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HomeMortgage Modification Applications Decline in November
Posted by Larry Doyle on December 14th, 2009 4:01 PM |
If you don’t buy a ticket, you can’t get into the game.
The Obama administration’s attempt to stabilize the housing market has been an abysmal failure. That fact has been widely broadcast here at Sense on Cents and increasingly at other outlets. While the administration is now attempting to revive this initiative, the fact is the trend in this program is declining. What trend? How is that defined?
Just as a student won’t gain admission to a school without having applied, similarly homeowners will not gain the benefits of a mortgage modification without processing an application. Thank you to our friends at 12th Street Capital for sharing a recent report produced by Bank of America highlighting a number of trends in mortgage modifications, including applications. Let’s navigate. Bank of America reports:
Last month we said that we expected the focus of the HAMP program to shift from outreach and initiation of new trial modifications to completion of modifications and much of this has been confirmed now. The number of trial modifications started over the last month was the lowest yet at about 77k. This represents more than a 50% drop from the prior month. Also, the number of offers given over the last month was at all time lows dropping 30% from the previous month. This month’s report also disclosed permanent modifications for the first time. So far, 31k trial modifications have been successfully converted to permanent modifications. This represents only 4% of started trial modifications. Furthermore, an equal number have failed and are no longer active.
What are the actual figures for mortgage modification applications since this program was launched last spring? BofA reports:
May: 50,130
June: 93,146
July: 110,397
Aug: 133,192
Sept: 100,216
Oct: 163,913
Nov: 77,414,
While Uncle Sam will try to make a go of saving this program, the fact is it’s a pea shooter in the midst of a sandstorm. What would be the heavy artillery? Principal reduction via mortgage cram-downs.
Although Congress has shot down that plan twice, look for a return engagement in 2010.
For those interested in reviewing the Bank of America Mortgage Modification Monitor, click on the image below to access the entire pdf document:
LD
UPDATE: Mortgage Modifications Leading to Mortgage Cram-Downs
Posted by Larry Doyle on December 11th, 2009 11:38 AM |
Despite overwhelming efforts on the part of Uncle Sam, the simple fact of the matter is the program to successfully and permanently modify mortgages has not gained truly meaningful traction. Public pressure on mortgage servicers specifically and the mortgage modification program at large have generated a slight, but hardly significant, increase in permanent modifications over the last month. Let’s review the statistics provided by Uncle Sam’s Making Home Affordable Program:
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Two Sets of Books Require Two Sets of Accounting Standards
Posted by Larry Doyle on December 8th, 2009 2:43 PM |
What was at the core of the current economic crisis?
The financial transactions embedded in the SIVs (structured investment vehicles) located off-balance sheet within our major financial institutions brought our country to its knees. As the securities housed in these SIVs plunged in value, Uncle Sam was forced to ride to the rescue and bail out Wall Street.
Uncle Sam’s bailing required not only billions in dollars but also the coordination and complicity of the accounting industry. The Federal Accounting Standards Board (FASB) knows that Congress, supported by Wall Street, jammed revised accounting standards in place in order to facilitate Uncle Sam’s bailout.
The FASB, in an attempt to save face and a degree of integrity, has pushed back on Wall Street by passing FAS 166 and 167 which would require investments in off-balance sheet vehicles to be brought on-balance sheet. The implementation of FAS 166 and 167 is imminent and would require financial institutions to set aside increased capital against selected assets.
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UPDATE: FASB 166 and 167
Posted by Larry Doyle on December 4th, 2009 11:27 AM |
Is Wall Street getting a reprieve from the capital constraints that would be effected by the implementation of FASB 166 and 167? I first broached this topic a month ago in writing, “12th Street Capital Reviews FASB 166 and 167 and Tells Us Why Wall Street Will Need More Capital”:
In brief, FASB 166 and 167 will require hundreds of billions in assets to be moved from off-balance sheet vehicles onto the balance sheets of the financial institutions. As those assets, which are embedded in an array of securitization transactions, come on balance sheet, the banks and non-banks alike will have to raise more capital to support the growth in their balance sheets. Best guesstimate is that the institutions will need to raise capital in the tens of billions.
12th Street Capital provides us updated developments on this very important topic with the following release: (more…)
12th Street Capital Reviews FASB 166 and 167 and Tells Us Why Wall Street Will Need More Capital
Posted by Larry Doyle on November 4th, 2009 12:00 PM |
Money makes the world go round. Right now the world is not going around all that well because there is neither sufficient capital nor sufficient demand for capital from a global standpoint. That said, profits and bonuses are back on Wall Street so they must have sufficient capital, right? Not so fast.
While our wizards in Washington and on Wall Street are projecting an image of ‘come on in, the water’s fine,’ a crowd based in Norwalk, Connecticut has plans that hold major implications for our markets and economy. What crowd is this? The Financial Accounting Standards Board, otherwise known as FASB.
Recall that last spring Congress, supported by a heavy influence from Wall Street, rammed through a relaxation of the FASB’s accounting rule requiring fair value mark-to-market accounting. Regardless of what you think of that legislation, I think there is no doubt that the change allowed banks to mismark a wide array of assets and forestall losses. The need for the accounting rule change could be and will be debated ad nauseum. I believe the powers that be at FASB felt emasculated in the process.
Fast forward and let’s review the next major piece of accounting legislation emanating from FASB. That being FASB 166 and 167. I will admit I am no accountant, but I understand enough about the markets and accounting to know that the implementation of these rules, scheduled to go into effect in January of 2010 (in November 2009 for certain institutions depending on their fiscal calendar), will likely have a major impact on a wide array of financial institutions. (more…)
Uncle Sam’s New Mousetrap to Stem Foreclosures
Posted by Larry Doyle on October 13th, 2009 2:40 PM |
Despite hundreds of billions of dollars in support of Freddie Mac, Fannie Mae, the Federal Housing Association, and mortgage modifications, our housing market continues to be swamped with an ever increasing wave of foreclosures. The shadow supply of homes overhanging the market is estimated to be in the realm of 15 month’s worth. Last week, I wrote that Washington needed to address this issue in my post “Washington Needs a New Housing Model.”
Thanks to our friends at 12th Street Capital, we learn today that Treasury will release a new plan next week to stem the wave of foreclosures. How might this work? Let’s navigate a release which came from the Mortgage Banker’s Association convention currently ongoing in San Diego. Housing Wire reports, Treasury to Announce New Program to Avoid Foreclosure:
The United States Department of the Treasury is launching, with an official announcement expected next week, a new program to help ailing borrowers escape foreclosure.
The Chief of the Homeowner Preservation Office at the Treasury, Laurie Maggiano, released information on the Home Affordable Foreclosure Alternatives (HAFA) while speaking at the MBA’s 96th Annual Convention going on in San Diego. The official launch is expected in the next week or so.
HAFA already holds the support of Fannie, according to a VP at the agency, Eric Schuppenhauer, who believes the new program allows borrowers in imminent default to “make a graceful exit” from their home. HAFA will keep the stigma associated with foreclosure away from the borrowers, he added, and help keep communities intact.
Maggiano adds that HAFA will offer financial incentives to both servicers and borrowers, and associated secondary investors, in order to facilitate a short sale or deed in lieu of the property.
Borrowers will need to be Home Affordable Modification Program (HAMP)-eligible and Maggiano released some stats for the crowd’s consumption. 2,484,783 homeowners have requested information on HAMP. 757,955 HAMP plans were offered. 487,081 trials are underway.
Other additional [1] incentives to the short sale industry are nearly developed. The IRS will soon offer a 4506EZ form that will enable servicers to pre-fill out the information so that it only requires a borrower’s signature. It also will include softer language so as not put potential participants off.
For those unaware, a “short sale” entails a home being sold for less than the balance of the mortgage. The homeowner is not held responsible or liable for making up the difference between the proceeds generated by the sale and the mortgage balance. That difference is eaten by whomever ‘owns’ or is holding the mortgage. The owner or holder could be the originator if that entity never sold the mortgage. The owner or holder could be a trust on behalf of investors if the loan had been securitized.
What is the motivation to promote short sales rather than allowing the foreclosure process to run its course? Short sales may be short in terms of proceeds although they are not necessarily short in terms of time. That said, short sales typically do expedite the sale of a home. Short sales have typically occurred at a 10-20% discount to the market. Why? The homes have not been prepared for sale, meaning ‘dressed up.’
The monetary incentive provided to mortgage servicers to promote short sales will likely have a similar impact as the monetary incentive provided to modify mortgages. What has that impact been? Not much.
While many of Uncle Sam’s programs have been designed to buy time and allow the market and economy to recover, that approach has proven not to work so far in housing. Will this short sale program work to support housing? I doubt it.
I think what this program will look to achieve is to actually lessen the negative stigma associated with the term foreclosure. If Uncle Sam can say foreclosures are declining, he can then wave the flag as making progress on housing. What he will be doing, however, is merely ‘redefining’ foreclosure or in other words, ‘putting perfume on a pig.’
This program theoretically will negatively impact bank capital as banks will be forced to take a loss sooner rather than later on those mortgages they hold which are involved in short sales.
Aside from that development, real integrity in this process would include:
>> Add short sales to foreclosures as a more robust measure of housing supply stemming from delinquent mortgages.
>> Assess home prices along with rental rates to measure overall cost of housing.
LD
Increasing Vacancy Rates Will Pressure Both the Rental Market and Home Values
Posted by Larry Doyle on October 6th, 2009 11:42 AM |
You do not need to take Economics 101 to understand that an increase in supply of any asset will almost always lead to a decline in prices. This ‘tremendous grasp of the obvious’ in regard to housing runs right in the face of assertions put forth by many real estate brokers and housing experts.
High five to our friends at 12th Street Capital for bringing attention to The Wall Street Journal‘s writing, Apartment Glut Expands:
Signs advertise apartments for rent in San Francisco in July. Rents declined during the third quarter, usually a strong period for rentals. (Getty Images)
Apartment vacancies hit their highest point since 1986, surging in cities from Raleigh, N.C., to Tacoma, Wash., as rising unemployment continued to chip away at demand during the traditionally strong summer rental months.
The U.S. vacancy rate reached 7.8%, a 23-year high, according to Reis Inc., a New York real-estate research firm that tracks vacancies and rents in the top 79 U.S. markets. The rate is expected to climb further in the fall and winter, when rental demand is weaker, pushing vacancies to the highest levels since Reis began its count in 1980.
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U.S. Mortgage/Housing Market Has Split Personality
Posted by Larry Doyle on August 11th, 2009 11:52 AM |
To speak of the United States housing market in singular terms would be a huge mistake. The different regions of the country have their own housing dynamics. The strengths and weaknesses within the local economies have a huge impact on the strength or weakness of housing.
All this said, there is no doubt that the number 417 has the greatest impact on housing in the United States. Why and how? 417k is the cutoff for individuals looking to receive a conforming mortgage. Above that level, individuals enter the realm of the Jumbo market where rates are appreciably higher and credit standards are significantly tighter. Additionally, Jumbo product is not typically eligible to be underwritten or purchased by Freddie Mac or Fannie Mae. That restriction was waived and Freddie and Fannie have purchased some Jumbo product, but it has had no meaningful impact on the dynamics within the Jumbo space. Overall, the 417k level remains an enormous line of demarcation.
That line of demarcation is further defined by the ability to modify loans. Loan modifications for Jumbo mortgages are significantly more challenging to accomplish. On top of that, mortgage servicers are now under ENORMOUS pressure by Uncle Sam to produce increased numbers of mortgage modifications. Where is Uncle Sam targeting? Conforming mortgages.
While market analysts may believe housing is turning, they are not looking at the total picture. The Jumbo market remains under real pressure while the conforming market is showing signs of stability. Under the heading of ‘a picture speaks a thousand words,’ high five to our friends at 12th St. Capital (the leading mortgage broker-dealer on Wall Street) for providing an overview of the housing market in Los Angeles. One can see the ‘split personality’ based on sales volumes between the downtown neighborhoods and those in the upper incomes. Please click on the map to view year over year sales volumes in respective Los Angeles neighborhoods. A few miles makes a world of difference.
Would welcome insights and perspectives from people in other regions of the country on the split personality of their local housing markets as well.
LD
