Lender Uncertainty Restraining Housing Recovery
http://ow.ly/aXmdV
There are many positive signs in the housing market right now that suggest 2012 may be the best year for real estate since the subprime meltdown in 2007. However, the recovery has been inhibited so far due to lenders' reluctance to originate enough new mortgages to meet buyer demand, experts said yesterday at the 2012 REALTORS® Midyear Legislative Meetings & Trade Expo.
That hesitation stems from a number of factors, ranging from continued elevated levels of unemployment to deep staff cuts in financial institutions' mortgage servicing departments, said Federal Reserve Governor Elizabeth Duke, who spoke at a joint Real Estate Services/Regulatory Issues Forum yesterday morning. And she added that lenders needed to tighten up credit immediately following the financial collapse.
However, she argued that present lending levels are far too constrained and that the biggest challenge to lender confidence today is the lack of clarity around the current regulatory and political environment. Specifically, Duke cited ambiguous standards for qualified residential mortgages and servicer compensation, as well as delayed reforms of government-sponsored enterprises Fannie Mae and Freddie Mac, as contributing to this problem.
"Perhaps the most important solution I'm suggesting today is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market," she said. "It will not be easy to decide what to do about the GSEs, or how best to promote a robust secondary market, or what form crucial regulations should ultimately take. And it is unlikely that anyone, including REALTORS®, will fully agree with the final decisions that are made. Nevertheless, until these tough decisions are made, uncertainties will continue to hinder access to credit, the evolution of the mortgage finance system, and the ultimate recovery in the housing market."
In a panel discussion that immediately followed Duke's presentation, Michael Stegman, counsel to the secretary of the treasury for housing finance policy, acknowledged the need for GSE reform. He said this issue would further be addressed by the Treasury Department "sometime in the spring," and wryly noted that spring goes through the first three weeks of June.
Copanelist J. Lennox Scott, chairman and CEO of John L. Scott Real Estate, said the GSEs didn't need wholly new reforms so much as a return to pre–housing boom policies and standards. "The basic core GSE programs are solid, time has shown that they're solid, and we need to make sure that we don't foul it up," he said.
Scott added that the continued, drawn-out discussions around regulatory and policy issues were not helping the housing market. "End the conversation about changing the mortgage interest deduction," he said. "End the conversation about 20 percent down payments for QRM."
That theme of ambiguity in the political sphere continued into the afternoon. The panelists at the Real Estate Summit general session maintained that new rules and institutions weren't necessarily needed at this point. Instead, they argued that the housing recovery wouldn't get into full swing until the existing laws, policies, and regulatory authorities settled into a predictable, stable overall system.
"You don't know what's coming out of the chute next,” said Cutler Dawson, president and CEO of the Navy Federal Credit Union. "You don't know if you'll get a new appraisal system or something else. I almost wish we could have a moratorium on new ideas."
"One thing the regulatory system should do is define the rules," Moody's Chief Economist Mark Zandi said. "Once we know what the rules are, we'll get the market going again."
— Brian Summerfield, REALTOR® Magazine
Wednesday, May 16, 2012
Tuesday, May 15, 2012
Ally Bank Mortgage Unit Files for Bankruptcy
http://ow.ly/aW2aN
Residential Capital, a mortgage subsidiary of Ally Financial Inc. filed for Chapter 11 bankruptcy on Monday.
“By severing itself from ResCap, Ally hopes to focus its efforts on its core auto-lending and online-banking businesses,” The Wall Street Journal reports. Ally is the former in-house financing arm for General Motors Co.
ResCap has been a drain on Ally's finances for several years as the number of mortgage defaults soared during the housing crisis. Ally has faced billions of dollars in lawsuits over mortgage securities that have turned sour and the bank has been trying to break ties from ResCap. But some analysts say the companies are too intertwined and it will be difficult to separate the two, despite the bankruptcy filing by ResCap.
The Associated Press reports that ResCap’s mortgage unit remains very reliant on Ally for funding "and there can be no assurance that Ally or its affiliates will continue such actions," according to the bankruptcy filing.
Ally officials say they will cover about $1.3 billion related to ResCap’s bankruptcy. ResCap is expected to emerge from bankruptcy quickly and by the end of the year, already reaching agreements with creditors, company officials note.
Ally is 74 percent owned by the U.S. government and still owes the government nearly $12 billion. Through the ResCap bankruptcy filing and Ally’s possible sale of some of its international operations, the government says it hopes it will get the remainder of the bailout money Ally owes repaid faster.
Source: “ResCap Files for Protection Under Chapter 11,” The Wall Street Journal (May 14, 2012) and “Ally Financial's ResCap Mortgage Unit Files for Bankruptcy,” Associated Press (May 14, 2012)
Disqus
http://ow.ly/aW2aN
Residential Capital, a mortgage subsidiary of Ally Financial Inc. filed for Chapter 11 bankruptcy on Monday.
“By severing itself from ResCap, Ally hopes to focus its efforts on its core auto-lending and online-banking businesses,” The Wall Street Journal reports. Ally is the former in-house financing arm for General Motors Co.
ResCap has been a drain on Ally's finances for several years as the number of mortgage defaults soared during the housing crisis. Ally has faced billions of dollars in lawsuits over mortgage securities that have turned sour and the bank has been trying to break ties from ResCap. But some analysts say the companies are too intertwined and it will be difficult to separate the two, despite the bankruptcy filing by ResCap.
The Associated Press reports that ResCap’s mortgage unit remains very reliant on Ally for funding "and there can be no assurance that Ally or its affiliates will continue such actions," according to the bankruptcy filing.
Ally officials say they will cover about $1.3 billion related to ResCap’s bankruptcy. ResCap is expected to emerge from bankruptcy quickly and by the end of the year, already reaching agreements with creditors, company officials note.
Ally is 74 percent owned by the U.S. government and still owes the government nearly $12 billion. Through the ResCap bankruptcy filing and Ally’s possible sale of some of its international operations, the government says it hopes it will get the remainder of the bailout money Ally owes repaid faster.
Source: “ResCap Files for Protection Under Chapter 11,” The Wall Street Journal (May 14, 2012) and “Ally Financial's ResCap Mortgage Unit Files for Bankruptcy,” Associated Press (May 14, 2012)
Disqus
Lenders Put Borrowers Through More Scrutiny
http://ow.ly/aW1UI
Home buyers and refinancers applying for a mortgage are being caught off guard in what all lenders are asking for when approving a loan.
The Wall Street Journal reports an incident where a borrower was even asked for a copy of her divorce decree — from two years ago — and asked to explain a deposit of about $200 into her bank account when applying for a mortgage.
Lenders are being more careful in who they issue a loan to nowadays, tightening underwriting standards and carefully documenting applicants’ finances and ability to repay the loan.
Practically nothing is off the table these days when it comes to what a lender may ask for. Lenders may question any deposits to bank accounts, increases in a borrower’s income, and any disputed balance over a late payment, even if it was from years ago. Some lenders are even requesting college transcripts and diplomas in verifying employment history.
Any credit inquiries on a person’s credit invites red flags and more questions from lenders, Rhonda Porter, a loan officer in Seattle, told The Wall Street Journal.
"I have customers who know they're a strong [borrower], and they're still asked for documentation," Porter says. "Some of them get their feathers ruffled."
Some borrowers — particularly refinancers — are getting so frustrated by the extra paperwork and questions that they are increasingly just stopping the process, according to news reports.
Stella Adams, a fair housing advocate in North Carolina, says banks need to lighten up. Banks should return to "solid, old-fashioned underwriting" standards that were used prior to the housing boom and stop making it so difficult for people to get financing.
Source: "Lenders Want to Know Everything," The Wall Street Journal (May 12, 2012)
http://ow.ly/aW1UI
Home buyers and refinancers applying for a mortgage are being caught off guard in what all lenders are asking for when approving a loan.
The Wall Street Journal reports an incident where a borrower was even asked for a copy of her divorce decree — from two years ago — and asked to explain a deposit of about $200 into her bank account when applying for a mortgage.
Lenders are being more careful in who they issue a loan to nowadays, tightening underwriting standards and carefully documenting applicants’ finances and ability to repay the loan.
Practically nothing is off the table these days when it comes to what a lender may ask for. Lenders may question any deposits to bank accounts, increases in a borrower’s income, and any disputed balance over a late payment, even if it was from years ago. Some lenders are even requesting college transcripts and diplomas in verifying employment history.
Any credit inquiries on a person’s credit invites red flags and more questions from lenders, Rhonda Porter, a loan officer in Seattle, told The Wall Street Journal.
"I have customers who know they're a strong [borrower], and they're still asked for documentation," Porter says. "Some of them get their feathers ruffled."
Some borrowers — particularly refinancers — are getting so frustrated by the extra paperwork and questions that they are increasingly just stopping the process, according to news reports.
Stella Adams, a fair housing advocate in North Carolina, says banks need to lighten up. Banks should return to "solid, old-fashioned underwriting" standards that were used prior to the housing boom and stop making it so difficult for people to get financing.
Source: "Lenders Want to Know Everything," The Wall Street Journal (May 12, 2012)
Housing Affordability Reaches Records
http://ow.ly/aW1QP
Housing affordability conditions for all buyers reached a milestone in the first quarter, according to the National Association of REALTORS®.
NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark; recordkeeping began in 1970.
NAR President Moe Veissi said market conditions are optimal for home buyers. “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” he said. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”
Veissi noted home sales would be much higher if lending standards would return to normal.
The index shows the median-income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income.
A companion index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter.
Assumptions for the first-time buyer index include a lower income, at 65 percent of median family income, a starter home costing 85 percent of the median price, and a down payment of 10 percent. This index means the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.
“It’s never been easy to buy a first home because of the cash required for downpayment and closing costs, but conditions for first-time buyers who are able to get a mortgage have never been better,” Veissi explained.
Most first-time buyers choose a loan with a lower down payment, often an FHA-insured loan with 3.5 percent down, and some use the VA program with no down payment.
Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home. For all of 2012 the index is projected to set an annual record, averaging 191 for the year.
Source: NAR
http://ow.ly/aW1QP
Housing affordability conditions for all buyers reached a milestone in the first quarter, according to the National Association of REALTORS®.
NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark; recordkeeping began in 1970.
NAR President Moe Veissi said market conditions are optimal for home buyers. “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” he said. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.”
Veissi noted home sales would be much higher if lending standards would return to normal.
The index shows the median-income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income.
A companion index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter.
Assumptions for the first-time buyer index include a lower income, at 65 percent of median family income, a starter home costing 85 percent of the median price, and a down payment of 10 percent. This index means the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.
“It’s never been easy to buy a first home because of the cash required for downpayment and closing costs, but conditions for first-time buyers who are able to get a mortgage have never been better,” Veissi explained.
Most first-time buyers choose a loan with a lower down payment, often an FHA-insured loan with 3.5 percent down, and some use the VA program with no down payment.
Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home. For all of 2012 the index is projected to set an annual record, averaging 191 for the year.
Source: NAR
Gaps Persist in Americans’ Credit Knowledge
http://ow.ly/aW249
The majority of Americans don’t fully understand how credit scores are formulated, according to a survey released by the Consumer Federation of America. That gap in knowledge can cost them when applying for a mortgage too.
While the survey showed a big improvement in the last year in the number of Americans knowledgeable about credit and how companies collect credit information on them, Americans overall still don’t fully understand how credit scores are calculated or used.
For example, the survey found that respondents were not fully aware of just how a low credit score could hamper them. “Only 29 percent are aware that, on a $20,000, 60-month auto loan, a borrower with a low credit score is likely to pay at least $5,000 more than a borrower with a high credit score,” according to the Consumer Federation of America survey.
The survey found that 56 percent of respondents mistakenly believe a person’s age and 54 percent say a person’s marital status are used to calculate a credit score. Twenty-one percent surveyed also mistakenly said that a person’s ethnic origin was a factor in calculating credit scores too.
The survey also found that less than half of respondents — 44 percent — understood that a credit score is for measuring the risk of repaying loans. Twenty-two percent mistakenly thought credit scores measured a person’s amount of debt and 21 percent said credit scores were “financial resources.”
Still, the survey found that more people are becoming aware of what can hurt or help your credit score in comparing this year's results to last year’s. The survey found that more people in the most recent survey knew that a missed payment, bankruptcy, or carrying high credit card balances could lower their credit score. Most respondents also knew that making payments on time can raise their credit score, while missing a payment can lower it.
Source: Consumer Federation of America and “Consumer Knowledge of Credit Leaves a lot to be Desired,” HousingWire (May 14, 2012)
http://ow.ly/aW249
The majority of Americans don’t fully understand how credit scores are formulated, according to a survey released by the Consumer Federation of America. That gap in knowledge can cost them when applying for a mortgage too.
While the survey showed a big improvement in the last year in the number of Americans knowledgeable about credit and how companies collect credit information on them, Americans overall still don’t fully understand how credit scores are calculated or used.
For example, the survey found that respondents were not fully aware of just how a low credit score could hamper them. “Only 29 percent are aware that, on a $20,000, 60-month auto loan, a borrower with a low credit score is likely to pay at least $5,000 more than a borrower with a high credit score,” according to the Consumer Federation of America survey.
The survey found that 56 percent of respondents mistakenly believe a person’s age and 54 percent say a person’s marital status are used to calculate a credit score. Twenty-one percent surveyed also mistakenly said that a person’s ethnic origin was a factor in calculating credit scores too.
The survey also found that less than half of respondents — 44 percent — understood that a credit score is for measuring the risk of repaying loans. Twenty-two percent mistakenly thought credit scores measured a person’s amount of debt and 21 percent said credit scores were “financial resources.”
Still, the survey found that more people are becoming aware of what can hurt or help your credit score in comparing this year's results to last year’s. The survey found that more people in the most recent survey knew that a missed payment, bankruptcy, or carrying high credit card balances could lower their credit score. Most respondents also knew that making payments on time can raise their credit score, while missing a payment can lower it.
Source: Consumer Federation of America and “Consumer Knowledge of Credit Leaves a lot to be Desired,” HousingWire (May 14, 2012)
Home Ownership Key to Elections, National Strategists Say
http://ow.ly/aW1Mu
Protecting home ownership will be front and center in this year’s national elections, said top political strategists speaking with hundreds of REALTORS® Tuesday morning at the 2012 NAR Midyear Legislative Meetings & Trade Expo in Washington, D.C.
Celinda Lake, a Democratic political strategist, said middle-aged women without a college education are the key swing demographic in this year’s elections. For this group, home ownership is of vital importance because of the impact of owning a home on family stability. Lake is president of national polling firm Lake Research Partners.
Given the political centrality of home ownership this year, the National Association of REALTORS®’ Home Ownership Matters campaign and the Rally to Protect the American Dream on Thursday at the Washington Monument couldn’t be more timely and important.
The Rally, says Lake, is a “very, very smart” move on the part of REALTORS®. “Your average politician doesn’t want to get on the other side of home ownership,” she said.
Lake’s national polling finds that, despite the downturn in housing, three-quarters of voters see home ownership as central to the American Dream and believe it’s the most important financial investment they’ll ever make and worth taking a risk for. The high regard for ownership is shared by both renters and owners who are underwater on their mortgage, she said. Almost 70 percent of underwater borrowers continue to believe home ownership is worth the financial investment.
Lake told the hundreds of REALTORS® to keep their eye on how the economy is doing in June, because that month is the “most predictive of the vote” in November. So, whether voters think the economy is improving or getting worse next month will be all-important.
Lake said most voters personally approve of President Barack Obama and most voters don’t hold him responsible for the country’s economic problems, but their views are mixed on how well he’s been dealing with the downturn. There’s a concern that what he’s done so far hasn’t worked well and that more needs to be done.
Gene Sperling, President Obama’s chief economic advisor, said later at the same session that the administration has done as much as it could to restore housing, and now it needs Congress to act on mortgage relief measures that are pending on Capitol Hill.
On its own, the administration has crafted mortgage modification standards and incentives resulting in some 5 million modifications, encouraged refinancings, persuaded lenders to extend mortgage forbearance to 12 months from the usual practice of three months, and allowed FHA and the two secondary mortgage market institutions Fannie Mae and Freddie Mac to sell their REO properties in bulk to investors — including for conversion to rentals in some cases. Sperling stressed that the REO bulk sales are only for selected markets in which such sales would be helpful to the market.
On the to-do list for Congress is a measure to allow all home owners, not just those with federally backed mortgages, to refinance their loan to take advantage of historically low interest rates.
Michael Steele, former head of the Republican National Committee, who spoke at the forum with Lake, said members of Congress take very seriously what REALTORS® tell them when they make their visits to Capitol Hill later this week. It’s key that REALTORS® tell their lawmakers about the impact of federal policies — such as Wall Street reform enacted two years ago — on the local market. If lenders aren’t making loans to creditworthy borrowers because of that law, he said, then REALTORS® must tell them that in their Hill visits. “You’ll get a response from them when you explain the impact,” he said.
- Robert Freedman, REALTOR® Magazine
http://ow.ly/aW1Mu
Protecting home ownership will be front and center in this year’s national elections, said top political strategists speaking with hundreds of REALTORS® Tuesday morning at the 2012 NAR Midyear Legislative Meetings & Trade Expo in Washington, D.C.
Celinda Lake, a Democratic political strategist, said middle-aged women without a college education are the key swing demographic in this year’s elections. For this group, home ownership is of vital importance because of the impact of owning a home on family stability. Lake is president of national polling firm Lake Research Partners.
Given the political centrality of home ownership this year, the National Association of REALTORS®’ Home Ownership Matters campaign and the Rally to Protect the American Dream on Thursday at the Washington Monument couldn’t be more timely and important.
The Rally, says Lake, is a “very, very smart” move on the part of REALTORS®. “Your average politician doesn’t want to get on the other side of home ownership,” she said.
Lake’s national polling finds that, despite the downturn in housing, three-quarters of voters see home ownership as central to the American Dream and believe it’s the most important financial investment they’ll ever make and worth taking a risk for. The high regard for ownership is shared by both renters and owners who are underwater on their mortgage, she said. Almost 70 percent of underwater borrowers continue to believe home ownership is worth the financial investment.
Lake told the hundreds of REALTORS® to keep their eye on how the economy is doing in June, because that month is the “most predictive of the vote” in November. So, whether voters think the economy is improving or getting worse next month will be all-important.
Lake said most voters personally approve of President Barack Obama and most voters don’t hold him responsible for the country’s economic problems, but their views are mixed on how well he’s been dealing with the downturn. There’s a concern that what he’s done so far hasn’t worked well and that more needs to be done.
Gene Sperling, President Obama’s chief economic advisor, said later at the same session that the administration has done as much as it could to restore housing, and now it needs Congress to act on mortgage relief measures that are pending on Capitol Hill.
On its own, the administration has crafted mortgage modification standards and incentives resulting in some 5 million modifications, encouraged refinancings, persuaded lenders to extend mortgage forbearance to 12 months from the usual practice of three months, and allowed FHA and the two secondary mortgage market institutions Fannie Mae and Freddie Mac to sell their REO properties in bulk to investors — including for conversion to rentals in some cases. Sperling stressed that the REO bulk sales are only for selected markets in which such sales would be helpful to the market.
On the to-do list for Congress is a measure to allow all home owners, not just those with federally backed mortgages, to refinance their loan to take advantage of historically low interest rates.
Michael Steele, former head of the Republican National Committee, who spoke at the forum with Lake, said members of Congress take very seriously what REALTORS® tell them when they make their visits to Capitol Hill later this week. It’s key that REALTORS® tell their lawmakers about the impact of federal policies — such as Wall Street reform enacted two years ago — on the local market. If lenders aren’t making loans to creditworthy borrowers because of that law, he said, then REALTORS® must tell them that in their Hill visits. “You’ll get a response from them when you explain the impact,” he said.
- Robert Freedman, REALTOR® Magazine
Monday, May 14, 2012
Home Owners Trying to Save Face Refinancing Delays
http://ow.ly/aU4V9
With record-low interest rates, more home owners have been looking at refinancing their mortgages to trim their monthly payments. But they’re finding that they may have a lot longer to wait to refinance than in the past.
“Clogged mortgage pipelines have created headaches for hundreds of thousands of Americans trying to take advantage of low mortgage rates,” The Wall Street Journal reports.
The nation’s largest lenders reportedly are taking an average of more than 70 days to complete refinancing applications — that’s up from 45 days a year prior, according to Accenture Credit Services.
The clog in refinancing is mostly due to a surge in requests, particularly coming from the revamped Home Affordable Refinance Program, which has removed some common roadblocks for underwater home owners who want to refinance. HAMP applications account for one-third of refinance applications, according to the Mortgage Bankers Association.
Also causing refinance delays, lenders are being much more cautious about who they make new loans to. What’s more, the number of mortgage brokers has decreased significantly in the last few years. Mortgage brokers now account for less than 10 percent of originations compared to 31 percent in 2005.
"You have more loans going through a pipeline that is too small," Terry Moore, global managing director of Accenture Credit Services, told The Wall Street Journal.
Coupled with that, “amid reduced competition, some large lenders have boosted their rates in a bid to hold down volumes while bolstering profits,” The Wall Street Journal reports. “That limits the savings for many applicants.”
Source: "Borrowers Face Big Delays in Refinancing Mortgages," The Wall Street Journal (May 9, 2012)
http://ow.ly/aU4V9
With record-low interest rates, more home owners have been looking at refinancing their mortgages to trim their monthly payments. But they’re finding that they may have a lot longer to wait to refinance than in the past.
“Clogged mortgage pipelines have created headaches for hundreds of thousands of Americans trying to take advantage of low mortgage rates,” The Wall Street Journal reports.
The nation’s largest lenders reportedly are taking an average of more than 70 days to complete refinancing applications — that’s up from 45 days a year prior, according to Accenture Credit Services.
The clog in refinancing is mostly due to a surge in requests, particularly coming from the revamped Home Affordable Refinance Program, which has removed some common roadblocks for underwater home owners who want to refinance. HAMP applications account for one-third of refinance applications, according to the Mortgage Bankers Association.
Also causing refinance delays, lenders are being much more cautious about who they make new loans to. What’s more, the number of mortgage brokers has decreased significantly in the last few years. Mortgage brokers now account for less than 10 percent of originations compared to 31 percent in 2005.
"You have more loans going through a pipeline that is too small," Terry Moore, global managing director of Accenture Credit Services, told The Wall Street Journal.
Coupled with that, “amid reduced competition, some large lenders have boosted their rates in a bid to hold down volumes while bolstering profits,” The Wall Street Journal reports. “That limits the savings for many applicants.”
Source: "Borrowers Face Big Delays in Refinancing Mortgages," The Wall Street Journal (May 9, 2012)
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