percent in the South, 11.6 percent in the Northeast and 1.6 percent in the West.

Sales had reached a 4.49 million pace in January, their lowest level since comparable records began in 1999.

Purchases of existing homes rose 23.5 percent in October compared with a year earlier. The median price fell 7.1 percent from a year earlier, to $173,100.


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CPI/Housing

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Karim writes:

Data on the weak side:

CPI

  • Headline CPI driven by energy, up .275%
  • Core CPI driven by car (new model year) seasonals, up 0.182%; ex-vehicles, core close to unch
  • Trend sectors generally weak: OER unch, apparel -0.4%, recreation -0.4%, medical 0.2%

Housing

  • Housing starts down 10.6%, with single-family down 6.8%, lowest level since May
  • Permits down 4%


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Housing starts and 10 year tsy rates

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Interesting how high housing starts were when interest rates were a lot higher than they are now.

And if you ‘population adjust’ the housing starts the ‘Greenspan super bubble’ fell far short of previous highs, even with much higher mtg rates back then. (add about 2% to the 10 year note rates to approximate mortgage rates.)

In fact, it’s hard to attribute housing performance to interest rates in general.

I saw a graph from Goldman a couple of years ago showing how housing related to the fiscal cycle and at that time it was forecasting a decline. And interest rates were nowhere to be found in that model. While I did criticize some of the policies of the Greenspan era, I never have ‘blamed’ him for the housing bubble. Ironically he’s watched this destroy his reputation and largely believes it himself.

Interest rates didn’t get us into this and they won’t get us out, as the late John Kenneth Galbraith stated in his last book, ‘The Economics of Innocent Fraud.’


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