The Obama Administration's widely touted but proven unsuccessful foreclosure rescue plan has been a complete unmitigated disaster.
Wednesday, December 30, 2009
The Obama Administration's widely touted but proven unsuccessful foreclosure rescue plan has been a complete unmitigated disaster.
Sunday, December 27, 2009
The article reprinted below from the Washington Post is yet another illustration that the Obama Administration really does not understand the real estate industry or how it has come to be crippled these days. Given the simple fact that no one within the Administration actually worked in real estate makes all this comical---if it wasn't so sad.
By RACHEL BECK
The Associated Press
Friday, December 25, 2009; 11:30 AM
NEW YORK -- The government shouldn't reward liars. But that's the effect of changes to the Obama administration's failing program to help homeowners modify their mortgages.
Until recently the rules were clear: if you grossly understated your income to qualify for the program, you had to restart the loan modification process. It made sense. After all, we got into this housing mess partly because too many people were dishonest about how much they made.
Fast forward to today. The federally funded Home Affordable Modification Program was aimed at getting banks to rework mortgages for homeowners in order to slow the pace of foreclosures. The government set a goal of modifying up to 4 million mortgages over the next three years.
The program isn't working like it's supposed to. Since March, just 31,000 homeowners have won permanent relief. One big reason why is that lenders are doing what they should have been doing all along - requiring things like proof of income.
How's the government responding? By letting homeowners who fudge their income numbers off the hook with little more than a wink and a nod.
"This isn't the kind of person the government should want to help," said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning Washington think tank.
Under the $75 billion program, lenders are paid by the government to alter mortgages in hopes that cheaper loans will lead to fewer defaults. In most cases, modifications lower interest rates on home loans. Lenders also offer grace periods, longer repayment schedules or lower loan balances.
Borrowers say lenders are permitting trial modifications, but few are being made permanent. Lenders say borrowers aren't providing all the necessary paperwork to get loans permanently altered. Many lenders don't require documentation of income upfront. First, they'll make a verbal agreement with a borrower for a modification, and then verify the income once the trial period starts.
The government needs this program to work - and fast. That's the only way to explain the Treasury Department's waiver of a requirement punishing borrowers who understate their income by 25 percent or more when trying to get a modification.
That means a borrower who had told a lender he made $75,000 but was found to make $100,000 doesn't have to restart the modification process. Under the waiver announced Dec. 16, that person now gets to continue the trial period instead of being rejected immediately.
"During the housing boom, borrowers had every incentive to overstate their income to get a bigger mortgage," said Larry Doyle, who spent more than 20 years working in the mortgage business on Wall Street and now writes the financial blog Sense on Cents. "Now, they have every incentive to understate their income to get a bigger modification."
Treasury Department spokeswoman Meg Reilly says that discrepancies could be the result of mistakes or changes in someone's job or income during the trial phase. She also noted none of the eligibility, documentation and verification requirements for a permanent modification change under the new waiver.
Still, a difference in income of 25 percent or more is not a rounding error. The government should err on the side of caution with these people, not give them a free pass.
Doyle thinks that allowing dishonest borrowers to stay in the program sets a bad precedent. It also shows that lessons from the housing bust haven't been learned.
The housing market's collapse wasn't just caused by lenders issuing risky loans to borrowers who couldn't afford them. More than a third, or 4.3 million, of the home loans issued from 2004 through 2007 were for borrowers who provided no or little documentation of their income, according to real-estate data company First American CoreLogic.
When housing prices were rising, homeowners who couldn't afford their mortgages for whatever reason - lost jobs, wage cuts or a pileup of medical bills - could often sell their homes for a profit to get out of trouble.
It's a much different story today. About one in four homeowners are considered underwater, meaning their mortgage exceeds their home value.
That has led to a dramatic rise in foreclosures. About 2.2 million homes since July 2006 have completed foreclosure, according to foreclosure listing service RealtyTrac Inc.
The government knows that reducing foreclosures could go a long way toward stabilizing property values, which would help reverse the housing slump and ultimately aid the broader economic recovery.
Dishonesty fed the housing bust. Let's not let it ruin the chances for its repair.
Thursday, December 24, 2009
The data on new and existing home sales these days is so flawed the numbers are virtually worthless. I literally am laughing at how out of touch the reported data really is---and why.
Wednesday, December 23, 2009
Good old Charlie Rangel, the Chairman of the House Ways and Means Committee, has given all investors in real estate partnerships and hedge funds a nice Christmas gift.
Tuesday, December 22, 2009
I received a very insightful (and lengthy, WHEW!) email from Josh in Louisville about the distinction between capital and operating leases and how investors should distinguish between the two.
Sunday, December 20, 2009
Despite all their whooping and preening about their million dollar real estate fortunes and their genius in creating wealth from nothing, I have it on VERY good authority that a number of major creative get-rich-quick real estate gurus are next to bankruptcy.
Saturday, December 19, 2009
I saw author and radio talk show host Michael Medved speak on Thursday night in downtown Seattle at an event promoting his latest book, THE 5 BIG LIES ABOUT AMERICAN BUSINESS.
Friday, December 18, 2009
For generations the life insurance industry was one of the largest single investors in real estate. The relationship for policy beneficiaries was almost perfect. Insurance companies needed a place to securely stash insurance premiums for years, even decades, awaiting the ultimate day when a death occurred and a payoff needed to be made. Investing in real estate provided an ideal vehicle.
Dec. 16 (Bloomberg) -- U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., may post $10 billion in losses tied to commercial real estate over the next three years, Moody’s Investors Service said.
Defaults on property loans and declines in commercial mortgage-backed securities will “dampen earnings,” the ratings firm said in a statement. The loss estimate was increased from $7 billion earlier in the year, Robert Riegel, managing director at Moody’s, said in an interview today.
Life insurers use policyholder premiums to lend to property owners and buy commercial mortgage-backed securities. MetLife, which has about $50 billion of its $338 billion portfolio in commercial property loans and CMBS, and Prudential are bracing for losses as declining real estate values and occupancy strain borrowers. Life insurers have reduced their commercial property holdings and will record fewer losses than banks, Moody’s said.
“This is one of the key areas of concern going forward,” Riegel said.
North American insurers led by American International Group Inc. have posted more than $190 billion of writedowns and unrealized losses since 2007 tied to investments including securities linked to home loans and debt issued by builders and banks. Commercial mortgage losses tend to occur after homeowner defaults, MetLife and Prudential have said.
Allianz, Sun Life
Insurers based outside the U.S. are seeking to expand in commercial property and lending, and say distressed owners and lenders may lead to opportunities. Canada’s Sun Life Financial Inc. said last month was lifting its moratorium and may invest in commercial mortgages. Allianz SE, Germany’s biggest insurer, expects to find bargains in U.S. commercial property, finance head, Paul Achleitner, said in October.
The commercial mortgage default rate on loans held by U.S. banks more than doubled to 3.4 percent in the third quarter as vacancies rose and rents declined, Real Estate Econometrics LLC said Dec. 1.
Third-quarter defaults climbed from 1.37 percent a year earlier and 2.88 percent in the second quarter, the New York- based property research firm said. Default rates in the first three quarters of 2009 have been the highest since 1993, the firm said.
Insurance companies have been more conservative than other firms in their commercial property investments because they lost money during the market decline about 20 years ago, said Jamie Woodwell, vice president of commercial real estate research for the Washington-based Mortgage Bankers Association.
“They have learned from past missteps dealing with commercial real estate,” Moody’s Senior Vice President Jeffrey Berg said in the statement. Expected losses of $10 billion will be “manageable” and are unlikely to lead to many credit downgrades, he said.
Under a worst-case scenario, which Berg considers remote, losses may exceed $40 billion, which would lead to insurers having their grades cut by multiple levels.
Commercial real estate prices may fall as much as 55 percent from October 2007’s peak, Moody’s said last month.
Monday, December 14, 2009
When times get tough, people always look towards their roots for answers.
When economic times get tough, economists always look towards their roots for answers too.
People want answers, solutions NOW, when times are tough. So they flock, often like lemmings, to those who THINK they have the answers.
Of course, these leaders are often wrong, blind, and corrupt---and all three at the same time. Often their flocks are not for leading, but shearing.
When the last big bubble burst in 1929, everyone scrambled for economic answers too, just like today. Congress, the President and his men, and the angry and suffering public all searched for answers.
Labor unions and the left looked towards the then beaming Soviet Union. Larger and more intrusive government was the answer along with its partner, collective bargaining agreements. Government jobs, large industrial projects owned and operated by the government, Federal and state mandates on business, higher taxes, more de facto ownership of the private sector.
Big business and the right, on the other hand, looked to their market roots for answers when the stock market imploded. Secretary of the Treasury Andrew Mellon's famous advice to President Herbert Hoover just about explained his position and that of the business class:
"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate the real estate, until the rottenness has been purged from the system."
Thomas Malthas would have been proud.
Right now, times are tough and people are desperate for answers and they are seeking roots, even if they aren't their own.
This isn't the American Dream our parents lived.
Economists too, right now this very minute, are scrambling back to their roots. Unfortunately most right now, especially those with flocks in Washington and Congress, are looking towards Europe and its quirky brand of socialism for answers. Value added taxes, higher fees on just about everything that moves or breathes, and more regulation via Orwellian conceived "private public partnerships" which literally means you supply all the capital, labor, and ideas and then give me most of the profits for letting you do your business in the first place.
I'll be honest. I'm looking towards my roots too for answers. I see immense poverty and suffering every day just walking the streets in downtown Seattle. Cold, starving people looking for food to survive and suffer just one more day are everywhere. Desperate drug addicts doing deals in plain view, right out in the open in front of everyone, especially all the tourists, paints a grim picture of society and how it treats its unhappiness.
Just not for people.
Economists, just like historians, need to resist the priestly teachings of their particular denomination and remember that no "ism" has all the answers, and some "isms" have no answers at all. It's okay to be a Keynesian or a Friedmanite when you are sitting in a bar downing some decent adult beverages and debating with friends, not when you are running a central bank or voting on legislation in Congress or, heaven forbid, teaching freshman Economics 101.
Robert J. Abalos, Esq.
Saturday, December 12, 2009
I just finished the truly great book THE ORIGIN OF FINANCIAL CRISES by author George Cooper.
Friday, December 11, 2009
It is insightful to go back to the past, and realize how important and prescient the National Consumer Law Center ("NCLC") really was on the subject of foreclosure rescue fraud when it released its now influential report, "Dreams Foreclosed" in June 2005.
The subtitle of this report says it all and why you need to read it.
"The Rampant Theft of Americans' Homes Through Equity Stripping Foreclosure Rescue Scams."
This document is MUST READING for anyone in the real estate business. I championed this report when it was first released in 2005, much to the anger of some in the creative real estate business.
And of course they were upset, with the NCLC report and with me.
The NCLC and its investigators exposed the scams that foreclosure rescue fraud specialists use to STEAL THE EQUITY of distressed homeowners and then realized that many creative real estate gurus who preach instant riches and unlimited fortunes through their home study courses and mentoring programs really just teach foreclosure rescue fraud.
The report compares what the gurus teach and how the scammers scam.
Bandit signs sold by the gurus with bandit signs used by the scammers.
Same techniques, same approaches, same marketing and mailing postcards and brochures, same kitchen table closings, same quitclaim deeds, subject-to buying under duress, same everything down to the targeting for exploitation of the most desperate of homeowners, those facing foreclosure due to medical bills, unemployment, death of a spouse, or some of the disaster.
Please read the NCLC report. To paraphrase Groucho Marx:
"Do you believe me or your own eyes?"
There are a number of creative real estate gurus mentioned in the report, and one in particular who squealed like a stuck pig when featured by the NCLC. Actually I thought the NCLC let him off easily, but that's another story....
This report by the NCLC, condemned and hated by the creative real estate gurus who denounced the organization as "communists" (exact word), has become part of history, an influential part of foreclosure rescue fraud reform laws that have swept the nation since 2005. I know that this NCLC report was specially mentioned in at least five state legislative debates when enacting new tougher laws to limit the damage of foreclosure rescue scammers and the creative real estate gurus who not only teach them how to commit foreclosure rescue fraud but actually sell them the documents to do it.
I hope the NCLC updates its report. The "pandemic" of foreclosure rescue fraud mentioned in 2005 was just the beginning.
Robert J. Abalos, Esq.
Wednesday, December 9, 2009
It is tough enough to go through a divorce.
Join that problem with a real estate bust that destroys the value of the married couple's most value asset, their home, and you have the makings of real catastrophe.
This article below from Boston.com offers some excellent advice for couples going their own separate ways.
There are no easy answers here. The best advice I know was told to me by an really ancient divorce lawyer many years ago who I worked with on a commercial real estate valuation issue. He told his own client and her attorney point blank "If you can cooperate for the sake of the kids, you can cooperate for the sake of your personal portfolio."
What is REALLY more important?
Past infidelity or future (and maybe substantial) capital gains?
Robert J. Abalos, Esq.
Attorney Richard D. Vetstein.writes today on another ugly reality of the recession: divorce. Here's what divorcing couples can do, legally, in regard to their real estate.
When a recession hits, divorce rates spike. Divorce often plays a major role in real estate transactions and decisions. The question posed today is what to do if you are getting a divorce and the marital home is “underwater” – that is, when the balance on the mortgage is more than the fair market value of the house.
Well, here are your choices:
1. You stay in the house with your divorced spouse until either one of you can afford to move out or refinance. Seriously!? Yes! More and more people are doing so in this new economy because there is simply not enough money to go around. I know of divorcing spouses creating separate living quarters in a house, akin to an in-law suite with separate entrances, etc.
2. You and your spouse continue to co-own the house together until someone can refinance the property. Either you live in the house or your spouse lives in the house. You could have a situation where only the person who’s living in the house pays for everything or everything is split 50/50. Either way, the couple will still own the house together.
3. Refinance. If you try to refinance, you will have to put up the money to make up the difference between what you owe and what your house is worth. That would be tens of thousands of dollars if not more. Some people have that kind of money but most do not.
4. Short sale. A short sale is when you get the permission of your mortgage lender to sell the house for less than what you owe on the mortgage and you get released from the balanced owed. With the enactment of the new Obama short sale regulations, which I wrote about previously, a short sale may be a good option for divorcing couples who are “under water.” The new regulations require that the lender agree to waive the outstanding loan balance on an approved short sale, so both spouses can wipe their credits clean of the mortgage obligations and move on with their lives.
5. You let the home go into foreclosure. This is not an ideal situation and it’s not generally recommended.
6. Loan modification. This is very difficult and very lender specific. Some will let you modify the loan or do an assumption whereby you don’t have to refinance the house and yet be allowed to remove a spouse’s name off the mortgage. It’s worth a try.
From a real estate perspective, preserving the value of the property is paramount and in the best financial interests of both spouses. The options are tough for those in the unfortunate predicament of divorcing in this recessionary economy.
Sunday, December 6, 2009
Below is an excellent article from the LA Times on how to save money by bargaining with your broker on real estate sales commissions.
Shaving real estate commissions can save sellers thousands
Some brokers are willing to lower their fees or help their clients save in other ways. But you have to ask.
By Mark Yemma
December 6, 2009
David Herron doesn't consider himself a particularly hard-nosed negotiator. After all, Herron works as a technical service specialist for the Fantasmic show at Disneyland, and that happiest-place-on-Earth attitude tends to rub off.
But when Herron decided to sell his Lake Forest home last year, he was determined to find a real estate agent who was willing to cut a deal on the usual 6% commission -- the fee traditionally paid by home sellers to the listing agent who quarterbacks the complex transaction. That agent, in a system akin to "The Sopranos" but handled more tidily in escrow, must hand over cuts of the cash to the buyer's agent and other brokers involved in the transaction.
And who could blame Herron? In a year that finds frugal Californians pinching pennies at Wal-Mart or opting to regift their way through Christmas, why leave thousands of dollars on the table?
Herron obtained a discount of roughly half off the customary fee to sell the $660,000 house by using the same agents to help him purchase a bank-owned property in Rancho Santa Margarita.
"I knew from the Realtor's flier that I could negotiate," Herron said.
Sales commissions amount to serious money, but many sellers don't know they can dicker over the fees.
A Los Angeles County seller of a median-priced house of $325,000 would shell out $19,500 of his proceeds by paying his sales agent a traditional 6% commission. Such a seller might find himself outraged over having to pay out a few hundred dollars in surprise repair expenses as he navigates escrow with a difficult buyer, yet that same seller could have saved $3,250 just by persuading his agent to lower the commission to 5%.
As with the rest of the American workforce, real estate professionals are scrambling to find work -- seemingly good news for consumers. Although thousands of discouraged agents have dropped out of the business, California still fields an army of more than half a million licensed agents, many of whom signed up during the stampede for riches earlier this decade.
While consumers appear to have the upper hand in the current market, those agents lucky enough to get listings have to work harder to sell houses these days, making some recalcitrant about parting with their wages.
"You'd be foolish to give part of your salary away. I'm worth what I get paid," said Elizabeth Weintraub, a Sacramento broker. Weintraub, author of "The Short Sale Savior," laments that frequently the first thing potential clients ask about is paying less commission.
"I expect them to ask me. And then I tell them why I'm not going to do it," she said.
Kellie Jones, a licensed broker working for Century 21 Beachside in Orange County, said agents in her area "are really digging in their heels because they aren't selling as many homes." During the bubble, they could lower their commissions and make it up on volume, she said.
But Jones expressed amazement that many potential clients don't bother to request a break on the commission. "We're timid; we just don't want to ask," she said of some sellers. Jones, a pragmatist, said she would cut her commission "if I think I am not going to get the listing unless I do so."
Do the math
In hopes of negotiating a lower sales commission, Marsha Boutelle -- a self-described "serious shopper" -- interviewed three agents to sell her home this fall in the Northern California town of Carmichael.
"Of course I would rather pay less commission, and I would always try to negotiate," Boutelle said. "I do a lot of research."
Her experience, however, offers a cautionary lesson.
One agent she interviewed offered a 1-percentage-point discount "without even being asked," but also suggested a sales price that was about $40,000 less than the house eventually sold for.
Though Boutelle paid a full 6% commission on the $385,000 sale, she walked away with tens of thousands of dollars more than she would have reaped had she employed the discounting agent pushing a much lower sales price. Boutelle expressed suspicions that the discounting agent was simply after a quick sale.
Not surprisingly, real estate agents love to hear such stories.
"Sometimes, you get what you pay for," said Elaine Stark, a Realtor who runs her own business with her husband, Don, a licensed broker.
The couple, who specialize in areas of Irvine and Lake Forest, advertise commissions as low as 3.5% if they can sign up a seller and also represent that same seller in buying another home -- thus earning the buyer-agent cut of the second, piggyback deal.
Jones explained another type of deal she's found herself in, known as dual agency, when the sellers could have paid a lower commission -- if only they bothered to ask for a price break.
Listing agents, when they manage to bring their own buyer into a transaction, can perform as a dual agent, legal in California when fully disclosed to all parties, though rife with potential conflicts of interest.
In such a deal, known in the business as "double-ending," one agent or broker gets to keep the whole pot of cash. A consumer-friendly agent could then cut the customer a rebate.
"But if the seller doesn't request it, they won't get it," Jones said, noting that in the mounds of paperwork involved in a home sale, many sellers aren't paying attention to the fine print of a dual-agency disclosure -- and many agents are perfectly fine with pocketing the whole commission.
Arnold Applebaum, a La Mirada aerospace contractor, found another way to save cash when selling his La Habra Heights home several years ago.
Applebaum had agreed to pay a full 6% commission "because at the time there was only one real producer in the area." The chief executive of Solid State Devices Inc. has bought and sold numerous homes and views realty fees philosophically -- a cost of doing business. "I always figure that people have factored in the commission when setting the price of the house."
Then the sale of his La Habra Heights home began to bog down in escrow.
Although the transaction occurred well before last year's credit freeze, "the buyer was having some difficulties -- but I didn't want to go any lower on the price," he said.
Applebaum pressured his broker, who agreed to placate the buyer and then rebate him part of her commission -- a creative solution to push the deal through.
In the current lending environment, navigating a sale through escrow can be a nightmare, agents say. But consumers can benefit, as Applebaum did, as agents are forced to stitch deals together and sometimes dip into their own pockets to save them.
In one intractable escrow, Weintraub shelled out several thousand dollars to pay a buyer's lien and save the deal. In another near-meltdown, her seller was on the verge of foreclosure and too broke to make the home presentable for sale. With the clock ticking on the crisis, Weintraub called in a favor from a colleague: "I pleaded with a home stager to discount her price to the seller. She agreed to stage the home." The house then sold quickly.
Savvy home sellers can boost their bottom line in other ways.
Martin Lambert sold his Newport Beach condominium in June and moved to Elk Grove, near Sacramento. The condo had languished on the market with the first agent he employed.
Lambert, a retired manufacturing plant manager, crossed paths with Stark. She undertook the listing and her husband-broker-handyman agreed to make some repairs to the condo so it would sell.
Lambert walked away with more cash because of the free repairs and a discount on the commission from the Starks, an independent team that doesn't have to kick overhead money up to a large real estate brokerage.
"It's always an advantage dealing with one person," said Lambert, who has bought and sold numerous properties. "If you deal with a non-chain group you might get a better deal."
One money-saving strategy may be so obvious that it frequently is overlooked: Make a good impression on your agent by "pre-staging" your house.
Agents are only human. "If I walk into a sad place, my whole attitude changes," Jones admitted. "Some people don't understand that their house is a wreck. I tell them to go look at model homes."
A seller who invites a professional into his unkempt house -- dirty dishes everywhere, general clutter or filth -- may convey a message that the house will be difficult to sell. The longer a place takes to sell, the more an agent's cost per hour goes up -- and the likelihood of the agent offering a discount diminishes. Sellers in today's difficult market demand sophisticated marketing strategies, all of which are financed by the agent's commission.
Jones said she sometimes can tell immediately whether a home is likely to sell quickly or languish. Sellers who fix their places up to make a good first impression on agents are more likely to get a double payoff: top dollar on their property, plus a discount on the commission they pay.
Wednesday, December 2, 2009
More evidence from Reuters of the brilliant economic turnaround underway courtesy of Messrs Bernanke and Geithner.
US commercial property loan defaults soar-reports
* Commercial real estate bank-loan defaults hit 3.4 pct
* Real estate bank loan defaults may peak at 5.3 pct
* CMBS defaults reach 4.01 pct in October
* CMBS defaults could top 8 pct in 2010
By Ilaina Jonas
NEW YORK, Nov 30 (Reuters) - The default rate for commercial real estate loans held by banks reached the highest in 16 years and the outlook looks worse, according to a report by a research firm released on Monday.
The picture for loans underlying commercial mortgage-backed securities looks as bleak, according to another report.
The national default rate for commercial real estate mortgages held by banks and other depository institutions reached 3.4 percent in the third quarter, up 0.52 percentage point from the second quarter, according to research firm Real Estate Econometrics.
It was the largest one-quarter increase since quarterly data became available in 2003.
At 3.4 percent, the U.S. default rate for commercial real estate mortgages -- on office, industrial, hotel and retail properties -- held by banks, thrifts and other depository institutions was the highest since 1993, when the default rate was 4.1 percent.
The default rate is the percentage of loans on a dollar basis that are past due 90 days or more or that are in non-accrual status, meaning lenders don't expect to be repaid in full, according to Real Estate Econometrics.
For apartment buildings, the default rate was reached 3.58 percent, up from 3.14 percent in the second quarter. The default rate on multifamily mortgages also has more than doubled over the last year.
Real Estate Econometrics Chief Economist Sam Chandan said commercial real estate lending should not be generalized.
"Don't say it's a regional bank problem," he said. "The conditions of each bank need to be evaluated on their own merit."
Some banks that had large exposure to commercial real estate are not suffering because they had strong risk management practices, conservatively analyzed loans and had in-place structures that hold someone accountable for the loan.
The balance of bank-held commercial mortgage loans 90 days or more past due rose to $4.4 billion in the third quarter from $3.5 billion in the second.
Real Estate Econometrics sees the default rate for commercial real estate mortgages held by depository institutions hitting 4.0 percent in the fourth quarter of 2009, about 5.2 percent by the end of 2010, and peaking at 5.3 percent in 2011.
For CMBS loans, delinquent unpaid balances rose 2.6 percent in October from September to $32.55 billion, a whopping 504 percent increase over last year and 14 times higher than the low point of $2.21 billion in March 2007 -- the height of the U.S. commercial real estate boom, according to rating agency Realpoint.
The delinquency ratio for October 2009 reached 4.01 percent, up from 3.94 percent in September and more than six times the 0.54 percent a year earlier.
Realpoint sees delinquent unpaid CMBS balances continuing along the current trend, reaching $40 billion to $50 billion before the end the first quarter of 2010. It sees the delinquency percentage growing to between 5 percent and 6 percent through the first quarter of 2010.
It could potentially surpass 7 percent to 8 percent in 2010, as several large loans issued in 2006 and 2007 continue to show signs of stress and older loans mature without prospects of being refinanced. (Editing by Steve Orlofsky) ((firstname.lastname@example.org ; +1 646 223 6193; Reuters Messaging: email@example.com ))
Tuesday, December 1, 2009
The Reserve Bank of Australia (RBA) has raised interest rates for a third consecutive month, and more increases are expected in 2010 as the economy continues to strengthen, keep inflation under control, economists say.
The RBA on Tuesday raised the overnight cash rate by a quarter of a percentage point to 3.75 per cent, after similar moves in October and November, as it seeks to keep inflation under control during the recovery.
It is the first time the RBA has lifted the cash rate three months in a row since it began announcing its decisions on monetary policy in January 1990.
RBA governor Glenn Stevens said the huge monetary policy stimulus put in place during the global economic downturn - when the cash rate was lowered to three per cent - was being wound back.
"With the risk of serious economic contraction in Australia having passed, the board has moved at recent meetings to lessen gradually the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker," Mr Stevens said in a statement.
"These material adjustments to the stance of monetary policy will, in the board's view, work to increase the sustainability of growth in economic activity and keep inflation consistent with the target over the years ahead."
JP Morgan chief economist Stephen Walters said the RBA was removing the emergency monetary stimulus because the local economy had performed better-than-expected.
"The RBA, therefore, is removing the emergency, or insurance, component of policy accommodation now that the downside risks to the economy have receded," he said.
"Policy remains supportive, and will be for some time.
"RBA officials, though, are pushing the cash rate back towards neutral to mitigate against the emergence of problems, like a house price bubble or credit binge, that could grow larger if the cash rate is left "low for long"."
Mr Stevens said households had gained from recent improvements in equity and housing markets.
"Share markets have recovered significant ground, which, together with higher dwelling prices, has meant a noticeable recovery in household wealth," he said.
RBC Capital Markets senior economist Su-Lin Ong said one of the key differences in Tuesday's statement from the previous one in November was the mention of a recovery in household wealth.
"That is quite key in underpinning activity in going forward," she said.
Ms Ong said the central bank was likely to lift again in the first quarter of 2010 if the economy continued to improve as the RBA expects.
Financial markets are pricing in a 40 per cent chance of the RBA lifting the cash rate by 25 basis points at its next board meeting on February 2. The RBA board does not meet in January.
"We do have another hike pencilled in (February or March 2010) but it is really dependant on the data," Ms Ong said.
Mr Walters expects the RBA to lift the cash rate again in February.
"With little new information revealed by today's commentary, we continue to look for a fourth straight rate hike in early February, and a cash rate target of five per cent by the end of next year," he said.
Nomura Australia chief economist Stephen Roberts said the RBA might wait until March or April.
"It is hinting at a more extensive pause," he said.
"They may go past February and it's looking like March or April now before they (raise rates again)."
All the major banks were reviewing their standard variable mortgage interest rates on Tuesday after Westpac Banking Corporation shocked the market by deciding on a 45 basis point rise in its rate.
Westpac's standard rate will rise to 6.76 per cent from Friday 4.
Monday, November 30, 2009
Welcome to the New World Order.
Gov't increases pressure on mortgage industry
Treasury Dept. says mortgage industry could be sanctioned for poor results in mortgage plan
- By Alan Zibel, AP Real Estate Writer
- On 1:53 pm EST, Monday November 30, 2009
WASHINGTON (AP) -- The Obama administration will crack down on mortgage companies that are failing to do enough to help borrowers at risk of foreclosure, as part of a broad effort to boost participation in its mortgage assistance program.
The Treasury Department said Monday it will withhold payments from mortgage companies that aren't doing enough to make the changes permanent. Officials will monitor the largest of the 71 participating mortgage companies via daily progress reports.
The goal is to increase the rate at which troubled home loans are converted into new loans with lower monthly payments. At the end of October, more than 650,000 borrowers, or 20 percent of those eligible, had signed up for trials lasting up to five months.
But getting homeowners to complete the process has been tough.
As of early September, only about 1,700 homeowners had finished all the paperwork and received a new permanent loan. Treasury officials projected Monday that 375,000 homeowners would hit the deadline to convert to permanent modifications -- or fall out of the program -- by year-end.
In an effort to shame the companies into doing a better job, Treasury will publish a list in December of the mortgage companies, also known as servicers, that are lagging.
"We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones," Phyllis Caldwell, who recently was named to lead the Treasury Department's homeownership preservation office, said in a statement.
Under the administration's $75 billion program, companies that agree to lower payments for troubled borrowers receive several thousand dollars in incentive payments for modified loans, but those payments aren't made until the modifications is permanent.
Some executives, however, said they have had trouble getting borrowers to return necessary documents to complete the modifications, which allow homeowners to have their mortgage interest rate reduced to as low as 2 percent for five years.
"The documents were confusing. Borrowers did not understand the process wasn't closed until the documents came in," Sanjiv Das, chief executive of Citigroup's mortgage unit, said earlier this month. "Even when the documents came in, they were not always complete."
Mortgage finance company Freddie Mac has hired an outside company Titanium Solutions Inc. to send real estate agents around the country to knock on borrowers' doors and help them complete the paperwork.
"It can be a little bit intimidating," said Patrick Carey, Titanium's chief executive. "They don't, in many cases, understand exactly what is being asked of them."
The program has come under heavy criticism for failing to do enough to attack a tidal wave of foreclosures. Analysts say the foreclosure crisis is likely to persist well into next year as rising unemployment pushes more people out of their homes.
About 14 percent of homeowners with mortgages were either behind on payments or in foreclosure at the end of September, a record level for the ninth straight quarter, according to the Mortgage Bankers Association.
The Congressional Oversight Panel, a committee that monitors spending under Treasury's bailout program, concluded last month that foreclosures are now threatening families who took out conventional, fixed-rate mortgages and put down payments of 10 to 20 percent on homes that would have been within their means in a normal market.
Treasury's program, known as the Home Affordable Modification Program, "is targeted at the housing crisis as it existed six months ago, rather than as it exists right now," the report said.
Homeowners who may be eligible for assistance can call 888-995-HOPE, or visit the Web site http://www.makinghomeaffordable.gov to learn more.