July 24, 2014

Pending Home Sales Rise Again in March

Washington, DC, April 28, 2011

March saw another increase in pending home sales, with contract activity rising unevenly in six of the past nine months, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 5.1 percent to 94.1 in March from a downwardly revised 89.5 in February. The index is 11.4 percent below 106.2 in March 2010; however, activity was at elevated levels in March and April of 2010 to meet the contract deadline for the home buyer tax credit.

The data reflects contracts but not closings, which normally occur with a lag time of one or two months.

Lawrence Yun, NAR chief economist, said home sales activity has shown an uneven but notable improvement. “Since reaching a cyclical bottom last June, pending home sales have posted an overall gain of 24 percent and demonstrate the market is recovering on its own,” he said. “The index means modest near-term gains in existing-home sales are likely, which would be even stronger if tight mortgage lending criteria returned to normal, safe standards.”

More upward Momentum for Home Sales

The PHSI in the Northeast fell 3.2 percent to 63.4 in March and is 18.4 percent below March 2010. In the Midwest the index rose 3.0 percent in March to 83.5 but is 16.6 percent below a year ago. Pending home sales in the South jumped 10.3 percent to an index of 110.2 but are 10.5 percent below March 2010. In the West the index increased 3.1 percent to 103.7 but is 4.1 percent below a year ago.

“Based on the current uptrend with very favorable affordability conditions, rising apartment rents and ongoing job creation, existing-home sales should rise around 5 to 10 percent this year with sales growth of lower priced homes likely to outperform high-end homes. That means the price trend will reflect more homes sold in the lower price ranges,” Yun said.

“The good news is that recent home buyers are staying well within budget, leading to exceptionally low loan default rates among home buyers over the past two years,” Yun added.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

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*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

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S&P Cites Fannie and Freddie as Grounds for Negative Outlook on U.S.

The headline business news Monday was Standard & Poor’s notice that its outlook for the United States has turned negative. The agency maintained its AAA sovereign rating on the U.S. but warned that there is at least a one-in-three likelihood the long-term rating could be lowered over the next two years.

The main culprit is the nation’s growing debt and discord in Washington over the budget, but nestled within S&P’s document explaining its rationale, the agency also cited outlays to mortgage giants Fannie Mae and Freddie Mac as a substantial risk.

S&P said, “Additional fiscal risks we see for the U.S. include the potential for further extraordinary official assistance to large players in the U.S. financial sector, along with outlays related to various federal credit programs. We

estimate that it could cost the U.S. government as much as 3.5 percent of GDP to appropriately capitalize and re-launch Fannie Mae and Freddie Mac, in addition to the 1 percent of GDP already invested.”

So far, Treasury has funneled $148 billion in taxpayer dollars to the two GSEs. S&P estimates that the government might have to inject up to $280 billion to cover losses at Fannie Mae and Freddie Mac; this includes the $148 billion already spent.

However, the agency suggests that financial support could ultimately swell to $685 billion if the government capitalizes Fannie and Freddie on a commercial basis.

Overall, S&P described the U.S. government’s monetary policies as “effective,” noting that measures taken in the wake of the financial crisis have supported output growth while containing inflationary pressures.

However, the credit ratings agency says relative to its ‘AAA’ peers, the United States has “what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us.”

As a result S&P analysts have downgraded their outlook on the long-term rating of the nation from stable to negative.

S&P first rated the United States ‘AAA’ in 1941. Since that time, the U.S. government has maintained a ‘AAA’ credit rating and up until now, a stable outlook.

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Waters Introduces Bill Calling for Mandatory Loss Mitigation

Mortgage servicing practices have taken center stage on Capitol Hill, with a flurry of bills being penned to make servicing reforms the law of the land.

Rep. Maxine Waters (D-California) has revised a bill she’s brought to the table several times before that would compel lenders to engage in what she says are “reasonable loss mitigation activities” for all delinquent homeowners.

Waters has long maintained that the servicing industry is “broken,” a view that has become the popular opinion in light of the robo-signing scandal last fall that brought illegal foreclosure filings to light and prompted widespread investigations into industry practices.

Those investigations resulted in cease and desist orders issued last week to a handful of residential mortgage servicers. Monetary penalties and separate settlements with state attorneys general are forthcoming.

“In light of the slap of the wrist our regulators are preparing to give 14 servicers who admitted to breaking the law, legislation to require loss mitigation prior to foreclosure is needed now more than ever before,” said Rep. Waters. “It’s the only way to protect homeowners and to prevent foreclosures.”

Waters has reintroduced an updated version of the Foreclosure Prevention and Sound Mortgage Servicing Act (H.R. 1567). It’s legislation she says could be a step in the right direction for ending the foreclosure crisis and holding servicers accountable.

Rep. Waters’ bill would require servicers to provide loss mitigation, including loan modifications, prior to initiating foreclosure actions.

The bill places one entity in charge of modifying primary and secondary liens and requires principal reduction for underwater mortgages.

A spokesperson from Waters’ office explained that this “one entity” refers to the servicers/mortgagee of the first lien. For example, if a borrower has two mortgages, with the second being a subordinate lien, under Waters’ legislation, the first lien holder would have primary responsibility for modifying both loans, with the second modified in proportion with the first.

According to Waters’ office, the current protocol is that when first liens are modified, generally nothing happens to seconds; or first-lien holders will refuse to modify unless subordinate lien holders modify as well, and seconds hardly ever modify.

Waters’ bill seeks to address this conflict of interest by ensuring both first and second mortgages are modified to create a more feasible debt situation for distressed homeowners.

The congresswoman says her bill would also address deep-seated problems in the mortgage servicing industry by prohibiting dual tracking, requiring a single point-of-contact, mandating referrals to housing counseling agencies, regulating fees, and prohibiting demand payments on short sales.

In introducing the bill, Congresswoman Waters acknowledged that the bill will be one of several in her push to tackle problems in the servicing industry.

“This bill is the first in a series of legislative proposals that I plan to introduce to further regulate the servicing industry and to protect homeowners,” she said.

[Editor’s note: A copy of Waters’ revised bill has not yet been logged in the congressional tracking system. Although her latest version has since been updated, a copy of the previously introduced legislation can be viewed here. ]

 

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U.S. Pushes Mortgage Deal

By NICK TIMIRAOS, DAN FITZPATRICK and RUTH SIMON

The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America’s largest banks to pay for reductions in loan principal worth billions of dollars.

Terms of the administration’s proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won’t be borne by investors who purchased mortgage-backed securities, these people said.

If a unified settlement can be reached, some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers, these people said.

But forging a comprehensive settlement may be difficult. A deal would have to win approval from federal regulators and state attorneys general, as well as some of the nation’s largest mortgage servicers, including Bank of America Corp., Wells Fargo & Co, and J.P. Morgan Chase & Co. Those banks declined to comment.

A settlement could help lift a cloud of uncertainty that has stalled the foreclosure process since last fall. Economists have warned that foreclosures need to proceed for the housing market to continue on a path to recovery. It’s unclear how many borrowers would benefit from a deal. Servicers have thus far had difficulty managing the volume of troubled loans.

So far, most loan modifications have focused on shrinking monthly payments by lowering interest rates and extending loan terms. Banks, as well as mortgage giants Fannie Mae and Freddie Mac, have been shy to embrace principal reductions, in part due to concerns that many borrowers who can afford their loans will stop paying in the hope of being rewarded with a smaller loan. But some economists warn that rising numbers of underwater borrowers will drag on housing markets and the economy for years unless more is done to help them.

The settlement terms remain fluid, people familiar with the matter cautioned, and haven’t been presented to banks. Exact dollar amounts haven’t been agreed on by U.S. regulators and state attorneys general. Regulators are looking at up to 14 servicers that could be a party to the settlement.

Bloomberg NewsA deal would have to win approval from some of the nation’s largest mortgage servicers, including Bank of America Corp., Wells Fargo & Co, and J.P. Morgan Chase & Co.

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The deal wouldn’t create any new government programs to reduce principal. Instead, it would allow banks to devise their own modifications or use existing government programs, people familiar with the matter said. Banks would also have to reduce second-lien mortgages when first mortgages are modified.

Several federal agencies have been scrutinizing the nation’s largest banks over breakdowns in foreclosure procedures that erupted last fall. Last week, the Office of the Comptroller of the Currency said only a small number of borrowers had been improperly foreclosed upon. But the regulator raised concerns over inadequate staffing and weak controls over certain foreclosure processes.

A settlement must satisfy an unwieldy mix of authorities, including state attorneys general and regulators such as the newly formed Bureau of Consumer Financial Protection, who support heftier fines. They must also appease banking regulators, such as the OCC, that are concerned penalties could be too stiff.

“Nothing has been finalized among the states, and it’s our understanding that the federal agencies we are in discussions with have not finalized their positions,” said a spokesman for Iowa Attorney General Tom Miller, who is spearheading a 50-state investigation of mortgage-servicing practices.

Last autumn, units of the nation’s largest banks were forced to suspend foreclosures amid allegations that bank employees routinely signed off on foreclosure documents without personally reviewing case details. In subsequent examinations, federal bank regulators said they found deficiencies and shortcomings in document procedures and other violations of state law.

At issue now is a debate over who has been harmed by improper foreclosure practices, and how much. The OCC’s examination concluded only a “small number” of borrowers were improperly foreclosed upon, and banks have argued that any settlement should reflect that fact. Other federal agencies and state officials say banks exacerbated the woes of troubled borrowers by resisting the necessary investments in staff and technology to provide timely, effective help.

Under the administration’s proposed settlement, banks would have to bear the cost of all writedowns rather than passing them on to other investors. The settlement proposal focuses on pushing servicers who mishandled foreclosure procedures to eat losses, by writing down loans that they service on behalf of clients. Those clients include mortgage-finance giants Fannie Mae and Freddie Mac, as well as investors in loans that were securitized by Wall Street firms.

Bank executives say principal cuts don’t necessarily improve payment patterns, and have told other parties involved in the talks that principal reductions could raise new complications. First, it will be difficult to determine who gets reductions and who doesn’t. And even if banks agree to a $20 billion penalty, the number of mortgages that can be cured with that number is limited, one of these people said.

If a single settlement can’t be reached, different federal agencies could seek smaller penalties through regular enforcement channels, and banks could face the prospect of separate civil actions from state attorneys general.

Any settlement could be one of the largest to hit the mortgage industry. In 2008, Bank of America agreed to a settlement valued at more than $8.6 billion related to alleged predatory lending practices by Countrywide Finance Corp., which it acquired that year.

—Robin Sidel contributed to this article.

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