A run of good economic data continued this week, maintaining the upward pressure on long-term interest rates that began in November.
The National Association of Realtors reported a 3.5% increase in pending sales in November, although still 9% below 2009. New claims for unemployment insurance fell to the best level since 2008, a little more than 400,000 weekly. The Chicago purchasing managers’ survey of manufacturing (“ISM”) jumped in December, possibly indicating growing strength in the national numbers due on Monday. On the weak side: the leading measure of consumer confidence slid in December, and the October Case/Shiller report of home prices was weaker than any expected.
Respectable forecasters (notably Goldman Sachs) have upped their GDP forecasts for 2011 from the 2.5%-3.0% range to 3.5%+. If so, and if there is pull-through to job creation, then mortgage rates are in for a rough time. Supply/demand factors are not helpful to us: the Fed’s QE2 seems a bust, and the Fed is allowing its MBS portfolio to run off (not re-buying as loans prepay), and Fannie and Freddie will begin a gradual reduction in their holdings in 2011 (10% per year forward).
However, right there the forecasts by stock-market and business economists diverge from those of us in housing and credit. It is extremely difficult to imagine a strong, general recovery while mortgage rates rise and housing continues to deteriorate, creating new financial-market losses, and credit remains nearly non-existent except for the largest corporate borrowers.
Which group turns out to be correct... that will tell the tale of mortgage rates in 2011.
Friday, December 31, 2010
Thursday, December 30, 2010
Kiss 4% Mortgages Goodbye!!!
NEW YORK (CNNMoney.com) -- The era of near 4% mortgage rates has ended after a quick rate rise since early November. But some industry experts think that may be a good thing for the flagging housing market.
The average 30-year fixed mortgage rate has risen to 4.86% from 4.17%, according to Freddie Mac's weekly mortgage market survey. In the Bankrate.com weekly survey, the rate has risen to 5.02% -- crossing the 5% mark for the second time in three weeks -- after being as low as 4.42% as recently as early November.
134Email Print CommentRates haven't been this high since May and forecasters now predict them to remain between 5% and 6% for all of 2011.
"You can kiss those record lows goodbye," said Greg McBride, chief economist for Bankrate.com.
Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.
"I don't think we're going back to a 50-year low anytime soon without an economic collapse," he said. "Rates will probably never revisit those levels."
The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power, according to McBride.
"That's nothing to sneeze at," he said. "But it's still small relative to the steep drop in home prices over the past few years."
Good for the market?
Higher interest rates may even prove stimulating to the still quiet housing market in which sales volume and prices are scraping near their bottoms.
"The initial phase of an interest rate increase generally does not hurt markets," said Lawrence Yun, chief economist for the National Association of Realtors. "In fact, it can help."
The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more.
The strength of the economic recovery will have far more impact on the housing market that this relatively modest increase in mortgage rates, according to Yun. If hiring gains momentum, housing markets should revive.
"If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume," said Yun.
Gumbinger said that demand for homes may be tempered somewhat by the increased mortgage costs and so affect home prices a bit but the improving job picture and better consumer confidence matter much more.
"If the other factors are aligned," he said, "interest rates are not a big thing."
The real mortgage challenge, according to Yun, is to increase the number of loan applicants winning approvals. Too many potential homebuyers are still finding it difficult to qualify for loans.
"The current mortgage market is a unique situation" he said. "It's less about rates than it is about underwriting standards, which are, in my opinion, still too stringent."
"If lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy."
The average 30-year fixed mortgage rate has risen to 4.86% from 4.17%, according to Freddie Mac's weekly mortgage market survey. In the Bankrate.com weekly survey, the rate has risen to 5.02% -- crossing the 5% mark for the second time in three weeks -- after being as low as 4.42% as recently as early November.
134Email Print CommentRates haven't been this high since May and forecasters now predict them to remain between 5% and 6% for all of 2011.
"You can kiss those record lows goodbye," said Greg McBride, chief economist for Bankrate.com.
Keith Gumbinger of HSH Associates, a provider of mortgage information said that the market reached a new plateau.
"I don't think we're going back to a 50-year low anytime soon without an economic collapse," he said. "Rates will probably never revisit those levels."
The increase will push mortgage payments higher for homebuyers. When rates rise from 4.25% to 5% it takes away about 9% of buying power, according to McBride.
"That's nothing to sneeze at," he said. "But it's still small relative to the steep drop in home prices over the past few years."
Good for the market?
Higher interest rates may even prove stimulating to the still quiet housing market in which sales volume and prices are scraping near their bottoms.
"The initial phase of an interest rate increase generally does not hurt markets," said Lawrence Yun, chief economist for the National Association of Realtors. "In fact, it can help."
The rapid rise introduces an element of urgency for potential homebuyers. They may now rush to buy before rates spurt even more.
The strength of the economic recovery will have far more impact on the housing market that this relatively modest increase in mortgage rates, according to Yun. If hiring gains momentum, housing markets should revive.
"If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume," said Yun.
Gumbinger said that demand for homes may be tempered somewhat by the increased mortgage costs and so affect home prices a bit but the improving job picture and better consumer confidence matter much more.
"If the other factors are aligned," he said, "interest rates are not a big thing."
The real mortgage challenge, according to Yun, is to increase the number of loan applicants winning approvals. Too many potential homebuyers are still finding it difficult to qualify for loans.
"The current mortgage market is a unique situation" he said. "It's less about rates than it is about underwriting standards, which are, in my opinion, still too stringent."
"If lenders return to more normal, safe underwriting standards for creditworthy buyers, there would be a bigger boost to the housing market and spillover benefits for the broader economy."
Friday, December 17, 2010
Weekly Information 12/17
Mortgage interest rates increased again this past week as economic data was mostly better than expected. Reports stronger than expected included November Retail Sales, the December Empire State Manufacturing Index, November Industrial Production and Capacity Utilization, weekly jobless claims, and the Philadelphia Fed Business Index. The November Producer Price Index (PPI), a measure of wholesale prices, increased more than expected, up 0.8% on expectations of an increase of 0.5%. The November Consumer Price Index (CPI) increased 0.1%, slightly less than expected. Housing data, though, did not meet expectations. November Housing Starts were up 3.9%on expectations that starts would be up 4.8%. November Building Permits were down 4.0% on expectations that they would be up 2.5%.
Friday, December 10, 2010
Weekly Information 12/10
Mortgage interest rates increased again this past week as Congress moved closer to extending the Bush Tax cuts, cutting the payroll taxes by 2.0%, and continuing the emergency unemployment payments for another year. It is estimated that this will increase the deficit by $700 billion, adding supply pressure to the bond markets. Also of note, the Treasury auctioned $66 billion in 3 Year Notes, 10 Year Notes, and 30 Year Bonds this past week which was met with mixed demand from the markets. Economic data generally surpassed expectations. October Consumer Credit, weekly jobless claims, the October Trade Deficit, and the University of Michigan Consumer Sentiment Index were all better than expected. Also of note, November Import Prices increased by 1.3% and Export Prices increased by 3.2%.
Tuesday, November 30, 2010
Monday, November 29, 2010
Thursday, November 18, 2010
Tuesday, November 16, 2010
1185 Fall River Cir.
Remodeled. Great 4 Bdr. 3 Bth. home for sale in Wolf Creek Subdivision, Longmont, CO. Priced to sell, under assessed value!! Listed with Coldwell Banker Res-Longmont.
Saturday, November 13, 2010
weekly Information 11/12
Mortgage interest rates increased this past week despite the Fed announcing last week that it would purchase $600 billion in Treasuries over the next several months. Markets are concerned that the Fed may purchase intermediate term 3 year, 5 year, and 7 year notes instead of longer dated 10 year notes and 30 year bonds which would be more likely to help mortgage rates. Markets are also concerned that the quantitative easing move is mainly directed toward weakening the Dollar in order to improve exports. Economic data of note included weekly jobless claims which dropped more than expected. The September Trade Deficit was less than expected on slightly stronger exports. The Treasury reported a budged deficit of $140.4 billion in October, the 35th consecutive month of deficit spending. Also, the Treasury auctioned $72 billion in 3 year notes, 10 year notes, and 30 year bonds. The auctions were met with mixed demand.
Saturday, November 6, 2010
Weekly Information 10/5
Mortgage interest rates improved slightly this past week despite generally stronger than expected economic data. Today’s employment report for October showed non-farm payroll gains of 151k on expectations that 60k jobs would be added. September and August non-farm payrolls were revised upward by 110k. The unemployment rate remained unchanged at 9.6%. Other reports better than expected included September Construction Spending, the October ISM Manufacturing Index, the October ISM Services Sector Index, and September Factory Orders. Weekly jobless claims, though, increased more than expected, up 20k on expectations that they would be up only 11k. Also of note, the Fed announced at the conclusion of its FOMC meeting that it will purchase $600 billion in Treasuries over the next six to eight months to help support low interest rates.
Monday, November 1, 2010
Weekly Information 10/29
Mortgage interest rates were flat on the week as economic data was slightly better than expected. September Existing Home Sales and New Home Sales were better than expected. Increases in existing home sales were largely driven by the expiring tax credit. October Consumer Confidence, September Durable Goods Orders, and the October Chicago Purchasing Managers Index were slightly better than expected. Weekly jobless claims fell more than expected. The Q3 Advance GDP report showed that the economy grew at an annual rate of 2.0%, in line with expectations. The University of Michigan Consumer Sentiment Index fell to 67.7, its lowest level since November of 2009. The Treasury auctioned $99 billion in 2 Year, 5 Year, and 7 Year Notes, which was met with mixed demand.
Friday, October 22, 2010
Weekly Information 10/22
Mortgage interest rates improved slightly this past week on mixed economic data. Industrial Production, Capacity Utilization, Building Permits, and the Philadelphia Fed Business Index were weaker than expected. September Housing Starts increased 0.3% on expectations that starts would fall by 3.5%. Weekly jobless claims fell slightly. The Fed’s Beige Book, a survey of economic conditions in the 12 Fed districts, showed modest improvement compared to the previous report which showed slow economic activity. It is widely expected that the Fed will announce the details of its second round of quantitative easing at the conclusion of its FOMC meeting on November 3rd. It is expected that the Fed will purchase longer dated Treasuries to help support lower interest rates.
Tuesday, October 19, 2010
A Must Read!!
This message was sent to pgb4545@aol.com.
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Thoughts from the Frontline Weekly NewsletterThe Subprime Debacle: Act 2
by John MauldinOctober 15, 2010
In this issue: The Subprime Debacle: Act 2Where is the Housing Recovery?The Foreclosure MessSome Foreclosure TakeawaysYankees, Rangers, and The Endgame
Trouble, oh we got trouble, Right here in River City! With a capital "T" That rhymes with "P" And that stands for Pool, That stands for pool.
We've surely got trouble! Right here in River City, Right here! Gotta figger out a way To keep the young ones moral after school! Trouble, trouble, trouble, trouble, trouble...
- From The Music Man
(Quick last-minute note: I think this (and next week's) is/will be one of the more important letters I have written in the last ten years. Take the time to read, and if you agree send it on to friends and responsible parties. And note to new readers: this letter goes to 1.5 million of my closest friends. It is free. You can go to www.frontlinethoughts.com to subscribe. Now, let's jump in!)
There's trouble, my friends, and it is does indeed involve pool(s), but not in the pool hall. The real monster is hidden in those pools of subprime debt that have not gone away. When I first began writing and speaking about the coming subprime disaster, it was in late 2007 and early 2008. The subject was being dismissed in most polite circles. "The subprime problem," testified Ben Bernanke, "will be contained."
My early take? It would be a disaster for investors. I admit I did not see in January that it would bring down Lehman and trigger the worst banking crisis in 80 years, less than 18 months later. But it was clear that it would not be "contained." We had no idea.
I also said that it was going to create a monster legal battle down the road that would take years to develop. Well, in the fullness of time, those years have come nigh upon us. Today we briefly look at the housing market, then the mortgage foreclosure debacle, and then we go into the real problem lurking in the background. It is The Subprime Debacle, Act 2. It is NOT the mortgage foreclosure issue, as serious as that is. I seriously doubt it will be contained, as well. Could the confluence of a bank credit crisis in the US and a sovereign debt banking crisis in Europe lead to another full-blown world banking crisis? The potential is there. This situation wants some serious attention.
This letter is going to print a little longer. But I think it is important that you get a handle on this issue.
Where is the Housing Recovery?
We are going to quickly review a few charts from Gary Shilling's latest letter, where he review the housing market in depth. Bottom line, the housing market has not yet begun to recover, and it is not only going to take longer but the decline in prices may be greater than many have forecast. I wrote three years ago that it could be well into 2011 before we get to a "bottom." That may have been optimistic, given what we will cover in this letter.
First, existing and new single-family home sales continue to slide, in the wake of the tax rebate that ended earlier this year. We have declined back to the down-sloping trend line. If you are a seller, this is not a pretty picture.
The homebuilding industry, which was the source of so many jobs last decade (aka the good old days), is on its back. This country needs a healthy housing construction market to get back to lower unemployment, and until the overhang in the foreclosure market is cleared out, that is unlikely to happen.
Lending is tighter, as is reasonable. Banks actually expect you to have the ability to pay back the mortgage you take out (solid FICO scores) and want reasonable down payments. Only 47% of applicants have the FICO score to get the best mortgage rates.
(Sidebar: Gary writes, "Furthermore, false appraisals rose 50% in 2009 from 2008. The tax credit for first-time homebuyers cost taxpayers about $15 billion, twice the official forecast, in part due to fraud. Over 19,000 tax filers claimed the credit but didn't buy houses, while 74,000 who claimed $500 million in refunds already owned homes." Where are the regulators?)
Shilling thinks prices are likely to fall another 20%. Given what I am writing about in the next section, that is a possibility. There is certainly no demand pressure to push up housing prices.
Finally, two charts on foreclosures. Residential mortgages in foreclosure are near all-time highs, close to 1 in 21 of all mortgages, up from 1 in 100 just four years ago. That's got to be bad for your profit models.
Anyone who tells you the housing problem is "bottoming" either has an agenda or simply does not pay attention to the data. I really want to see housing bottom and then turn around and the home builders come back; the nation desperately needs the jobs. But my job is to be realistic. When we see 3-4 months of non-stimulus-induced housing sales growth, then we can start talking about bottoms.
But housing sales are not really the issue. Let's look at the next leg of the problem.
The Foreclosure Mess
OK, in a serendipitous moment, Maine fishing buddy David Kotok sent me this email on the mortgage foreclosure crisis just as I was getting ready to write much the same thing. It is about the best thing I have read on the topic. Saves me some time and you get a better explanation. From Kotok:
"Dear Readers, this text came to me in an email from sources that are in the financial services business and with whom I have a personal relationship. The original text was laced with expletives and I would not use it in the form I received it. Therefore the text below has had some substantial editing in order to remove that language. The intentions of the writer are undisturbed. The writer shall remain anonymous. This text echoes some of the news items we have seen and heard today; however, it can serve as a plain language description of the present foreclosure-suspension mess. There is a lot here. It takes about ten minutes to read it. - David Kotok (www.cumber.com)
"Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper...only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage, the note, which is the actual IOU that people sign, promising to pay back the mortgage loan
"Before mortgage-backed securities, most mortgage loans were issued by the local savings & loan. So the note usually didn't go anywhere: it stayed in the offices of the S&L down the street.
"But once mortgage loan securitization happened, things got sloppy...they got sloppy by the very nature of mortgage-backed securities.
"The whole purpose of MBSs was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with correspondingly higher rates of return.
"Therefore, as everyone knows, the loans were 'bundled' into REMICs (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then "sliced & diced"...split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.
"This slicing and dicing created 'senior tranches,' where the loans would likely be paid in full, if the past history of mortgage loan statistics was to be believed. And it also created 'junior tranches,' where the loans might well default, again according to past history and statistics. (A whole range of tranches was created, of course, but for the purposes of this discussion we can ignore all those countless other variations.)
"These various tranches were sold to different investors, according to their risk appetite. That's why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
"But here's the key issue: When an MBS was first created, all the mortgages were pristine...none had defaulted yet, because they were all brand-new loans. Statistically, some would default and some others would be paid back in full...but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads...but what will the result be of, say, the 723rd toss? No one knows.
"Same with mortgages.
"So in fact, it wasn't that the riskier loans were in junior tranches and the safer ones were in senior tranches: rather, all the loans were in the REMIC, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder last.
"But who were the owners of the junior-tranche bond and the senior-tranche bonds? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn't be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.
"Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier tranche?
"Enter stage right the famed MERS...the Mortgage Electronic Registration System.
"MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two again ...I know, I know: like the chlamydia and the gonorrhea of the financial world...you cure 'em, but they just keep coming back).
"The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially where the digitized mortgage notes were sliced and diced and rearranged so as to create the mortgage-backed securities. Think of MERS as Dr. Frankenstein's operating table, where the beast got put together.
"However, legally...and this is the important part...MERS didn't hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.
"But the REMICs didn't own the notes either, because of a fluke of the ratings agencies: the REMICs had to be "bankruptcy remote," in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors.
"So somewhere between the REMICs and MERS, the chain of title was broken.
"Now, what does 'broken chain of title' mean? Simple: when a homebuyer signs a mortgage, the key document is the note. As I said before, it's the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the 'chain of title.'
"You can endorse the note as many times as you please...but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.
"If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
"To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
"Read that last sentence again, please. Don't worry, I'll wait.
"You read it again? Good: Now you see the can of worms that's opening up.
"The broken chain of title might not have been an issue if there hadn't been an unusual number of foreclosures. Before the housing bubble collapse, the people who defaulted on their mortgages wouldn't have bothered to check to see that the paperwork was in order.
"But as everyone knows, following the housing collapse of 2007-'10-and-counting, there has been a boatload of foreclosures...and foreclosures on a lot of people who weren't sloppy bums who skipped out on their mortgage payments, but smart and cautious people who got squeezed by circumstances.
"These people started contesting their foreclosures and evictions, and so started looking into the chain-of-title issue, and that's when the paperwork became important. So the chain of title became crucial and the botched paperwork became a nontrivial issue.
"Now, the banks had hired 'foreclosure mills'...law firms that specialized in foreclosures...in order to handle the massive volume of foreclosures and evictions that occurred because of the housing crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
"Well, what do you know, it turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby 'proving' that the banks had judicial standing to foreclose on delinquent mortgages. These foreclosure mills might have even forged the loan note itself...
"Wait, why am I hedging? The foreclosure mills did actually, deliberately, and categorically fake and falsify documents, in order to expedite these foreclosures and evictions. Yves Smith at Naked Capitalism, who has been all over this story, put up a price list for this 'service' from a company called DocX...yes, a price list for forged documents. Talk about your one-stop shopping!
"So in other words, a massive fraud was carried out, with the inevitable innocent bystanders getting caught up in the fraud: the guy who got foreclosed and evicted from his home in Florida, even though he didn't actually have a mortgage, and in fact owned his house free -and clear. The family that was foreclosed and evicted, even though they had a perfect mortgage payment record. Et cetera, depressing et cetera.
"Now, the reason this all came to light is not because too many people were getting screwed by the banks or the government or someone with some power saw what was going on and decided to put a stop to it...that would have been nice, to see a shining knight in armor, riding on a white horse.
"But that's not how America works nowadays.
"No, alarm bells started going off when the title insurance companies started to refuse to insure the titles.
"In every sale, a title insurance company insures that the title is free -and clear ...that the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because...of course...they didn't want to expose themselves to the risk that the chain of title had been broken, and that the bank had illegally foreclosed on the previous owner.
"That's when things started getting interesting: that's when the attorneys general of various states started snooping around and making noises (elections are coming up, after all).
"The fact that Ally Financial (formerly GMAC), JP Morgan Chase, and now Bank of America have suspended foreclosures signals that this is a serious problem...obviously. Banks that size, with that much exposure to foreclosed properties, don't suspend foreclosures just because they're good corporate citizens who want to do the right thing, and who have all their paperwork in strict order...they're halting their foreclosures for a reason.
"The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills' forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their master's will by a voice vote...so that there would be no registry of who had voted for it, and therefore no accountability.)
"And President Obama's pocket veto of the measure? He had to veto it...if he'd signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as unconstitutional in short order. (But he didn't have the gumption to come right out and veto it...he pocket vetoed it.)
"As soon as the White House announced the pocket veto...the very next day!...Bank of America halted all foreclosures, nationwide.
"Why do you think that happened? Because the banks are in trouble...again. Over the same thing as last time...the damned mortgage-backed securities!
"The reason the banks are in the tank again is, if they've been foreclosing on people they didn't have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
"And it won't matter if a particular case...or even most cases...were on the up -and up: It won't matter if most of the foreclosures and evictions were truly due to the homeowner failing to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that, now, all foreclosures come into question. Not only that, all mortgages come into question.
"People still haven't figured out what all this means. But I'll tell you: if enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loans and keep their houses, scott-free? That's basically a license to halt payments right now, thank you. That's basically a license to tell the banks to take a hike.
"What are the banks going to do...try to foreclose and then evict you? Show me the paper, Mr. Banker, will be all you need to say.
"This is a major, major crisis. The Lehman bankruptcy could be a spring rain compared to this hurricane. And if this isn't handled right...and handled right quick, in the next couple of weeks at the outside...this crisis could also spell the end of the mortgage business altogether. Of banking altogether. Hell, of civil society. What do you think happens in a country when the citizens realize they don't need to pay their debts?"
(I am not sure who wrote this, but if you want your 15 minutes of fame, I will be glad to credit you next week. - John)
Some Foreclosure Takeaways
Let me add a few thoughts. First, I agree, this is very serious. It has the possibility of seriously hurting the housing market, which as we saw in the first section is already on the ropes. But at the end of the day, there is a cure.
Someone borrowed money for a mortgage. Some entity is cashing a check if that person is paying. That entity should have the title until it is paid off. If someone is not making their mortgage payments, they should be removed from the house and it should be sold to the benefit of the ultimately correct and what everyone thought was the proper title holder.
If you took out a mortgage and now the title is in some doubt because the investment banks and mortgage banks and all the middle guys screwed up (big-time!) because they wanted to save some bucks and make some commissions, you did not win the lottery. That is not America as I know it. You can't pay the mortgage, I am sorry. But you do not get to keep the house. The people who (thought) they bought the mortgage in a fair deal need to end up with that mortgage.
If you pay your mortgage, you get to have the American Dream.
We CANNOT allow this debacle to continue. It will bring the system down. Who will want to buy a mortgage that is in a securitized package with no clear title? Who will get title insurance? Some judge somewhere is going to make a ruling that is going to petrify every title company, and the whole thing grinds to a halt.
Let's be very clear. If we cannot securitize mortgages, there is no mortgage market. We cannot go back to where lenders warehoused the notes. It would take a decade to build that infrastructure. In the meantime, housing prices are devastated. Whatever wealth effect remains from housing gets worse, and the economy rolls over.
This is beyond my pay grade, but there have to be some adults who can make everyone play nice in the sandbox. Ideally, someone in authority at the Treasury, with bipartisan support steps in and says everyone follow these rules, whatever these rules need to be.
I had a very spirited conversation with good friend Barry Ritholtz today (of The Big Picture). Barry runs money but is also a lawyer and has a somewhat different perspective. He thinks we do not need any legislation and there is a legal cure. He says that real trained people (lawyers and paralegals) need to look at each mortgage and figure it out, and that it can get resolved. It is expensive to the banks; but I agree, if it is just dollars I don't care. Fix it.
But that is a maybe. Other people I talk to disagree. Some think we need some regulatory fixes. Some think we will need a legislative cure. But if we need to, there need be no finger pointing, no partisan BS. This needs to get solved.
Someone took out a mortgage. Some entity thinks they are owed money. Fix the damn paper trail so that happens, whether in a legal if time-consuming manner, in a regulatory fix, or with legislation.
Now, that is not to say the people who did this stuff did not commit felonies and such. We can sort that out over time. The longer we wait the worse it will get. Fix the problem and then go round up the bad guys. There are bigger issues in play here. (I know this will be somewhat controversial. Oh well.)
I get the fraud being done here. I am regulated by FINRA, the NFA, various states, the British FSA, and ultimately the SEC. If I did something in my business like the stuff described above, someone would come in and justifiably shut me down, fine me, and ban me from the securities business. Oh, wait. These guys ARE regulated by the above groups.
Finally on this topic, I shake my head when I think that the FDIC is now running several of the banks (think IndyMac) that are part of this foreclosure crisis. These are the guys who are supposed to be preventing something like this. Again, where are the adults?
The Subprime Debacle: Act 2
OK, this letter is already getting too long. I am going to finish it next week, as the next topic needs a lengthy treatment. But I will not leave you hanging. A quick preview.
All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.
And all this coming as European banks are going to have to sort out their own sovereign debt problems. Shades of 2008. I hope I am wrong, but it's all connected.
Yankees, Rangers, and The Endgame
I travel on Monday to New York, where good friend Barry Habib is going to take me to the Yankees-Rangers game. I will be the guy on the second row behind home plate, behind the mayor, wearing the Rangers jacket. Barry assures me I will be safe. Cliff Lee pitching. Can the Rangers hold up to the pressure against the best there is? Stay tuned.
My book, The End Game, is coming along. It is out for comments from friends, and then I will sit down with my co-author in London for four days and we will finish this the first week of November, and then Wiley will push as fast as they can to get it out.
This has been a very tumultuous week for a host of reasons. It's all good, but exhausting. I am more than ready to hit the send button. I just turned on the TV to watch the last few innings. The Rangers have gone from up 5 to zip to losing 6-5. Can we say disheartening?
Your really wanting to see a World Series analyst,John MauldinJohn@FrontLineThoughts.com
Copyright 2010 John Mauldin. All Rights Reserved Note: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at www.accreditedinvestor.ws or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; Fynn Capital; Nicola Wealth Management; and Plexus Asset Management. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.
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Thoughts from the Frontline Weekly NewsletterThe Subprime Debacle: Act 2
by John MauldinOctober 15, 2010
In this issue: The Subprime Debacle: Act 2Where is the Housing Recovery?The Foreclosure MessSome Foreclosure TakeawaysYankees, Rangers, and The Endgame
Trouble, oh we got trouble, Right here in River City! With a capital "T" That rhymes with "P" And that stands for Pool, That stands for pool.
We've surely got trouble! Right here in River City, Right here! Gotta figger out a way To keep the young ones moral after school! Trouble, trouble, trouble, trouble, trouble...
- From The Music Man
(Quick last-minute note: I think this (and next week's) is/will be one of the more important letters I have written in the last ten years. Take the time to read, and if you agree send it on to friends and responsible parties. And note to new readers: this letter goes to 1.5 million of my closest friends. It is free. You can go to www.frontlinethoughts.com to subscribe. Now, let's jump in!)
There's trouble, my friends, and it is does indeed involve pool(s), but not in the pool hall. The real monster is hidden in those pools of subprime debt that have not gone away. When I first began writing and speaking about the coming subprime disaster, it was in late 2007 and early 2008. The subject was being dismissed in most polite circles. "The subprime problem," testified Ben Bernanke, "will be contained."
My early take? It would be a disaster for investors. I admit I did not see in January that it would bring down Lehman and trigger the worst banking crisis in 80 years, less than 18 months later. But it was clear that it would not be "contained." We had no idea.
I also said that it was going to create a monster legal battle down the road that would take years to develop. Well, in the fullness of time, those years have come nigh upon us. Today we briefly look at the housing market, then the mortgage foreclosure debacle, and then we go into the real problem lurking in the background. It is The Subprime Debacle, Act 2. It is NOT the mortgage foreclosure issue, as serious as that is. I seriously doubt it will be contained, as well. Could the confluence of a bank credit crisis in the US and a sovereign debt banking crisis in Europe lead to another full-blown world banking crisis? The potential is there. This situation wants some serious attention.
This letter is going to print a little longer. But I think it is important that you get a handle on this issue.
Where is the Housing Recovery?
We are going to quickly review a few charts from Gary Shilling's latest letter, where he review the housing market in depth. Bottom line, the housing market has not yet begun to recover, and it is not only going to take longer but the decline in prices may be greater than many have forecast. I wrote three years ago that it could be well into 2011 before we get to a "bottom." That may have been optimistic, given what we will cover in this letter.
First, existing and new single-family home sales continue to slide, in the wake of the tax rebate that ended earlier this year. We have declined back to the down-sloping trend line. If you are a seller, this is not a pretty picture.
The homebuilding industry, which was the source of so many jobs last decade (aka the good old days), is on its back. This country needs a healthy housing construction market to get back to lower unemployment, and until the overhang in the foreclosure market is cleared out, that is unlikely to happen.
Lending is tighter, as is reasonable. Banks actually expect you to have the ability to pay back the mortgage you take out (solid FICO scores) and want reasonable down payments. Only 47% of applicants have the FICO score to get the best mortgage rates.
(Sidebar: Gary writes, "Furthermore, false appraisals rose 50% in 2009 from 2008. The tax credit for first-time homebuyers cost taxpayers about $15 billion, twice the official forecast, in part due to fraud. Over 19,000 tax filers claimed the credit but didn't buy houses, while 74,000 who claimed $500 million in refunds already owned homes." Where are the regulators?)
Shilling thinks prices are likely to fall another 20%. Given what I am writing about in the next section, that is a possibility. There is certainly no demand pressure to push up housing prices.
Finally, two charts on foreclosures. Residential mortgages in foreclosure are near all-time highs, close to 1 in 21 of all mortgages, up from 1 in 100 just four years ago. That's got to be bad for your profit models.
Anyone who tells you the housing problem is "bottoming" either has an agenda or simply does not pay attention to the data. I really want to see housing bottom and then turn around and the home builders come back; the nation desperately needs the jobs. But my job is to be realistic. When we see 3-4 months of non-stimulus-induced housing sales growth, then we can start talking about bottoms.
But housing sales are not really the issue. Let's look at the next leg of the problem.
The Foreclosure Mess
OK, in a serendipitous moment, Maine fishing buddy David Kotok sent me this email on the mortgage foreclosure crisis just as I was getting ready to write much the same thing. It is about the best thing I have read on the topic. Saves me some time and you get a better explanation. From Kotok:
"Dear Readers, this text came to me in an email from sources that are in the financial services business and with whom I have a personal relationship. The original text was laced with expletives and I would not use it in the form I received it. Therefore the text below has had some substantial editing in order to remove that language. The intentions of the writer are undisturbed. The writer shall remain anonymous. This text echoes some of the news items we have seen and heard today; however, it can serve as a plain language description of the present foreclosure-suspension mess. There is a lot here. It takes about ten minutes to read it. - David Kotok (www.cumber.com)
"Homeowners can only be foreclosed and evicted from their homes by the person or institution who actually has the loan paper...only the note-holder has legal standing to ask a court to foreclose and evict. Not the mortgage, the note, which is the actual IOU that people sign, promising to pay back the mortgage loan
"Before mortgage-backed securities, most mortgage loans were issued by the local savings & loan. So the note usually didn't go anywhere: it stayed in the offices of the S&L down the street.
"But once mortgage loan securitization happened, things got sloppy...they got sloppy by the very nature of mortgage-backed securities.
"The whole purpose of MBSs was for different investors to have their different risk appetites satiated with different bonds. Some bond customers wanted super-safe bonds with low returns, some others wanted riskier bonds with correspondingly higher rates of return.
"Therefore, as everyone knows, the loans were 'bundled' into REMICs (Real-Estate Mortgage Investment Conduits, a special vehicle designed to hold the loans for tax purposes), and then "sliced & diced"...split up and put into tranches, according to their likelihood of default, their interest rates, and other characteristics.
"This slicing and dicing created 'senior tranches,' where the loans would likely be paid in full, if the past history of mortgage loan statistics was to be believed. And it also created 'junior tranches,' where the loans might well default, again according to past history and statistics. (A whole range of tranches was created, of course, but for the purposes of this discussion we can ignore all those countless other variations.)
"These various tranches were sold to different investors, according to their risk appetite. That's why some of the MBS bonds were rated as safe as Treasury bonds, and others were rated by the ratings agencies as risky as junk bonds.
"But here's the key issue: When an MBS was first created, all the mortgages were pristine...none had defaulted yet, because they were all brand-new loans. Statistically, some would default and some others would be paid back in full...but which ones specifically would default? No one knew, of course. If I toss a coin 1,000 times, statistically, 500 tosses the coin will land heads...but what will the result be of, say, the 723rd toss? No one knows.
"Same with mortgages.
"So in fact, it wasn't that the riskier loans were in junior tranches and the safer ones were in senior tranches: rather, all the loans were in the REMIC, and if and when a mortgage in a given bundle of mortgages defaulted, the junior tranche holders would take the losses first, and the senior tranche holder last.
"But who were the owners of the junior-tranche bond and the senior-tranche bonds? Two different people. Therefore, the mortgage note was not actually signed over to the bond holder. In fact, it couldn't be signed over. Because, again, since no one knew which mortgage would default first, it was impossible to assign a specific mortgage to a specific bond.
"Therefore, how to make sure the safe mortgage loan stayed with the safe MBS tranche, and the risky and/or defaulting mortgage went to the riskier tranche?
"Enter stage right the famed MERS...the Mortgage Electronic Registration System.
"MERS was the repository of these digitized mortgage notes that the banks originated from the actual mortgage loans signed by homebuyers. MERS was jointly owned by Fannie Mae and Freddie Mac (yes, those two again ...I know, I know: like the chlamydia and the gonorrhea of the financial world...you cure 'em, but they just keep coming back).
"The purpose of MERS was to help in the securitization process. Basically, MERS directed defaulting mortgages to the appropriate tranches of mortgage bonds. MERS was essentially where the digitized mortgage notes were sliced and diced and rearranged so as to create the mortgage-backed securities. Think of MERS as Dr. Frankenstein's operating table, where the beast got put together.
"However, legally...and this is the important part...MERS didn't hold any mortgage notes: the true owner of the mortgage notes should have been the REMICs.
"But the REMICs didn't own the notes either, because of a fluke of the ratings agencies: the REMICs had to be "bankruptcy remote," in order to get the precious ratings needed to peddle mortgage-backed Securities to institutional investors.
"So somewhere between the REMICs and MERS, the chain of title was broken.
"Now, what does 'broken chain of title' mean? Simple: when a homebuyer signs a mortgage, the key document is the note. As I said before, it's the actual IOU. In order for the mortgage note to be sold or transferred to someone else (and therefore turned into a mortgage-backed security), this document has to be physically endorsed to the next person. All of these signatures on the note are called the 'chain of title.'
"You can endorse the note as many times as you please...but you have to have a clear chain of title right on the actual note: I sold the note to Moe, who sold it to Larry, who sold it to Curly, and all our notarized signatures are actually, physically, on the note, one after the other.
"If for whatever reason any of these signatures is skipped, then the chain of title is said to be broken. Therefore, legally, the mortgage note is no longer valid. That is, the person who took out the mortgage loan to pay for the house no longer owes the loan, because he no longer knows whom to pay.
"To repeat: if the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
"Read that last sentence again, please. Don't worry, I'll wait.
"You read it again? Good: Now you see the can of worms that's opening up.
"The broken chain of title might not have been an issue if there hadn't been an unusual number of foreclosures. Before the housing bubble collapse, the people who defaulted on their mortgages wouldn't have bothered to check to see that the paperwork was in order.
"But as everyone knows, following the housing collapse of 2007-'10-and-counting, there has been a boatload of foreclosures...and foreclosures on a lot of people who weren't sloppy bums who skipped out on their mortgage payments, but smart and cautious people who got squeezed by circumstances.
"These people started contesting their foreclosures and evictions, and so started looking into the chain-of-title issue, and that's when the paperwork became important. So the chain of title became crucial and the botched paperwork became a nontrivial issue.
"Now, the banks had hired 'foreclosure mills'...law firms that specialized in foreclosures...in order to handle the massive volume of foreclosures and evictions that occurred because of the housing crisis. The foreclosure mills, as one would expect, were the first to spot the broken chain of titles.
"Well, what do you know, it turns out that these foreclosure mills might have faked and falsified documentation, so as to fraudulently repair the chain-of-title issue, thereby 'proving' that the banks had judicial standing to foreclose on delinquent mortgages. These foreclosure mills might have even forged the loan note itself...
"Wait, why am I hedging? The foreclosure mills did actually, deliberately, and categorically fake and falsify documents, in order to expedite these foreclosures and evictions. Yves Smith at Naked Capitalism, who has been all over this story, put up a price list for this 'service' from a company called DocX...yes, a price list for forged documents. Talk about your one-stop shopping!
"So in other words, a massive fraud was carried out, with the inevitable innocent bystanders getting caught up in the fraud: the guy who got foreclosed and evicted from his home in Florida, even though he didn't actually have a mortgage, and in fact owned his house free -and clear. The family that was foreclosed and evicted, even though they had a perfect mortgage payment record. Et cetera, depressing et cetera.
"Now, the reason this all came to light is not because too many people were getting screwed by the banks or the government or someone with some power saw what was going on and decided to put a stop to it...that would have been nice, to see a shining knight in armor, riding on a white horse.
"But that's not how America works nowadays.
"No, alarm bells started going off when the title insurance companies started to refuse to insure the titles.
"In every sale, a title insurance company insures that the title is free -and clear ...that the prospective buyer is in fact buying a properly vetted house, with its title issues all in order. Title insurance companies stopped providing their service because...of course...they didn't want to expose themselves to the risk that the chain of title had been broken, and that the bank had illegally foreclosed on the previous owner.
"That's when things started getting interesting: that's when the attorneys general of various states started snooping around and making noises (elections are coming up, after all).
"The fact that Ally Financial (formerly GMAC), JP Morgan Chase, and now Bank of America have suspended foreclosures signals that this is a serious problem...obviously. Banks that size, with that much exposure to foreclosed properties, don't suspend foreclosures just because they're good corporate citizens who want to do the right thing, and who have all their paperwork in strict order...they're halting their foreclosures for a reason.
"The move by the United States Congress last week, to sneak by the Interstate Recognition of Notarizations Act? That was all the banking lobby. They wanted to shove down that law, so that their foreclosure mills' forged and fraudulent documents would not be scrutinized by out-of-state judges. (The spineless cowards in the Senate carried out their master's will by a voice vote...so that there would be no registry of who had voted for it, and therefore no accountability.)
"And President Obama's pocket veto of the measure? He had to veto it...if he'd signed it, there would have been political hell to pay, plus it would have been challenged almost immediately, and likely overturned as unconstitutional in short order. (But he didn't have the gumption to come right out and veto it...he pocket vetoed it.)
"As soon as the White House announced the pocket veto...the very next day!...Bank of America halted all foreclosures, nationwide.
"Why do you think that happened? Because the banks are in trouble...again. Over the same thing as last time...the damned mortgage-backed securities!
"The reason the banks are in the tank again is, if they've been foreclosing on people they didn't have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
"And it won't matter if a particular case...or even most cases...were on the up -and up: It won't matter if most of the foreclosures and evictions were truly due to the homeowner failing to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that, now, all foreclosures come into question. Not only that, all mortgages come into question.
"People still haven't figured out what all this means. But I'll tell you: if enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loans and keep their houses, scott-free? That's basically a license to halt payments right now, thank you. That's basically a license to tell the banks to take a hike.
"What are the banks going to do...try to foreclose and then evict you? Show me the paper, Mr. Banker, will be all you need to say.
"This is a major, major crisis. The Lehman bankruptcy could be a spring rain compared to this hurricane. And if this isn't handled right...and handled right quick, in the next couple of weeks at the outside...this crisis could also spell the end of the mortgage business altogether. Of banking altogether. Hell, of civil society. What do you think happens in a country when the citizens realize they don't need to pay their debts?"
(I am not sure who wrote this, but if you want your 15 minutes of fame, I will be glad to credit you next week. - John)
Some Foreclosure Takeaways
Let me add a few thoughts. First, I agree, this is very serious. It has the possibility of seriously hurting the housing market, which as we saw in the first section is already on the ropes. But at the end of the day, there is a cure.
Someone borrowed money for a mortgage. Some entity is cashing a check if that person is paying. That entity should have the title until it is paid off. If someone is not making their mortgage payments, they should be removed from the house and it should be sold to the benefit of the ultimately correct and what everyone thought was the proper title holder.
If you took out a mortgage and now the title is in some doubt because the investment banks and mortgage banks and all the middle guys screwed up (big-time!) because they wanted to save some bucks and make some commissions, you did not win the lottery. That is not America as I know it. You can't pay the mortgage, I am sorry. But you do not get to keep the house. The people who (thought) they bought the mortgage in a fair deal need to end up with that mortgage.
If you pay your mortgage, you get to have the American Dream.
We CANNOT allow this debacle to continue. It will bring the system down. Who will want to buy a mortgage that is in a securitized package with no clear title? Who will get title insurance? Some judge somewhere is going to make a ruling that is going to petrify every title company, and the whole thing grinds to a halt.
Let's be very clear. If we cannot securitize mortgages, there is no mortgage market. We cannot go back to where lenders warehoused the notes. It would take a decade to build that infrastructure. In the meantime, housing prices are devastated. Whatever wealth effect remains from housing gets worse, and the economy rolls over.
This is beyond my pay grade, but there have to be some adults who can make everyone play nice in the sandbox. Ideally, someone in authority at the Treasury, with bipartisan support steps in and says everyone follow these rules, whatever these rules need to be.
I had a very spirited conversation with good friend Barry Ritholtz today (of The Big Picture). Barry runs money but is also a lawyer and has a somewhat different perspective. He thinks we do not need any legislation and there is a legal cure. He says that real trained people (lawyers and paralegals) need to look at each mortgage and figure it out, and that it can get resolved. It is expensive to the banks; but I agree, if it is just dollars I don't care. Fix it.
But that is a maybe. Other people I talk to disagree. Some think we need some regulatory fixes. Some think we will need a legislative cure. But if we need to, there need be no finger pointing, no partisan BS. This needs to get solved.
Someone took out a mortgage. Some entity thinks they are owed money. Fix the damn paper trail so that happens, whether in a legal if time-consuming manner, in a regulatory fix, or with legislation.
Now, that is not to say the people who did this stuff did not commit felonies and such. We can sort that out over time. The longer we wait the worse it will get. Fix the problem and then go round up the bad guys. There are bigger issues in play here. (I know this will be somewhat controversial. Oh well.)
I get the fraud being done here. I am regulated by FINRA, the NFA, various states, the British FSA, and ultimately the SEC. If I did something in my business like the stuff described above, someone would come in and justifiably shut me down, fine me, and ban me from the securities business. Oh, wait. These guys ARE regulated by the above groups.
Finally on this topic, I shake my head when I think that the FDIC is now running several of the banks (think IndyMac) that are part of this foreclosure crisis. These are the guys who are supposed to be preventing something like this. Again, where are the adults?
The Subprime Debacle: Act 2
OK, this letter is already getting too long. I am going to finish it next week, as the next topic needs a lengthy treatment. But I will not leave you hanging. A quick preview.
All those subprime and Alt-A mortgages written in the middle of the last decade? They were packaged and sold in securities. They have had huge losses. But those securities had representations and warranties about what was in them. And guess what, the investment banks may have stretched credibility about those warranties. There is the real probability that the investment banks that sold them are going to have to buy them back. We are talking the potential for multiple hundreds of billions of dollars in losses that will have to be eaten by the large investment banks. We will get into details, but it could create the potential for some banks to have real problems.
And all this coming as European banks are going to have to sort out their own sovereign debt problems. Shades of 2008. I hope I am wrong, but it's all connected.
Yankees, Rangers, and The Endgame
I travel on Monday to New York, where good friend Barry Habib is going to take me to the Yankees-Rangers game. I will be the guy on the second row behind home plate, behind the mayor, wearing the Rangers jacket. Barry assures me I will be safe. Cliff Lee pitching. Can the Rangers hold up to the pressure against the best there is? Stay tuned.
My book, The End Game, is coming along. It is out for comments from friends, and then I will sit down with my co-author in London for four days and we will finish this the first week of November, and then Wiley will push as fast as they can to get it out.
This has been a very tumultuous week for a host of reasons. It's all good, but exhausting. I am more than ready to hit the send button. I just turned on the TV to watch the last few innings. The Rangers have gone from up 5 to zip to losing 6-5. Can we say disheartening?
Your really wanting to see a World Series analyst,John MauldinJohn@FrontLineThoughts.com
Copyright 2010 John Mauldin. All Rights Reserved Note: The generic Accredited Investor E-letters are not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for accredited investors who have registered with Millennium Wave Investments and Altegris Investments at www.accreditedinvestor.ws or directly related websites and have been so registered for no less than 30 days. The Accredited Investor E-Letter is provided on a confidential basis, and subscribers to the Accredited Investor E-Letter are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private investment offerings with other independent firms such as Altegris Investments; Absolute Return Partners, LLP; Fynn Capital; Nicola Wealth Management; and Plexus Asset Management. Funds recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor's services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.
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You have permission to publish this article electronically or in print as long as the following is included: John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore
Monday, October 18, 2010
Weekly Information 10/18
Mortgage interest rates were mostly flat on the week on mixed economic data. Economic reports better than expected included September Retail Sales, up 0.6% on expectations that they would be up 0.4%. The October New York Empire State Manufacturing Index was also better than expected, increasing to 15.73 on expectations that it would come in at 6.0. August Business Inventories increased more than expected as well. Economic reports weaker than expected included weekly jobless claims, which increased 13k on expectations that they would increase only 4k. The University of Michigan Consumer Sentiment Index was weaker than expected and the August Trade Deficit grew more than expected. Inflation data was tame. The September Consumer Price Index increased only 0.1%. Excluding the food and energy components, core CPI was unchanged.
Monday, October 11, 2010
Weekly Information 10/11
The combination of weak economic news and anticipation of resumed QE by the Fed has taken the 10-year T-note to 2.34% (as high as 2.70% in the last weeks) and is pushing mortgage rates toward 4.00%. Middling numbers like the ISM service-sector rise from 51.5 in August to 53.2 in September, and today’s meager gain of 67,000 private-sector jobs in September are not double-dip indicators. However, we’re running a $1.5 trillion deficit, one-third of it due to tax revenue lost in the Great Recession, and we must get the economy going fast enough to produce more revenue. The bond and mortgage markets are hugely overbought, overweighting QE2 to be announced on November 3 (the Fed meets the day after Election Day). We do not know the magnitude or duration of QE2; the program faces very substantial opposition here and abroad, mostly ignorant here, and fearful there; and since QE theory has never been tried in actual, sustained practice, we cannot know its effect. Clients and Realtors should find hope in the effort, but should also be warned of the instability and unpredictability of this situation. Those who wish to gamble should understand the size of the risk, and those who wish to lock should understand that 30-year mortgages can drop into the 3s without an ability to re-set the lock. The table is tilted lower, but it’s only two inches from the floor.
Thursday, October 7, 2010
Picture Time
If anyone is thinking of marketing there property in the next 4 to 5 months. Now would be the time to take some outside pictures of your property, before the snow and cold weather hit. Home buyers would rather see the property looks like when the grass is green and leaves are still on the trees.
Monday, October 4, 2010
Fannie, Freddie Offering Hard-to-Beat Deals
Beginning this week, Fannie Mae and Freddie Mac are trying to sell off 150,000 foreclosed homes by offering low down payments, no requirement for mortgage insurance, and up to $30,000 added to the mortgage for renovations. In addition, the real estate practitioner selling the property gets a $1,500 bonus.In some neighborhoods, these properties undercut the average listing by $100,000.Fannie and Freddie already have repaired the biggest problems with the property including roofs, plumbing, and electrical work. Buyers who plan to live in the properties get a 15-day chance to view the homes before investors can purchase them. Investors with cash will likely snap up any properties remaining at the end of the grace period.“Our goal is to recover as much as we can to offset our loss and not to be low balling properties just to move them,” says a Freddie Mac spokesperson. “We absolutely have no motivation to be leading a downward spiral in home prices."
Friday, October 1, 2010
Weekly Information 10/1
Mortgage interest rates were mostly flat on the week despite economic data generally exceeding expectations. Economic data better than expected included weekly jobless claims, the final look at Q2 GDP, the Chicago Purchasing Managers Index, August Personal Income and Spending, the University of Michigan Consumer Sentiment Index, and August Construction Spending. The Case Shiller Home Price Index and the September ISM Manufacturing Index were in line with expectations. The September Consumer Confidence Index was the only report that was weaker than expected, falling to 48.5, its lowest level since February. Also of note, the Treasury auctioned $100 billion in 2 Year Notes, 5 Year Notes, and $7 Year Notes. Overall, the auctions were met with strong demand.
Wednesday, September 29, 2010
Monday, September 27, 2010
Weekly Information 9/24
Mortgage interest rates improved slightly this past week as the Fed indicated that it “is prepared to provide additional accommodation to support the economic recovery” at the conclusion of its FOMC meeting. It is implying that it is prepared to purchase more Treasuries to help keep interest rates low if the recovery stalls. Economic data was mixed. August Housing Starts and Building Permits improved substantially, but from weak levels in July. August Existing Home Sales were better than expected but are at their second lowest level since 1997. August Durable Goods Orders were in line with expectations. Excluding transportation orders, though, durable goods orders increased more than expected. Weekly jobless claims increased more than expected and August New Home Sales were weaker than expected.
Monday, September 13, 2010
Weekly Information 9/10
Mortgage interest rates increased slightly again this past week without much new economic data for the markets to digest. Economic data of note included weekly jobless claims which fell more than expected and the July Trade Deficit which was less than expected. July Wholesale Inventories increased 1.3% on expectations that they would increase 0.4%. Consumer Credit continued to fall in July, down $3.63 billion which was in line with expectations. The Treasury auctioned $67 billion in 3 Year Notes, 10 Year Notes, and 30 Year Bonds this past week which was met with mixed demand from the markets.
Tuesday, September 7, 2010
Weekly Information 9/3
Mortgage interest rates increased slightly this past week largely driven by today’s better than expected jobs report for August. Today’s report showed that non-farm payrolls fell by 54k on expectations that they would fall by 120k. Private non-farm payrolls increased by 67k on expectations that they would increase by 44k. The unemployment rate increased to 9.6%, in line with expectations. Also, weekly jobless claims fell slightly on expectations that they would increase. Other positive economic news of note included July Personal Spending, the Case Shiller 20 City Home Price Index, the Chicago Purchasing Managers Index, August Consumer Confidence, the August ISM Manufacturing Index, and July Pending Home Sales. Economic data weaker than expected included July Construction Spending and the August ISM Services Sector Index.
Friday, August 27, 2010
Weekly Information 8/27
Mortgage interest rates were mostly flat on the week despite generally weaker than expected economic data. Of note, July Existing Home Sales fell 27.2% to its lowest level since June of 1995 on expectations that sales would fall by 13.0%. Year over year, sales were down 25.5% and there is now a 12.5 month supply of existing homes. July New Home Sales were expected to increase by 3.0%. Instead, sales fell by 12.4%. There is now a 9.1 month supply of new homes. July Durable Goods Orders increased by only 0.3% on expectations that orders would increase by 3.0%. Excluding transportation orders, durable goods orders fell by 3.8% on expectations that they would increase by 0.5%. The University of Michigan Consumer Sentiment Index was slightly weaker than expected, reported at 68.9 on expectations of 70.0. On a positive note, weekly jobless claims fell by 31k on expectations that they would only fall by 15k.
Thursday, August 26, 2010
Everybody Calm Down. Armageddon Is NOT Upon Us!
by Steve Harney on August 26, 2010
The new housing numbers have definitely been a major news story over the last 48 hours. The Dow dropped over 100 points on the announcement of July’s existing sales numbers. The cries of a double-dip sound like the screams of Chicken Little: ‘The sky is falling! The sky is falling!’ Pundits are claiming real estate will never be looked at the same again. We asked Steve Harney to comment on what the report actual means to the housing recovery. As always, he was more than willing to share his insights. – The KCM Crew
I want to start by saying that Armageddon is not upon us. Was NAR’s Existing Home Sales Report tough to read? Yes. Were there any surprises in the report? Just one: the fact that prices have remained stable. And that was good news.
All the panic and gut-wrenching revolves around two numbers:
The lack of sales in July
The months’ supply of inventory now available
Neither number was a surprise to anyone truly following the real estate market. Right here in this blog, the KCM Crew has been claiming for the last nine months that sales in 2010 will be approximately what they were in 2009. The tax credit moved many purchases forward as buyers wanted to be in contract before the April 30 deadline. That push forward of demand created a false sense of hope that a major market comeback was taking place in the spring. It also created this current vacuum of demand during the summer.
Just as we should have realized that the great market of the spring could not be sustained, we must now realize that plummeting sales numbers will not continue. It may take one or two months for the impact of the tax credit to fully dissipate. After that, we will see a more normal buyer demand throughout the fall and winter. We must not forget that people decide to move every day. Prices are great, interest rates are at historic lows and the assortment of properties for sale is fabulous. Buyers will buy!!
In regard to the months’ supply of homes for sale, we must remember one basic principle: prices will come down if demand is constant and inventory increases. Houses will sell over the next twelve months, approximately 5 million of them. There may be more than double that amount trying to sell however. Which ones will sell? Those that are priced correctly for the current market. Your price must be compelling in order to make your home attractive to today’s buyers who have a tremendous selection of homes from which to choose.
As the year moves forward, it is my belief that months’ inventory will remain in double digit numbers. That means that prices will continue to soften.
What does this mean to you?
You definitely will be able to sell your home and move on with your life. If that’s the goal, you will do better financially if you do it sooner rather than later.
The new housing numbers have definitely been a major news story over the last 48 hours. The Dow dropped over 100 points on the announcement of July’s existing sales numbers. The cries of a double-dip sound like the screams of Chicken Little: ‘The sky is falling! The sky is falling!’ Pundits are claiming real estate will never be looked at the same again. We asked Steve Harney to comment on what the report actual means to the housing recovery. As always, he was more than willing to share his insights. – The KCM Crew
I want to start by saying that Armageddon is not upon us. Was NAR’s Existing Home Sales Report tough to read? Yes. Were there any surprises in the report? Just one: the fact that prices have remained stable. And that was good news.
All the panic and gut-wrenching revolves around two numbers:
The lack of sales in July
The months’ supply of inventory now available
Neither number was a surprise to anyone truly following the real estate market. Right here in this blog, the KCM Crew has been claiming for the last nine months that sales in 2010 will be approximately what they were in 2009. The tax credit moved many purchases forward as buyers wanted to be in contract before the April 30 deadline. That push forward of demand created a false sense of hope that a major market comeback was taking place in the spring. It also created this current vacuum of demand during the summer.
Just as we should have realized that the great market of the spring could not be sustained, we must now realize that plummeting sales numbers will not continue. It may take one or two months for the impact of the tax credit to fully dissipate. After that, we will see a more normal buyer demand throughout the fall and winter. We must not forget that people decide to move every day. Prices are great, interest rates are at historic lows and the assortment of properties for sale is fabulous. Buyers will buy!!
In regard to the months’ supply of homes for sale, we must remember one basic principle: prices will come down if demand is constant and inventory increases. Houses will sell over the next twelve months, approximately 5 million of them. There may be more than double that amount trying to sell however. Which ones will sell? Those that are priced correctly for the current market. Your price must be compelling in order to make your home attractive to today’s buyers who have a tremendous selection of homes from which to choose.
As the year moves forward, it is my belief that months’ inventory will remain in double digit numbers. That means that prices will continue to soften.
What does this mean to you?
You definitely will be able to sell your home and move on with your life. If that’s the goal, you will do better financially if you do it sooner rather than later.
Monday, August 16, 2010
Weekly Information 8/13
Mortgage interest rates improved slightly this past week largely driven by the FOMC policy statement. The statement indicated that the economic recovery has slowed and is likely to be “more modest in the near term than had been anticipated”. As a result the Fed said that it will reinvest principal payments from the $1.25 Trillion in Mortgage Backed Securities that it holds back into longer-term Treasury securities. This is referred to as quantitative easing, which hopefully will help keep rates low on longer term debt in the near term. Economic data of note included weekly jobless claims, which increased on expectations that they would fall. July Retail Sales were in line with expectations. The July Consumer Price Index (CPI) increased slightly more than expectations. Year over year, though, CPI is up only 1.2% indicating very little inflation. The Treasury auctioned $74 billion in debt this past week. Overall, the auctions were met with strong demand.
Friday, August 6, 2010
Weekly Information 8/6
Mortgage interest rates improved slightly this past week on mixed economic data. Today’s employment report for July was weaker than expected. Non-farm payrolls were expected to fall by 70k. As reported, payrolls fell by 131k. Private jobs were expected to increase by 100k. As reported, private jobs increased by 71k. Unemployment remained unchanged at 9.5%. Yesterday, weekly jobless claims increased by 19k on expectations that they would fall by 2k. Labor markets continue to be weak. Other economic reports weaker than expected included June Factory Orders and June Pending Home Sales. Economic reports better than expected included June Construction Spending, the July ISM Manufacturing Index, and the ISM Services Sector Index. The increase in construction spending, though, was largely driven by government spending.
Today’s release of July employment data has vastly greater political consequences than economic or financial. Those consequences extend beyond elected officials to policy makers at the Fed, and inside the administration and out. Net of all the moving parts (census workers) and revisions (June minus 152,000), job creation is flat. A minor up-trend in private-sector jobs has been offset by newly down-trending state and local government employment. Confirming overall stuck-in-mire: weekly claims for unemployment insurance rose to 479,000, a four-month high. The economy does have some forward momentum: the twin ISM reports for July, manufacturing and services, came in at 55.5 and 54.3 respectively. The trouble is at home: July personal income and spending were unchanged from June. Flat.
Monday, August 2, 2010
New Home Sales Climb in June
The housing slump caused by the end of the tax credits may be over, with sales of new homes rising 24 percent in June compared to May to an annual rate of 330,000, the U.S. Commerce Department reported Tuesday.Nevertheless, sales were at their second-lowest rate since 1963 – May’s were the lowest.“The future is going to be dependent on job growth. There’s no demand because confidence is weak and employment is weak,” says Eric Green, chief market economist at TD Securities Inc. in New York.
Source: Bloomberg, Courtney Schlisserman (07/26/2010)
Source: Bloomberg, Courtney Schlisserman (07/26/2010)
Friday, July 30, 2010
Weekly Information 7/30
The end of July usually marks the quietest time of the year for markets, but not this year. The slowdown beginning in May is now more trend than air-pocket, and every new data point matters. This morning’s news of sub-par 2nd Quarter GDP (+2.4%, half by inventory accumulation) has helped bonds and mortgages, pushing the 10-year T-note back down in the 2.90s. On Monday jumpy markets whipsawed after “New home sales soared 24% in June!” turned out to be a minor bounce from a deeper hole, May revised to a 53% drop from April. At mid-week, the MBA reported new mortgage applications still flat last week, and new claims for unemployment insurance fell 11,000, but are still running 450,000 weekly, where they've been stuck all year. June orders for durable goods were forecast to rise .5% (core), but fell .6%. The Conference Board’s index of consumer confidence plunked to 50.4; in prior recoveries it has averaged over 100, and at bottoms of prior recessions, 72. The Fed’s July “beige book” was distinctly softer than June, but had a public relations overtone, insisting that economic activity continued to “increase.” There is a great deal riding on Monday's ISM survey (the Chcago area had a big upward move, released today, which put a floor under stocks after the GDP data), and the gorilla for every month, next Friday's release of July payrolls. The bond market is pricing for a double-dip back to negative GDP, or close enough to get the Fed back in the game as a bond buyer -- the payroll data alone has the power to confirm weakness and take rates into the lower fours, or to blow us up.
Monday, July 26, 2010
Weekly Information 7/23
One line in Perfesser Bernanke’s testimony dominated the week, but in an odd way: it was an anti-forecast. “Uncertainty about the outlook for growth and unemployment is greater than normal....” The stock market took it as good news (in that NeverNever Land, the only uncertainty is how high it will go), but bond market people took it the other way, the 10-year T-note briefly 2.88%, a fifteen-month low. That mid-week low has reversed, mortgage rates ending the week slightly higher. Nothing in a thin week for economic data caused the reversal: housing stats were about as shaky as expected, June existing-home sales off 5%; and new claims for unemployment insurance jumped back up to 264,000 last week, the 2010 trend. Rates are wandering up because of a news vacuum: investors will not continue to bid rates down without confirmation that the post-May slowdown is still headed downhill, and the next meaningful reports are almost two weeks away. Our rates have been helped since spring by fears in and about Europe, and that benefit is on hold also. In the short run, the steep devaluation of the euro is a huge help to the exports of North Europe and those economies. Also, the European Central bank has temporarily stopped a run from Club Med bonds, and a parallel bank-on-bank run. Nobody in the bond market takes seriously the European bank stress tests, but the foregone conclusion, "All okay in here!", makes it impossible to read future ECB policy and masks true instability. The marker: if the 10-year T-note blows above 3.00% to 3.10% or higher, the bond market is buying recovery, or at least has lost fear of double-dip. Today's 2.95% says this is just a pause before more slowdown data can take us lower.
Friday, July 23, 2010
Top 10 Credit Don'ts During the Loan Process
Many are taking advantage of interest rates at historic lows, either by re-structuring debt with a refinance or purchasing a new home. However, the recent economic crisis has created even tougher guidelines and credit requirements and there are some things that consumers must be aware of when applying for a loan.
1. Don't do anything that will cause a red flag to be raised by the scoring system
2. Don't apply for new credit of any kind
3. Don't pay off collections or charge offs
4. Don't max out or over charge on your credit card accounts
5. Don't consolidate your debt onto 1 or 2 credit cards
6. Don't close credit card accounts
7. Don't pay late
8. Don't allow any accounts to run past due-even one day!
9. Don't dispute anything on your credit report
10. Don't lose contact with your mortgage and real estate professionals
2. Don't apply for new credit of any kind
3. Don't pay off collections or charge offs
4. Don't max out or over charge on your credit card accounts
5. Don't consolidate your debt onto 1 or 2 credit cards
6. Don't close credit card accounts
7. Don't pay late
8. Don't allow any accounts to run past due-even one day!
9. Don't dispute anything on your credit report
10. Don't lose contact with your mortgage and real estate professionals
Wednesday, July 21, 2010
Short Sales
Short Sales: A Growing Market
The last time Land Title published a technical bulletin about short sales was in 2006. Back then, short sales were rare and many people were unfamiliar with the term. Now, with over 20% of Colorado mortgages upside down* and short sales accounting for nearly 16% of home purchase transactions nationally in January,** it’s a hot topic and one that cannot be ignored. The number of these transactions is increasing, and Realtors are finding short sales are becom- ing a regular part of the real estate landscape.
What is a Short Sale?
A short sale or short payoff is generally defined as a sale in which a lender allows the property securing a mortgage or deed of trust to be sold for less then the existing loan balance, due to factors such as the borrower’s financial circum- stances, the property’s physical condition, or local real estate market conditions.
A short sale is really a form of pre-foreclosure sale that occurs when the mortgagee agrees to accept less than the loan amount to avoid foreclosure. A negotiated short sale may result in a discounted purchase price for the buyer. The buyer then finances the acquisition much the same as in any conventional real estate acquisition.
Complexity of Short Sales
Short sales are extremely complex transac- tions, even for the experienced Realtor. Part of the reason is that they are time-consuming. Lenders are inundated with requests for short sales and therefore expect all paperwork to be complete and accurate before even consider- ing a short sale. Lenders may also request that the paperwork be resubmitted multiple times, and just getting the file itself to the lender can sometimes present a challange.
Additionally, there is no regulation or industry standard for short sales, meaning every lender may have different requirements and expecta- tions. Even a Realtor who is familiar with the requirements of one lender may not know the ins and outs of another lender’s requirements. Furthermore, lenders’ policies and processes can change often and even vary by investor.
Managing a Short Sale
If you’ve successfully completed short sales in the past, you are aware of the incredible complexity of these transactions and the time- consuming nature of the work involved.
That’s why Land Title has teamed up with RealtyTMS, Colorado’s leading short sale spe- cialists, to assist our clients with their short sale transactions. With Land Title and RealtyTMS on your side, we’ll take hours of administrative time off your plate so you can focus on the dollar- producing activites you do best: lead genera- tion, marketing, networking, and sales.
This means you can handle more volume and keep your pipeline full, which is especially important in today’s real estate market.
Your Team of Specialists
If you choose to work with Land Title and RealtyTMS, you’ll find that it’s not just one person who manages your file — RealtyTMS will put their entire team to work for you, dili- gently contacting the banks for status updates and making sure the file is moving through the system. RealtyTMS regularly communicates with the listing agent, plus their online transac- tion management platform allows Realtors to log on and view status updates 24/7.
A Lengthy Process
Some Realtors have taken to referring to short sales as “long sales” because of the length of time it can take to complete these transac- tions. RealtyTMS also understands the value of keeping the buyer engaged during this time- consuming process, where it can take months to get lender approval. They work closely with the listing agent and keep all parties informed on the progress of the file at every stage as it moves through the system.
New to Short Sales?
For Realtors who are well-versed in short sales, Land Title and RealtyTMS want to be a trusted part of your short sale team, so you can hand off administrative tasks and focus on your clients.
If you are new to short sales, RealtyTMS and Land Title will also provide education and help
MARCH 2010
Navigating the Short Sale
LandTitlepartnerswithRealtyTMSTM tooffershortsaleservicetoRealtorsPage 2 Navigating the Short Sale
set expectations for you and your clients about what to expect from listing to closing.
Factors the Lender May Consider
What makes a lender decide whether to take a discount on a mortgage? What formula do they use to decide how much to take? These are tricky questions. Each of these transactions must be evaluated on a case-by-case basis, and there are a number of variables involved in each one.
A borrower is often in default or will be soon when the lender decides to take a discount. There may be instances where there is no default; this usually means that the borrower is upside down on the mortgage and what is owed exceeds the value of the house.
There are a number of factors that a lender may consider when deciding whether to discount a loan and by how much, including the borrower’s overall financial condition and circumstances, the property’s “as is” value, and the cost to market and re-sell the property. Also, two short sales at the same bank may actually be held
by different investors, so the percentages and “formulas” for approval may vary even with the same bank.
A short sale is usually the lender’s last resort before foreclosure. Overall, the goal is to show the lender that a short sale is the quickest and best way to mitigate their loss. Some lenders will only approve a short sale when foreclo- sure is not economically feasible because the borrower is insolvent and one or more of the following may have occurred:
• The property was purchased or refinanced at the top of a seller’s market at an over-inflated price, and a substantial drop in value has occurred.
• The property was financed as an interest-only adjustable rate loan and the borrower has no capacity to refinance at a lower interest rate.
• The property was refinanced at more than 100% of its value.
• The property is located in an area where property values have dropped due to local economic conditions, or the home’s value has decreased to an amount below the loan balance due.
• The property’s “as is” condition has deterio- rated to a point where it is not feasible for the lender to put it in a marketable resale condition.
• The proposed purchase price is more than the lender would be able to sell property for after foreclosure.
• Any sales commission proposed in a contract is less than what the lender may typically have to allocate after the foreclosure process is complete to market and sell the property.
The lender will also do a market analysis of the property. The Broker’s Price Opinion (BPO) may be the single most influential component the lender considers when deciding how much they are willing to accept as a reasonable short sale offer. The lender hires a real estate agent, broker, or appraiser to assess the property and give their professional opinion of its value to the lender.
Documentation
Most lenders ask the borrower to document their hardship prior to approval of the sale. The lender will request at least the following informa- tion for consideration of a short sale:
• a personal hardship letter that defines what the hardship is and proof of the hardship claim, if available;
• a Third Party Disclosure for authorization to speak to the Realtor or other representative about the loan status;
• a completed financial worksheet of net income and monthly expenses;
• copies of the last two years’ Federal Income Tax returns with all schedules;
• copies of last two months’ payroll stubs, or profit-and-loss statement if self employed;
• copies of last two months’ bank statements for all accounts;
• a copy of the sales contract signed by both the seller and the buyer; and
• estimated closing costs showing a detailed breakdown of all projected costs including Realtor commissions for listing and selling agents.
Once the lender has the above information, it could take three to twelve months to negotiate and close a short sale, depending on the lender. It really is a “numbers game,” with the lender in control.
Not every homeowner facing foreclosure is a good short sale candidate. A giant step to getting a lender to consider your short sale proposal is to have as much information ready as possible to expedite the process, and to work with short sale specialists — like Land Title and RealtyTMS — who understand the different lender requirements and systems at the banks.
Monday, July 19, 2010
Cool Tip
As we enter the peak of the summer heat, consider green strategies for home cooling:
- Purchase a properly-sized unit. Air conditioners that are too large or small for the area they're meant to cool will run inefficiently, waste energy, and wear out more quickly than a properly-sized one.
- Confirm that the level of refrigerant charge and the airflow across the indoor coil meets the manufacturer’s recommendation. It's estimated that more than 60 percent of central air conditioners are incorrectly charged during installation. Incorrect refrigerant levels can lower efficiency by 5 to 20 percent.
- Change filters to prevent dust and dirt from building up. Check filters monthly and switch them out if they're dirty. At minimum, change them every three months.
- Purchase a properly-sized unit. Air conditioners that are too large or small for the area they're meant to cool will run inefficiently, waste energy, and wear out more quickly than a properly-sized one.
- Confirm that the level of refrigerant charge and the airflow across the indoor coil meets the manufacturer’s recommendation. It's estimated that more than 60 percent of central air conditioners are incorrectly charged during installation. Incorrect refrigerant levels can lower efficiency by 5 to 20 percent.
- Change filters to prevent dust and dirt from building up. Check filters monthly and switch them out if they're dirty. At minimum, change them every three months.
Friday, July 16, 2010
Weekly Information 7/16
Mortgage interest rates improved this past week as economic data was mostly weaker than expected. June Retail Sales fell 0.5% on expectations that sales would fall by 0.2%. Excluding automobiles, sales fell by 0.1% on expectations that they would be unchanged. The July New York Fed Empire State Manufacturing Index along with the July Philadelphia Fed Business Index were much weaker than expected. Today’s University of Michigan Consumer Sentiment Index fell to 66.5, an 11 month low. Also of note, inflation continues to be low. The June Consumer Price Index (CPI) fell 0.1% on expectations that it would be unchanged. Year over year CPI is up 1.1%. June Core CPI, excluding the food and energy components, increased 0.2% on expectations that it would increase 0.1%. Year over year, though, core CPI increased just 0.9%, the smallest increase since 1966.
Wednesday, July 14, 2010
Monday, July 12, 2010
10 Ways to Prepare for Homeownership
1. Decide what you can afford. Generally, you can afford a home equal in value to between two and three times your gross income.
2. Develop your home wish list. Then, prioritize the features on your list.
3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in, taking into account items such as schools, recreational facilities, area expansion plans, and safety.
4. Start saving.Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 2 and 7 percent of the home price.
5. Get your credit in order.Obtain a copy of your credit report to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.
6. Determine your mortgage qualifications.How large of mortgage do you qualify for? Also, explore different loan options — such as 30-year or 15-year fixed mortgages or ARMs — and decide what’s best for you.
7. Get preapproved. Organize all the documentation a lender will need to preapprove you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of homeownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.
10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the process.
2. Develop your home wish list. Then, prioritize the features on your list.
3. Select where you want to live. Compile a list of three or four neighborhoods you’d like to live in, taking into account items such as schools, recreational facilities, area expansion plans, and safety.
4. Start saving.Do you have enough money saved to qualify for a mortgage and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. Also, don’t forget to factor in closing costs. Closing costs — including taxes, attorney’s fee, and transfer fees — average between 2 and 7 percent of the home price.
5. Get your credit in order.Obtain a copy of your credit report to make sure it is accurate and to correct any errors immediately. A credit report provides a history of your credit, bad debts, and any late payments.
6. Determine your mortgage qualifications.How large of mortgage do you qualify for? Also, explore different loan options — such as 30-year or 15-year fixed mortgages or ARMs — and decide what’s best for you.
7. Get preapproved. Organize all the documentation a lender will need to preapprove you for a loan. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.
8. Weigh other sources of help with a down payment. Do you qualify for any special mortgage or down payment assistance programs? Check with your state and local government on down payment assistance programs for first-time buyers. Or, if you have an IRA account, you can use the money you’ve saved to buy your fist home without paying a penalty for early withdrawal.
9. Calculate the costs of homeownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.
10. Contact a REALTOR®. Find an experienced REALTOR® who can help guide you through the process.
Friday, July 9, 2010
Weekly Information 7/9
Mortgage interest rates were mostly flat on the week with little economic data for the markets to digest. Of note, the June ISM Services Sector Index came in at 53.8, weaker than the 55 expected. Weekly jobless claims fell be 21k on expectations that they would fall by 12k. May Consumer Credit fell by $9.1 billion on expectations that it would fall by $3.1 billion. April Consumer Credit was revised lower. April Consumer Credit fell by $14.9 billion from the originally reported increase of $1 billion. Both numbers indicate that consumer spending is soft. May Wholesale inventories increased 0.5%, in line with expectations. Also, the Treasury announced that it will auction $69 billion in debt next week.
Thursday, July 8, 2010
Friday, July 2, 2010
Weekly Information 7/2
Mortgage interest rates improved slightly on the week on generally weaker than expected economic data. Today’s employment report for June showed Non-Farm Payroll losses of 125k on expectations that payrolls would fall by 100k. Most of the job losses were driven by the cut of 225k temporary census workers. The private sector added 83k jobs, lower than the 112k expected. June average hourly earnings fell by 0.1%, its first decline in several months. Other economic data weaker than expected included June Consumer Confidence, the ADP Private Job Estimate for June, the Chicago Purchasing Managers Index, weekly jobless claims, the June ISM Manufacturing Index, and May Pending Home Sales. May Pending Home Sales fell by 30% on expectations that sales would be down 12.5%. Year over year sales are down 16%. May Personal Income and Spending were in line with expectations.
Thursday, July 1, 2010
Pending home sales 'fell off a cliff'
NEW YORK (CNNMoney.com) -- The experts expected home sales to drop once the homebuyer tax credit lapsed at the end of April, but the depth of the decrease was shocking.
According to the National Association of Realtors (NAR), pending home sales fell a whopping 30% in May. Their index, which measures signed sales contracts but not closed sales, plunged to 77.6 from 110.9 in April. It's even off 15.9% from a year ago when the nation was barely emerging from the recession.
"The pending home sales report is a disaster," said Mike Larson, a real estate analyst for Weiss Research. "Sales fell off a cliff after the tax credit expired. It's the biggest monthly decline ever and the index is at its lowest level since NAR began tracking it in 2001."
Lawrence Yun, NAR's chief economist downplayed the damage a bit. According to him, customers rushed into deals to claim the credit, borrowing from May sales. Once the economic recovery comes into full swing, housing markets will heat up.
"If jobs come back as expected, the pace of home sales should pick up later this year," said Yun, "and reach a sustainable level of activity given very favorable affordability conditions."
Those conditions include much lower home prices and extremely favorable mortgage interest rates. The question is when -- or if -- the job market will ever bounce back.
"We're not creating jobs," said Larson. "The housing problems now are being driven by broad economic problems."
According to the National Association of Realtors (NAR), pending home sales fell a whopping 30% in May. Their index, which measures signed sales contracts but not closed sales, plunged to 77.6 from 110.9 in April. It's even off 15.9% from a year ago when the nation was barely emerging from the recession.
"The pending home sales report is a disaster," said Mike Larson, a real estate analyst for Weiss Research. "Sales fell off a cliff after the tax credit expired. It's the biggest monthly decline ever and the index is at its lowest level since NAR began tracking it in 2001."
Lawrence Yun, NAR's chief economist downplayed the damage a bit. According to him, customers rushed into deals to claim the credit, borrowing from May sales. Once the economic recovery comes into full swing, housing markets will heat up.
"If jobs come back as expected, the pace of home sales should pick up later this year," said Yun, "and reach a sustainable level of activity given very favorable affordability conditions."
Those conditions include much lower home prices and extremely favorable mortgage interest rates. The question is when -- or if -- the job market will ever bounce back.
"We're not creating jobs," said Larson. "The housing problems now are being driven by broad economic problems."
Wednesday, June 30, 2010
Extension of Tax Credit Clears One Hurdle
The United States House of Representatives has just passed HR 5623, the Homebuyer Assistance and Improvement Act of 2010, by a vote of 409-5. This bill extends the deadline for closing tax credit eligible transactions from June 30 to September, 30, 2010. The bill moves to the Senate where the outcome is much less certain. NAR will continue to provide updates as the events move forward.
Monday, June 28, 2010
Mortgage Rates Hit an All-Time Low
Average interest on a 30-year fixed mortgage fell to an all-time low of 4.69 percent this week, down from 4.75 percent a week ago, reports Freddie Mac. Although rates have held below 5 percent since early May, Michael Fratantoni of the Mortgage Bankers Association notes that demand for purchase loans has fallen in six of the past seven weeks and now is at a 13-year low. Consumers have grown used to low rates, he explains, adding that they balk at buying because they are more concerned about stagnant wages and high unemployment.
Saturday, June 26, 2010
Weekly Information 6/26
Mortgage interest rates were mostly flat this past week despite weakness in housing data. May Existing Home Sales fell 2.2% on expectations that sales would increase by 7.0%. May New Home Sales fell by 32.7% to 300k annualized units, its lowest level since the report was created in 1980. May New Home Sales were expected to fall, but only by 14.5%. Other economic data of note included weekly jobless claims which fell slightly more than expected. May Durable Goods Orders were in line with expectations. Overall, orders fell by 1.1%. Excluding transportation orders, though, orders increased by 0.9%. Q1 GDP was revised lower to +2.7% on lower consumer spending. As expected, the Fed left short term rates unchanged at the conclusion of its FOMC meeting. Also, the Treasury auctioned $108 billion in new debt, which was met with reasonably strong demand.
Thursday, June 24, 2010
Fannie Mae Cracking Down on Strategic Defaults
Fannie Mae announced plans Wednesday to get tough with strategic defaults.
Fannie said that borrowers who default when they are able to pay won’t be able to get another Fannie Mae mortgage for seven years. The current wait is five years. While that might sound like an empty threat, in an environment where Fannie Mae and Freddie Mac are providing most home financing, it may have some teeth.
Fannie also threatened to sue home owners who walk away from their mortgages in states where such deficiency judgments are legal.
The announcement attracted some criticism because of Fannie Mae's refusal so far to allow hard-pressed borrowers to negotiate a lowering of their principal amount, which is something lenders are now agreeing to after prodding by the federal government. Critics contend the company should try principal write-downs before it penalizes borrowers for choosing to walk away.
Source: CNNMoney.com, Tami Luhby (06/23/2010)
Fannie said that borrowers who default when they are able to pay won’t be able to get another Fannie Mae mortgage for seven years. The current wait is five years. While that might sound like an empty threat, in an environment where Fannie Mae and Freddie Mac are providing most home financing, it may have some teeth.
Fannie also threatened to sue home owners who walk away from their mortgages in states where such deficiency judgments are legal.
The announcement attracted some criticism because of Fannie Mae's refusal so far to allow hard-pressed borrowers to negotiate a lowering of their principal amount, which is something lenders are now agreeing to after prodding by the federal government. Critics contend the company should try principal write-downs before it penalizes borrowers for choosing to walk away.
Source: CNNMoney.com, Tami Luhby (06/23/2010)
Tuesday, June 22, 2010
Housing Inventory Is Rising Again
Housing inventory is rising again, increasing the odds that prices will take another dip, says real estate data company Altos Research.
Housing inventory fell steadily beginning in April 2009 until the end of the year. In January 2010, it began rising in the 10 cities that Altos tracks: Boston, Chicago, New York, Los Angeles, San Diego, San Francisco, Miami, Las Vegas, Denver, and Washington, D.C.
“If the numbers don't continue to move up pretty significantly, we could very well start 2011 at the same place we started in 2009," says Scott Sambucci, Althos’s vice president of data analytics.
Source: Inman News, Andrea V. Brambila (04/09/2010)
Monday, June 21, 2010
GREEN Definitions of the Month
Adaptability
Design strategy that allows for multiple future uses in a space as needs evolve and change. Adaptable design is considered a sustainable building strategy as it reduces the need to resort to major renovations or tearing down a structure to meet future needs.
Certified Lumber
General shorthand term for lumber that has been certified sustainable harvest by an independent certification authority.
Chain of Custody
A document that tracks the movement of a wood product from the forest to a vendor and is used to verify compliance with Forest Stewardship Council guidelines. A "vendor" is defined as the company that supplies wood products to project contractors or subcontractors for on-site installation.
Design strategy that allows for multiple future uses in a space as needs evolve and change. Adaptable design is considered a sustainable building strategy as it reduces the need to resort to major renovations or tearing down a structure to meet future needs.
Certified Lumber
General shorthand term for lumber that has been certified sustainable harvest by an independent certification authority.
Chain of Custody
A document that tracks the movement of a wood product from the forest to a vendor and is used to verify compliance with Forest Stewardship Council guidelines. A "vendor" is defined as the company that supplies wood products to project contractors or subcontractors for on-site installation.
Friday, June 18, 2010
Weekly Information
Mortgage interest rates improved slightly this past week on mixed economic data. Data weaker than expected included May Housing Starts, down 10% on expectations that starts would be down 2.8%. Single family housing starts were down 17.2%, the largest decline since 1991. May Housing Permits fell 5.9% on expectations that they would be up 3.4%. Weekly jobless claims increased by 12k on expectations that they would fall by 2k. The Philadelphia Fed Business Index fell to 8.0 on expectations that it would come in at 18.8. On the flip side, May Industrial Production and Capacity Utilization were both better than expected. The New York Empire State Manufacturing Index for June increased from May levels. Also of note, May inflation data continued to show tame inflation.
Thursday, June 17, 2010
May 2010 Longmont Residential Statistics
Longmont Single Family homes sales rose 22.5% over last year, YTD we are up 15.8%. Average days to contract fell from 70 days to 49 days. The median sales price rose 3.0% from $214,000 to $220,500, and average sales price went up 1.2% ($241,096 to $244,102)
Longmont Attached Dwellings sales rose 33.3% over last year, YTD we are up 39%. Avg. days to contract also fell 34.2%, from 79 to 52 days. The median sales price was down -19.9% from $171,000 to $137,000, and avg sales price dropped -10.3% ($181,243 to $ 162,626)
Longmont Attached Dwellings sales rose 33.3% over last year, YTD we are up 39%. Avg. days to contract also fell 34.2%, from 79 to 52 days. The median sales price was down -19.9% from $171,000 to $137,000, and avg sales price dropped -10.3% ($181,243 to $ 162,626)
Monday, May 3, 2010
Facebook the new Internet? Interesting article
Cuban: Is Facebook the new Internet? - Tech and gadgets- msnbc.comhttp://www.msnbc.msn.com/id/36755138/ns/technology_and_science-tech_and_gadgets/from/toolbar
Thursday, April 22, 2010
Servicing the Cyberspace Customer
I just attended the GRI class in Littleton. So much energy in the presentation and class. I would personally recommend this to any Realtor who is going to be selling in the 21st century.
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