WASHINGTON: US mortgage woes hit fresh highs in the fourth quarter of 2008 with more than one out of 10 homeowners late on their payments, an industry survey showed on Thursday.

The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to 7.88 percent of all loans outstanding as of the end of the fourth quarter of 2008, the Mortgage Bankers Association said.

That was the highest since the group began collecting data in 1972. The figure was up 0.89 percentage points from the third quarter of 2008, and up 2.06 percentage points from one year ago.

The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.30 percent, an increase of 0.33 points from the third quarter of 2008 and 1.26 percentage points from one year ago.

The combined percent of loans in foreclosure and at least one payment past due was 11.93 percent – the highest ever recorded by the group.

Jay Brinkmann, MBA’s chief economist, said a relatively low pace of foreclosures might be the result of a halt to actions by many banks as well as government mortgage finance firms Fannie Mae and Freddie Mac.

“The rate of new foreclosures has remained essentially flat for the last three quarters of 2008. This might be seen as a good sign for mortgage performance, but most other measures point to exactly the opposite conclusion,” he said.

“The percentage of loans 90 days or more past due jumped sharply in the fourth quarter. Normally servicers would have initiated foreclosure actions on a significant portion of these loans but delayed doing so for a variety of reasons, including working on loan modifications, complying with the guidelines of different investors, and various delays in different locales.”

The survey came a day after President Barack Obama’s administration unveiled the details of a 75-billion-dollar rescue plan to stem rising home foreclosures.

The Treasury Department said between seven and nine million homeowners could be helped through the programme through either home loan modifications or mortgage refinancings.

Source: Channel News Asia, 6 Mar 2009

Supervision, not control, will be used to guide banks: Fed

(NEW YORK) Sales of US previously owned homes unexpectedly fell in January as plunging prices no longer attracted buyers ahead of the Obama administration’s stimulus plans.

Purchases fell 5.3 per cent to an annual rate of 4.49 million, the fewest since 1997, from 4.74 million in December, the National Association of Realtors said yesterday in Washington. The median price dropped 15 per cent from a year ago, and distressed properties accounted for 45 per cent of all sales.

Americans may have been waiting for details of President Barack Obama’s plans aimed at stemming foreclosures and declining home vales that are at the core of the economic slump, the group said.

The housing slump is likely to deepen as concern that record foreclosures will bring prices down even more and a lack of credit keep prospective buyers at bay.

Banks have been tightening the availability of credit after suffering massive losses from sub-prime mortgages which triggered the present global economic crisis.

Federal Reserve chairman Ben Bernanke in his testimony before the House Financial Services Committee in Washington yesterday said the government would use supervision instead of shareholder control to guide major banks, and warned against dismantling their franchises.

The remarks eased concern Treasury Secretary Timothy Geithner’s financial plan would push aside private shareholders, and spurred the biggest gain in financial shares in a month.

Mr Geithner on Feb 10 provided just an outline of the Obama administration’s plans for buttressing the financial industry. The lack of details led some investors to speculate on their own that a recapitalisation of banks would involve substantial government control. The Fed chairman assured markets that ‘the nation’s banking regulators were not proposing nationalising banks.’

Repeating testimony presented to the Senate Banking Committee on Tuesday, Mr Bernanke’s remarks countered a growing drumbeat among some economists and lawmakers in favour of government takeovers of major financial firms to cleanse them of distressed assets and ensure they keep lending.

Establishing ownership control poses legal issues and could undermine banks’ value with private investors, Mr Bernanke warned.

Mr Bernanke added that ‘the best sign of success’ will be when the ‘government can start taking its capital out or the banks can start replacing the public capital with private-sector capital.’ – Bloomberg

Source: Business Times, 26 Feb 2009

(LOS ANGELES) California’s tortured real estate market has brought heartbreak and ruin, but some investors, speculators and first-time home buyers are also dreaming big and finding opportunities – a silver lining in the Golden State’s epic housing crash.

For many young couples, plummeting prices and near record-low interest rates make it possible to own a home in California for the first time.

Investors and real estate speculators, meanwhile, will be able to snap up foreclosed properties on the cheap to sell during the next boom in California’s boom-and-bust real estate cycle, a boom they believe is inevitable and possibly not far off.

‘This is the buying opportunity of our lifetime,’ said Bruce Norris, who heads an investment group that expects to purchase some 100 homes this year in Southern California’s Inland Empire region.

California – which would be the world’s eighth largest economy if it were a country – saw a near-doubling in home sales in the fourth quarter, a pace surpassed only by Nevada’s 133.7 per cent growth.

But experts warn that it’s a dangerous game to play when nobody is really sure how low home prices will go or when they will rebound as the recession lingers, jobs dry up and residents pour out of the state in search of better prospects.

Mr Norris concentrates on the Inland Empire of Southern California, made up mostly of Riverside and San Bernardino counties, one of the fastest-growing areas of the country during the housing boom, driven partly by immigrant families who couldn’t afford pricier coastal cities.

It’s now one of the hardest-hit. In the past 18 months, the median home price in Riverside and San Bernardino, pummelled by the sub-prime meltdown and now recording some of the highest foreclosure rates in the state, has plummeted 55 per cent.

Norris Investment Group looks for homes built between 1980 and 1990, typically under 2,000 square feet.

Older houses come with too many maintenance ‘surprises’, Mr Norris says, and larger places can be tough to sell or rent in hard times.

Last month the group paid US$55,000 for a foreclosed home that was worth US$360,000 at the top of the market. Mr Norris expects to spend US$30,000 on repairs and rent it for US$1,200 a month until the market turns around.

The group also hopes to minimise risk by owning the homes free and clear, thus accruing little debt.

‘You cannot have this (low) level of pricing be permanent because it costs too much to build a home here,’ Mr Norris said. ‘That’s how you know you’re making a logical decision when everything is falling around you. When you can buy a finished product someone will want to live in for US$55,000, that just has to make somebody pretty wealthy someday.’

Experts agree that California home prices will ultimately rebound but caution that real estate investing in this economy – the worst contraction since 1982 – should not be undertaken by amateurs or the faint of heart.

‘You have to have a pretty strong feeling about where this is all going,’ Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles, told Reuters. ‘This cycle is so different from prior cycles that it’s very difficult to extrapolate.’

‘Most would argue that California is not going into the sea,’ he said. ‘On the other hand it’s not totally out of the question that this particular period of weakness could extend for a while, and that means multiple years.’

California’s roller-coaster real estate cycles can be traced to the 1970s, when home prices tripled, ignited in part by foreign investment and the end of the gold standard following decades of explosive population growth.

Home prices plunged in the early 1980s, turned around and doubled within 10 years, slumped in the mid-1990s and then blasted off again at the end of the decade. The sub-prime meltdown and recession pushed them back off the cliff.

‘It’s a great time to buy for people who are willing to risk a little more and be optimistic when everybody else is doom and gloom,’ said Daren Blomquist, marketing and communications manager for RealtyTrac, an online foreclosure data service. But he warned: ‘They will probably have to wait it out, possibly for several years.’

Chris Twoomey and his wife Jennifer illustrate the risk underlying the perceived opportunities. They moved to California from the Midwest in 2004 to pursue acting careers and had just begun to think the dream of home ownership was out of reach when the crash came and they saw their chance.

The couple pounced in January, right after Jennifer, 39, learned she was pregnant with their first child, making an offer on a small, bank-owned home in suburban Los Angeles.

But the day after the Twoomeys’ offer was accepted, Chris was called into the cafeteria at his job in a cosmetics company warehouse and laid off.

‘Sometimes in our dark moments we sit around and say to ourselves, ‘Look, forget the acting, forget everything, this is the time to bail’ (from California). We can be doing this someplace else that’s still warm but doesn’t cost as much,’ Chris told Reuters in an interview.

‘But we’re sticking it out,’ he said. ‘It’s perverse, but something inside of us does want to stay here. It’s sort of a belief that because it is Southern California and because it is the kind of place where everybody wants to be, it will come back eventually.’ – Reuters

Source: Business Times – 24 Feb 2009

(WASHINGTON/NEW YORK) A housing rescue plan being considered by the Obama administration could strike at the heart of the credit crisis but its scale, complexity and the potential for controversy poses challenges for policymakers.

The plan is due to be announced by US President Barack Obama this week and is expected to break new ground by helping troubled borrowers even before they miss a mortgage payment.

If it works, officials will have a standardised approach to quickly determine whether a borrower is in trouble, revalue the home, and set new mortgage terms under a programme that could help contain losses for banks that have incurred huge losses on on bad housing investments.

The hope is that a uniform standard will do two things: give legal cover to rewrite loan terms and provide a universal template to quickly churn through the rolls of troubled borrowers. Mortgage servicers, the companies that collect a borrower’s monthly payments, are often hamstrung by contracts and cannot loosen loan terms.

‘Currently, there are 57 varieties of mortgage modification plans out there. That is totally disabling,’ said John Courson, president of the Mortgage Bankers Association.

If all troubled borrowers went through a standard programme, mortgage experts could process loans quickly, he said, adding: ‘We need this cookie-cutter approach.’

Wall Street stock indexes erased nearly 250 points of losses, or 3 per cent, last Thursday afternoon as investors digested a Reuters report detailing the mortgage aid plan.

Washington’s tentative efforts to stabilise the housing market have unnerved financial markets, but investors were encouraged by signs on Thursday that an aggressive rescue plan was finally on the way.

While investors generally oppose programmes that let homeowners escape the original terms of a mortgage, a comprehensive plan could get Wall Street’s backing.

‘The critical thing is how they structure the qualification process,’ said Mahesh Swaminathan, a strategist at Credit Suisse in New York. ‘Who gets it, and how is it done, simply and transparently.’
‘If it doesn’t force one party to take the bulk of the losses, that would very materially benefit the securities market,’ he added.

The Obama plan envisions that the government would make matching payments with mortgage servicers to cover some monthly costs, sources familiar with the plan have said. That programme could quickly outstrip a US$50 billion kitty of federal money that is earmarked for foreclosure prevention, according to data compiled by Amherst Holdings LLC.

Monthly payments on an estimated US$1.17 trillion in defaulted loans total about US$8.8 billion, so the subsidy would be depleted in a year if the government picks up half the tab, said Sean Dobson, Amherst’s CEO.

Still, Mr Obama and Treasury Secretary Timothy Geithner have said that they may seek more federal rescue funds if needed.

A total of 8.1 million US homes, or 16 per cent of all households with mortgages, could fall into foreclosure by 2012, according to Credit Suisse.

As the housing crisis reaches the two-year mark and foreclosures continue to climb, there is some political will for a bold programme to control the spread of failing loans.

And policymakers may not have such a hard time crafting new standards since Wall Street is now relying on Washington for billions of dollars in emergency financing.

Last Friday, Citigroup Inc, JPMorgan Chase & Co and Morgan Stanley all agreed to suspend home foreclosures. In all, those lenders have received US$80 billion in taxpayer investments.

‘I’d bet anyone who is getting government aid is going to be mandated (to take part in the modification programme),’ Mr Courson said.

Still, developing standards will not be easy, and the Obama administration will have to sell the public on the idea of helping borrowers in good standing who could wrongly get relief under the
programme.

‘There is no test that I have seen that can’t be gamed by someone who is clever enough and determined enough to do so,’ said David John, a senior fellow at the right-leaning Heritage Foundation, a Washington think tank.

A poorly-managed programme raises the prospects of irate neighbours turning on one another because one family sought aid while the other did not.

But consumer advocates argued that failed mortgage relief programmes of the last year prove that waiting until a borrower is delinquent means waiting too long to do any good.

‘I think we could live with that,’ Mr Courson said of giving aid to borrowers who are currently timely but could face problems making their payments. — Reuters

Source: Business Times – 16 Feb 2009

Washington looking at ways to stem the tide of foreclosures

A record 19 million US houses stood empty at the end of 2008, including properties for sale and for rent, as banks seized homes faster than they could sell them and prices continued to fall.

Vacant homes in the fourth quarter increased by 6.7 per cent from the same period a year ago, the US Census Bureau said in a report on Tuesday.

The share of empty homes that are for sale, the so-called vacancy rate, rose to 2.9 per cent in the quarter, the most in data that goes back to 1956.

The worst US housing slump since the Great Depression is deepening as foreclosures drain value from neighbouring homes and make it more likely that owners will walk away from properties worth less than their mortgages.

About a third of owners whose home values drop 20 per cent or more below their loan principal will ‘hand the keys back to the bank’, said Norm Miller, director of real estate programmes for the School of Business Administration at the University of San Diego.

‘When you’re underwater and prices continue to fall, you tend to walk,’ Mr Miller said. ‘It’s a downward spiral that’s tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying.’

The figures demonstrate the intensity of the US housing crisis as President Barack Obama considers ways to help homeowners.

The Obama administration is considering government guarantees for home loans, seeking to stem the record surge of foreclosures that’s hammering US property values.

The proposal, which may also have taxpayers share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers.

Comptroller of the Currency John Dugan, who regulates national banks, said on Monday that ‘working out the details of it is still something that’s ongoing’.

Congress and the new president are grappling with how to repair the housing market as the recession enters its second year and unemployment rises. The US economy shrank the most in the fourth quarter since 1982, contracting at a 3.8 per cent annual pace, the Commerce Department said on Jan 30.

The US had 130.8 million housing units in the fourth quarter, including 2.23 million empty homes that were for sale, the Census Bureau report said.

The vacancy rate was 3.5 per cent in urban areas and 2.6 per cent in suburbs, the report said.
In addition, the report counted 4.1 million vacant homes for rent and 4.8 million seasonal properties.

‘Wealth loss and housing in combination with loss in the equity market will have ripple effects,’ said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio.

‘The silver lining is that while home prices are coming down, incomes have stayed about the same, and in a lot of markets we’ll hit equilibrium this year. That’s a good sign for the long term.’

Source: Business Times – 5 Feb 2009

They point to rise in existing home sales, shrinking inventory in December

The coast-to-coast fire sale in the US housing market appears at long last to have caught a bit of a bid.

Yes, residential real estate remains in the throes of the worst downturn since the Great Depression.

Yes, home prices are the lowest in six years and still falling. And yes, it still takes three quarters of a year to sell a house.

Nevertheless, the market may have turned a pivotal corner last month, if a surprising increase in existing home sales is any guide.

Until now, plunging home prices have been keeping many potential home buyers at bay because they were leery of buying an asset that was all but guaranteed to lose value, at least initially.

Now, though, prices appear to have fallen enough in some regions to make buying cheaper than renting, particularly in the West. And with record low mortgage rates, demand has started to rebound.

‘You can now own a home in several areas for less than it costs to rent,’ said Mollie Carmichael, senior vice-president with John Burns Real Estate Consulting, an Irvine, California-based consultant to the real estate industry.

In Southern California, home sales jumped 50.5 per cent from the year earlier as median prices fell 34.6 per cent to US$278,000 and buyers snapped up foreclosed properties, MDA DataQuick said last week.

Home prices have dropped so much in some areas of California that monthly mortgage payments on single-family detached homes are comparable to apartment rents.

Ms Carmichael said that in California’s foreclosure-plagued Inland Empire, Riverside and San Bernardino counties east of Los Angeles, the average monthly rent for an apartment is US$1,157 and the average after-tax monthly mortgage payment on a median-priced single-family detached home is US$1,154 – and is projected to decline to US$979 by mid-year.

And while distressed properties account for an abundance of sales around the country, the trend is nevertheless helping assuage one of the market’s biggest banes: a huge supply of unsold homes.

Existing home sales across the United States rose 6.5 per cent to an annual rate of 4.74 million units in December from a rate of 4.45 million in November, a National Association of Realtors report showed on Monday.

That said, in 2008, existing home sales fell 13.1 per cent to 4.91 million units – the lowest since 1997.

The median national home price fell 15.3 per cent from the year earlier to US$175,400, the largest decline since the association started keeping records in 1968 and probably the largest since the Great Depression, Lawrence Yun, its chief economist, told reporters.

‘The report confirms our forecast that sales have bottomed,’ said Celia Chen, senior director of housing economics at Moody’s Economy.com in West Chester, Pennsylvania.

‘The price discounting on foreclosures is helping draw down on inventories, particularly in the West where lower prices are helping pull in new buyers,’ she said.

The lowest mortgage rates in decades are another driver.

Interest rates on the 30-year fixed-rate mortgage averaged 5.12 per cent for the week ending Jan 22, nearly one percentage point lower than where they were in late November, according to Freddie Mac.

A week before, mortgage rates were 4.96 per cent, which was the lowest since Freddie Mac started surveying them in 1971.

The National Association of Realtors said inventory of existing homes for sale fell 11.7 per cent to 3.68 million units in December from 4.16 million in November, translating into 9.3 months of supply.

‘But, six months is the natural rate of inventories, so supply remains high,’ Moody’s Economy.com’s Ms Chen said.

‘Nevertheless, the fact that inventory is shrinking is good news,’ she said.

Source: Business Times – 28 Jan 2009