Paper Avalanche Buries Plan to Stem Foreclosures
New York Times

 Somewhere on earth, there must be a more difficult task than this: persuading American mortgage companies to lower payments for homeowners who can no longer afford their loans. But as Karina Montenegro struggles to accomplish this feat for a troubled borrower, she strains to imagine a more futile pursuit. Ms. Montenegro, an intern at a local company that seeks loan modifications, dials Washington Mutual to check on the status of an application for a homeowner whose income has plummeted. She endures a Muzak-scored purgatory while on hold. Syrupy-voiced customer service representatives chide her for landing in the wrong department. She learns that the documents her company sent in have simply vanished — for the third time since November. “I don’t know what happened,” says a customer service officer who identifies himself as Chris. “I don’t know if there was a glitch in the system, whether it was transferred from one call center to the other.” Think of the documents as being part of a pile massing inside the bank, Chris suggests. “This pile is not going to be moved forward at any point in time.”

Unemployment Vexes Foreclosure Plan
Wall Street Journal
 

Rising unemployment is complicating the Obama administration's effort to reduce foreclosures and stabilize the housing market. The first wave of mortgage delinquencies was sparked by borrowers who took out subprime mortgages and other risky loans that became unaffordable, causing them to fall behind on their monthly payments. But the current wave is increasingly driven by unemployment or underemployment, economists and housing counselors say. The Obama foreclosure-prevention plan was "built around the subprime crisis model, not the unemployment crisis model," said Michael van Zalingen, director of homeownership services for the nonprofit Neighborhood Housing Services of Chicago.
 

Regulators Close Five More Banks
Wall Street Journal

Federal and state regulators Friday closed five banks in California, Georgia and Minnesota, bringing the number of failures nationwide this year to 45. The California Department of Financial Institutions shut down two banks in the state, Los Angeles-based Mirae Bank and MetroPacific Bank of Irvine. Six banks have failed this year in California, which has been among the hardest hit by the housing crunch. But two more bank closures in Georgia kept that state well out in front, registering nine failures this year despite being home to just 4% of the country's banks.

Nevada Foreclosure Law Takes Effect Wednesday
The Associated Press

 More than 180 new laws take effect in Nevada on July 1, including several measures aimed at curbing a crisis that put the state at the top of a national list for home foreclosures. Other new laws that emerged from the 2009 Legislature include one to protect restaurants, hotel-casinos and other businesses that give away perishable foods to the needy; and others encouraging renewable energy development and requiring state buildings to adopt energy and water efficiency standards. The foreclosure-related laws include AB149, which requires lenders to meet with homeowners in danger of foreclosure. Under the law, a homeowner who gets a foreclosure notice can request a meeting with lenders and a trained mediator in efforts to reach a mutually acceptable resolution. A related law, AB140, makes it mandatory to notify renters that a property is in foreclosure, and to give renters 60 days notice to move out. The law also requires that a notice be served to the state Board of Health if a licensed health facility faces foreclosure. Also, SB128 requires that a foreclosure sale must be recorded with the county recorder in a timely manner, to help keep track of the owner of a foreclosed home.

Indiana Courts Set for Foreclosure Change
The Journal Gazette

Though it might be August before Allen County court officials see any changes from a new mortgage law taking effect next week, they will be ready July 1. In the spring, the state legislature took steps to try to help stem the tide of foreclosures, which reached a peak in Allen County in 2007 with about 2,700; there were about 2,500 last year.  The legislation, signed into law by Gov. Mitch Daniels in early May, requires mortgage lenders or creditors seeking foreclosure action to send a notice to the borrower at least 30 days in advance, to encourage the homeowner to work with a mortgage counselor.

On Promise Of Upswing, Fed Holds Rate Steady
Washington Post

The Federal Reserve issued a vote of confidence in the economy yesterday, saying it would take no new action to combat a recession that, while still severe, appears to be loosening its grip. “Although economic activity is likely to remain weak for a time,” policy actions taken so far should “contribute to a gradual resumption of sustainable economic growth,” the Federal Open Market Committee, the central bank's policymaking arm, said in a statement accompanying its decision. Recent economic data suggest the recession is closer to bottoming out. In the latest sign of improvement, the government said yesterday that orders for appliances, aircraft parts and other durable goods were up 1.8 percent last month, on the heels of an increase in April.

Senator Wants to Sweeten Home Buyer Tax Credit
CNNMoney.com

Last week, Senator Johnny Isakson introduced legislation that would extend a $15,000 tax credit to any and all home buyers. And I do mean any and all. The current maximum tax credit for home buyers is limited to $8,000 for first-timers with adjusted gross income below $75,000 ($150,000 for joint filers). The Republican senator from Georgia — who made his fortune as a real estate broker, I should point out — wants to swing Treasury’s doors wide open. His bill nearly doubles the maximum credit, doesn’t have an income cutoff and isn’t limited to making home-buying more affordable for first-timers. “The first-time home buyer tax credit has made a difference,” said Isakson when announcing the bill. “First-time home buyers used it and the market stabilized, but we don’t have a recession in first-time home buyers. We have a recession in the move-up market.” Continued the senator, “One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can.”

Lost jobs forcing more out of homes
USA Today

WASHINGTON — The nation's foreclosure crisis — once largely confined to only a few corners of the country — is spreading to new areas as the economy teeters. The foreclosure rates in 40 of the nation's counties that have the most households have already doubled from last year, a USA TODAY analysis of data from the listing firm RealtyTrac shows.
Most were in areas far removed from the avalanche of bad mortgages and lost homes that have hammered the U.S. housing market. Among the new areas: Boise and Green Bay, Wis.

Weakness in Mortgage Refinancing
The Wall Street Journal

The Mortgage Bankers Association cut its forecast of home-mortgage lending this year by 27% amid deflating hopes for a boom in refinancing.

The trade group said Monday that it now expects $2.034 trillion of originations of mortgages for one- to four-family homes in 2009, down from a forecast of $2.780 trillion in March, when falling interest rates spurred expectations for huge volumes of refinancing.

Pa. to offer residents free legal, financial help in crisis
post-gazette

Gov. Ed Rendell can remember being in the audience at a showing of "Jurassic Park" when his fellow movie-goers cheered as a Tyrannosaurus Rex ate the lawyer character.

A new Pennsylvania initiative may help change the negative view of lawyers, Rendell said yesterday during a videoconference from Harrisburg.

Mortgage firm reaches deal with state
Boston Globe

A Florida mortgage company reached a $9 million agreement with 14 states to help struggling homeowners modify unmanageable loans, open up its books for review, and assist the states in their oversight of mortgage practices, the Massachusetts Division of Banks said.

Taylor, Bean & Whitaker Mortgage Corp., one of the country’s largest wholesale mortgage lenders, made the agreement following a multistate examination of its lending practices in 2006 of so-called exotic mortgages, including interest-only and adjustable-rate mortgages, state officials said.

Home Resales Up From Previous Month, as Prices Fall
The Wall Street Journal

WASHINGTON -- Existing-home sales rose a second month in a row during May, but prices again fell sharply, threatening a delay to a housing sector recovery.

Home resales increased by 2.4% to a 4.77 million annual rate from 4.66 million in April, the National Association of Realtors said Tuesday. The NAR originally reported April sales rose 2.9% to 4.68 million.

About one hour after hearing from Secretary Shaun Donovan of the U.S. Department of Housing and Urban Development, which has seen loan volume skyrocket over the past year to account for about 24 percent of the mortgage origination market, a small group of real estate editors and writers heard from the man who oversees the government lenders that account for almost all of the remainder of the market.

James Lockhart, CEO and Chairman of the Oversight Board of the Federal Housing Finance Agency, regulator of Fannie Mae and Feddie Mac, told attendees at the National Association of Real Estate Editors 43rd Annual Real Estate Journalism conference in Washington that loans insured or owned by the two government-backed lenders represent 73 percent of the mortgage market.

News about the two former Government Sponsored Enterprises (GSEs) has died down since the government took them under conservatorship in September 2008, a move that was critical to ensure the stability of U.S. housing market and overall economy, according to Lockhart, a holdover from the Bush administration who orchestrated the move to conservatorship, along with then-Treasury Secretary Henry Paulson. A key provision in the conservatorship plan, which was made possible by the Housing and Economic Recovery Act (HERA) that former President George W. Bush signed into law in July 2008, was that it gave the Treasury Department the ability to lend capital to the cash-strapped Fannie and Freddie.

"Without that ability we would have had to put them into receivership ... which would have had a draconian effect on the U.S. housing market and the economy," Lockhart said, noting that there is still a deep well of capital available for the two entities to draw from. "There's over $900 billion that has been pumped in and there's a commitment of over $2 trillion."

Lockhart sees a few options for the future of Fannie Mae and Freddie Mac. One is nationalization, which he said he doesn't think is probably the right option. Another is an improved GSE model based on the principles laid out in HERA, and a third is to establish private-sector firms to supply liquidity to the mortgage markets. Lockhart emphasized that whatever the future of Fannie and Freddie, there should be a clear demarcation of private and public sector roles and a well-defined mission that is centered on avoiding excess risk.

"We need to figure out how to sort of dampen the boom and bust," he said, adding that this may result into Fannie and Freddie focusing on insurance rather than maintaining portfolios of loans. "I think more and more Fannie and Freddie are insurance companies now. The portfolios were really a distraction."

Lockhart also took a shot at the high homeownership goals set earlier this decade, claiming they pressured Fannie and Freddie into taking excessive risks.

"HUD set these goals and it really made risk taking a necessity and that really came home to roost."

Lockhart also touched on President Barack Obama's foreclosure prevention efforts, noting that he's hopeful the loan modification program that is part of the president's plan will result in fewer redefaults than previous loan modification programs. He identified the capacity of mortgage servicers to handle the high volume of loan modification applications as a possible stumbling block.

"The servicers are stretched really thin," he said, adding that it will be in their best interest to hire more staff to handle the additional volume. "If they don't modify mortgages, and they go into foreclosure, the cost will be a lot more."

Another stumbling block is the 105 percent maximum loan-to-value ratio allowed for the refinancing piece of the program, which Lockhart admitted may not be sufficient in hard-hit states where many distressed homeowners are much more deeply underwater on their mortgages.

"We're looking at going significantly higher than 105 percent," Lockhart said, noting that even with the higher threshold in place the success of the program is dependent on a positive response from homeowners targeted. "There's a lot of people just not answering their mail and we need to get them to say, 'gosh, a 2 percent interest rate isn't so bad. Maybe I'll take that.'"

New short sale and deed in lieu of foreclosure incentives, which are slated to be rolled out in July, are also a key part of the overall foreclosure prevention program, according to Lockhart.

"Short sales are not as good as loan modifications or refinancings, but they're certainly better than foreclosure," he said.

Three leading real estate analysts, each representing a powerful industry organization, offered their insight on changing realities in real estate and the channels where they see signs of redemption at the National Association of Real Estate Editors 43rd annual real estate journalism conference in Washington DC earlier this week.

Doug Bibby, president of the national Multi-Housing Council, set the table with a reminder that the United States is the only major industrialized country that is growing. That's good news for real estate because it should mean growing demand, but Bibby quickly pointed out that the demographics are quickly shifting and the real estate market will need to adjust to these changes. He said 85 percent of the growth is in non-traditional households -- those not made up of a married couple with children -- and that there will be a ballooning elderly population in need of housing, with more 80-year olds than 8-year olds in the year 2015.

All that translates into demands for different types of housing.

"It's not going to be the standard white picket fence isolated in the suburbs," Bibby said. "There's going to be a lot more choices."

The changing real estate needs and wants of the consumer may also mean the ratio of homeowners to renters swings back more heavily in favor of renters, but National Association of Realtors Economist Lawrence Yun said he's OK with wherever that ratio ends up.

"That's for society to determine," he said, noting that widely different ratios seem to be working across the world. For instance, he said the homeownership rate is just 40 percent in Germany but a whopping 75 percent in Spain. "Let the consumers decide what the homeownership rate should be."

National Association of Home Builders chief economist David Crowe said the question in his mind when it comes to homeownership rates is whether renters will continue to move up into becoming homeowners at the same pace they have over recent years. Some of the renters were forced into renting after being foreclosed on, but Crowe believes that many of those renters will "choose" home ownership again when they have the chance.

Foreclosures are also influencing a trend toward smaller homes being built, according to Crowe.

"Builders are competing against foreclosed homes at fire-sale prices," he said, adding that another reason for smaller homes is the push for more environmentally friendly housing. "One of the bright spots in home building right now is green."

Investing in rental properties in college towns is one bright spot Yun has recently identified in his analysis of demographic trends impacting real estate.

"Next year we will have the highest number of high school graduates ever," he said, noting that numbers continue to go up steadily over the next few decades. "If you buy a rental property in a college town you can pretty much be assured of a steady flow of renters" over the next 30 or 40 years.

But Bibby, the multi-housing unit advocate, challenged the notion that real estate is an investment. He claimed that returns from the stock market always beat returns from real estate in the long term.

"Earlier this decade housing was sold as an investment, not an expense," he said. "It's an expense."

Crowe explicitly disputed this claim, saying that Bibby was not factoring in the tax benefits of owning real estate. Yun also implicitly disputed Bibby's claim in defending one of the often-overlooked benefits of home ownership.

"(It) provides that passive, automatic discipline for saving money," he said, noting that by the age of retirement most people have paid off their mortgage and thereby receive an automatic boost in disposable income.