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The Homeownership Protection Program Joint Powers Authority in San Bernardino County, Calif., formally rejected a proposal Jan. 24 to use eminent domain to seize underwater mortgages, HousingWire reported. The idea was first floated in June 2012.
The JPA, which started to investigate alternate possibilities once homeowners and other interested parties voiced dissatisfaction with the eminent domain proposal, issued a Request for Qualifications in search of additional plans to tackle the mortgage crisis.
“It’s wrong to impose that risk on the community without support from the community, and that level of support has not materialized,” said Gregory Devereaux, chief executive officer of San Bernardino County, HousingWire reported. “We don’t want to do more harm than good in what we choose to do.”
The original plan, led by venture capitalist Mortgage Resolution Partners LLC, called for local governments to mandate sales of securitized mortgages so that they could be restructured to reflect the homes’ current market values, which could help homeowners lower their monthly payments and possibly regain equity in the properties, according to Bloomberg, which also reported on the proposal’s rejection.
However, investors such as Pacific Investment Management Co., which operates the world’s largest bond fund, and at least 18 other entities representing bankers, homebuilders and other financial services firms have opposed the eminent domain proposal.
There were further concerns that the proposal would prevent JPA from generating more viable and perhaps more “diplomatic” options, HousingWire reported. The mere consideration of eminent domain interfered with San Bernardino’s efforts to partner with banking, mortgage, real estate and investment entities in offering various types of assistance to local homeowners, Devereaux noted, HousingWire reported.
Tom Deutsch, executive director at American Securitization Forum, expressed approval of JPA’s decision to reject the use of eminent domain to seize mortgages.
“We hope that today’s expressed views after San Bernardino County’s due diligence on the issue is a strong signal to other jurisdictions that the question of whether eminent domain to seize mortgage loans is a prudent public and legal policy has been asked and answered,” Deutsch told HousingWire. “The use of eminent domain would ultimately be counterproductive to the housing market and the return of private capital to the mortgage finance system.”
Bloomberg reported that the use of eminent domain to aid homeowners also has been considered by officials in Illinois, New York and Massachusetts. Residents in those states were skeptical of the concept and of the investor group, Mortgage Resolution Partners, advocating it. Officials in those states have yet to make their decisions.
While Fannie Mae works to cut costs on force-placed insurance policies, banks are resisting the effort, primarily because changes would cut into their ability to collect fees for such coverage, The Wall Street Journal reported Jan. 22.
Force-placed insurance is designed to aid borrowers who failed to insure their properties themselves or allowed their insurance coverage to lapse.
Fannie has worked for several months to obtain approval from the Federal Housing Finance Agency to use a consortium of insurers led by Zurich Insurance Group AG to provide force-placed coverage.
Currently, two companies, Assurant Inc. and QBE Insurance Group Ltd., primarily issue all force-placed insurance, and while the coverage is expensive, banks often receive big commissions for arranging the insurance — sometimes are much as 10 percent of the homeowners’ annual premiums.
However, banks said that their opposition isn’t only about fees but about coverage. In fact, some banks, such as JPMorgan Chase, Wells Fargo and Bank of America, told the Journal that they no longer accepted commissions on force-placed insurance. Instead, they said that Fannie’s proposed changes only would require insurers to cover outstanding loan balances rather than the full value or rebuild cost of a home.
Fannie is pushing for changes so that it no longer has to absorb unpaid premiums. The Journal reported that Fannie’s forced-place insurance costs have run about $500 million a year, and the agency’s proposed changes could save $150 million annually.
Since the housing bubble burst, the forced-place insurance market has grown to more than $3 billion annually in premiums. If Fannie’s proposed plan is approved, banks with Fannie-backed mortgages would be required to use the Zurich-led consortium, which would, in turn, charge 30 to 40 percent less on premiums than the current market standard.
The Journal reported that current force-placed insurance rates typically are at least twice the amount of standard homeowner insurance policies. The justification for the high costs is that a lot of the insurance is for vacant properties or those in hurricane-prone areas.
The U.S. Government Accountability Office released a report Jan. 23 that said the nation’s financial regulatory system remains fragmented and that less than half the new rules called for by the Dodd-Frank Act have been completed, Reuters reported.
Under Dodd-Frank, federal regulators have oversight of and responsibility for tougher rules on banks. However, the GAO noted that the interconnectedness and complexity of the new rules has delayed their implementation because the joint action of so many agencies is required. Further, Dodd-Frank failed to address the bulky overlapping of responsibility among federal and state regulatory agencies, Reuters reported.
Among the major actions awaiting implementation is the Volcker rule, which would ban proprietary trading and was supposed to take effect in July 2012. The rule remains unfinished, requiring the agreement of five federal agencies — the U.S. Securities and Exchange Commission, Federal Reserve, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency — to complete.
“Although regulators have established mechanisms to facilitate coordination and believe coordination efforts have improved the quality of the rulemakings, several regulators indicated that coordination increased the amount of time needed to finalize rulemakings,” the report stated, Reuters reported.
Housing will be key to the nation’s continued economic growth and will have a significant impact on the Gross Domestic Product in 2013, Fannie Mae reported Jan. 24 in its 2013 Economic Outlook report.
The housing recovery has transitioned to a faster upward track, boosted by an improving labor market and low mortgage rates. Overall, home sales, home prices and home building activity, as well as homebuilder confidence appear to be on the upswing, having risen to multi-year highs, the report noted.
“As fiscal policy debates subside later in the spring, we expect to see some upward trend in economic activity, with growth accelerating moderately in the second half of the year,” Doug Duncan, chief economist at Fannie Mae, said in news release accompanying the report. “That momentum will find support in the form of continued, albeit slow, improvement in the housing sector.”
Fannie’s report also indicated that new and existing home sales have been trending higher while the inventory of available homes for sale has decreased, pointing to a more balanced housing market in the near future. Meanwhile, the report projected existing home sales will trend up, reaching 6 million units in 2016.
The report also noted that lenders have stepped up efforts to implement timely short sales and other foreclosure alternatives, which buttress rising home price trends and decreased mortgage delinquency rates.
Fannie predicted purchases of mortgage originations will rise to $642 billion in 2013. However, refinancings will decline slightly, claiming a 60 percent share of the mortgage financing market in 2013 as compared to 73 percent in 2012.
General Electric has settled a lawsuit with the Federal Housing Finance Agency over allegations that the company misled Freddie Mac into buying $549 million of faulty mortgage-backed securities, Reuters reported Jan. 23.
This settlement is the first from a series of lawsuits that the FHFA filed against Wall Street banks in 2011 through its role as conservator for Fannie Mae and Freddie Mac.
The lawsuit alleged that GE and 17 other financial institutions were responsible for Fannie’s and Freddie’s losses on more than $200 billion in MBS. They argued that GE misrepresented the quality of loans in two MBS it sold in 2005.
Terms of the settlement between GE and the FHFA were not released.
Citigroup became the top equity underwriter for real estate investment trusts in 2012, eclipsing long-time leader Bank of America Merrill Lynch, The Wall Street Journal reported Jan. 23.
Citigroup, which ranked sixth in 2011, ascended to the top partly by utilizing its balance sheet and expanding lending to REITs through credit facilities and other bank loans.
“We decided we were going to increase our capital commitment to the REIT sector because we felt confident we could manage the risk,” Thomas Flexner, global head of real estate for Citigroup, told the Journal.
In 2012, REITs raised approximately $40 billion in equity — a record-high. The sector accounted for 15 percent of the $258 billion in total equity issuance in 2012 for all financial companies, up from 8 percent in 2009 when many REIT shares were at their post-downturn lows.
Wall Street firms made a total of $976 million in underwriting fees from REIT equity issues in 2012, up from $930 million in 2011, according to Dealogic, a firm that tracks deals by all publicly traded equity and mortgage REITs, the Journal reported.
Citigroup, which has been attempting to increase its investment-banking portfolio in several sectors, was the lead manager in 45 deals with a total value of $6.5 billion according to Dealogic, the Journal reported. Its biggest deal last year was a nearly $1 billion private issuance of stock of Ventas Inc., a healthcare landlord.
The Bank of America Merrill Lynch unit of Bank of America Corp. was second with 52 deals valued at $6.26 billion.
In other notable moves in 2012, Goldman Sachs Group rose to number 5 as lead manager in REIT equity deals, underwriting 12 transactions worth $2.9 billion. The firm ranked 10th in 2011.
Morgan Stanley had the most precipitous drop, moving from second place in 2011 to 10th place in 2012. Jeff Harte, a banking analyst at investment banking firm Sandler O’Neill & Partners indicated that some REITs may have gone to other investment banks after Moody’s Investors Service downgraded Mortgage Stanley’s credit rating last June.
Flexner said Citigroup became more aggressive in its pursuit of REIT underwriting business after the sector made it through the difficult downturn with minimal defaults on debt obligations.
Citigroup also led the rankings for most total equity raised in 2012 for the entire financial sector, according to Dealogic, the Journal reported. However, the bank wasn’t as successful with REIT debt deals last year, ranking fifth with $3.9 billion in transactions down from fourth place in 2011.
While banks continue to post solid earnings from mortgage activity, some industry analysts have expressed concern that the momentum won’t hold through 2013 and expect contraction in the second half of the year, HousingWire reported Jan. 22.
Recent profits from mortgage banking largely have been the result of robust activity in the refinancing market and higher home purchase volumes thanks to low interest rates, according to investment bank FBR Capital Markets, HousingWire reported. The bank said it expected mortgage banking profitability to remain strong through 2013 but not necessarily beyond.
JPMorgan Chase reported $51.2 billion in mortgage originations for the fourth quarter of 2012, HousingWire reported. That amount is a 33 percent increase from the same point a year earlier and an 8 percent increase from the third quarter of 2012. JPMorgan’s mortgage unit reported net income of $418 million, compared to a $269 million loss a year earlier.
U.S. Bancorp also has seen record revenue from the mortgage market. It reported $71.5 billion in new lending activity in the fourth quarter; mortgage banking now accounts for 20 percent of the bank’s fee revenue compared to 14 percent a year earlier.
However, analysts with financial services firm Compass Point see refinancing burnout in the near future. “Wells Fargo, USB, Bank of America, JPMorgan Chase are all hiring mortgage personnel and that additional amount of capacity in the market will allow for a greater amount of originations, which is likely to cause pricing and mortgage rates to contract or the margins around mortgage rates to contract if interest rates stay where they are,” analysts told HousingWire.
HousingWire reported that gain-on-sales margins likely will tighten in the second quarter of 2013 and then will post substantial contraction later in the year.
The nation’s residential foreclosure inventory decreased in December 2012 while delinquency rates increased, real estate analytics firm Lender Processing Services reported Jan. 23.
The total national foreclosure pre-sale inventory rate was 3.44 percent
in December — a 1.99 percent month-over-month decline and 18 percent
lower than December 2011.
The total U.S. loan delinquency rate at the end of December was 7.17 percent, which represents a 0.74 percent increase from November, but is down 9.11 percent from a year ago.
LPS also reported that more than 3.5 million homes were 30 or more days past due but not yet in foreclosure, and that approximately 1.5 million housing units were seriously delinquent but not yet in foreclosure. The number of residential properties in the foreclosure pre-sale inventory was 1.7 million at the end of December.
States with the highest percentage of noncurrent loans were Florida, Mississippi, New Jersey, Nevada and New York. States with the lowest percentage of delinquent loans were Alaska, Montana, North Dakota, South Dakota and Wyoming.
Read the LPS report.
The end of 2012 marked the fourth consecutive quarter in which the nation’s home values appreciated, and that trend is expected to continue in 2013, real estate website Zillow reported Jan. 21 in its Fourth Quarter Real Estate Market Reports.
The nation’s average home value rose to $157,400 during the fourth quarter, up 2.5 percent from the third quarter. The nation’s appreciation rate from 2011 to 2012 was 5.9 percent — the largest annual gain since the peak of the housing bubble in August 2006.
Historically, housing markets can expect annual home value appreciation of about 3 percent on average, Zillow reported. For 2013, Zillow indicated that home values could increase by 3.3 percent, an annual appreciation rate aligned with historic norms.
“We expected 2012 to be a good year for housing, and it delivered in spades,” Dr. Stan Humphries, Zillow chief economist, said in a news release. “Strong demand paired with limited inventory in many markets helped fuel a robust and often rapid recovery in overall home values, good news for homeowners after years of poor performance. We expect this recovery to continue into 2013, but at a more sustainable pace.”
Chicago and Cincinnati were the only cities out of the 30 largest metro areas included in the report that did not show annual and quarterly increases during the fourth quarter. Of the 366 total metro areas studied, 254 registered annual home value gains in 2012, while 278 metros experienced quarter-over-quarter home value appreciation.
Foreclosure activity subsided as home values rose in the fourth quarter, with 5.22 of every 10,000 homes nationwide facing foreclosure during December 2012 — down 2.2 homes per 10,000 year-over-year and down 1.2 homes from the previous quarter, according to the report. Foreclosure re-sales also were down, accounting for 12 percent of the market — a 4 percent drop from the end of 2011 and down 0.3 percent from the third quarter.
Read Zillow’s Fourth Quarter Market Reports.
The multifamily sector is expected to continue leading the overall housing market recovery for the next several years, the National Association of Home Builders reported Jan. 22.
The NAHB noted that multifamily housing has shown substantial recovery since late 2010.
“Last year was a banner year for the multifamily market, and our baseline forecast calls for further steady growth in the rate of multifamily production,” David Crowe, NAHB chief economist, said in a news release. “We are forecasting construction of 299,000 new multifamily residences in 2013. While this is an improvement from just a few years ago, it is still well below the 350,000 units that are required to keep supply and demand in balance.”
Lance Swank, president of The Sterling Group, a Mishawaka, Ind.-based real estate developer, said that “the market continues to improve as new household formations generate demand, especially in the market-rate rental segment. There is also a change in attitude toward renting — people like the flexibility it gives and the option to be able to easily move to another city or state for a job opportunity.”
While NAHB noted many signs that pointed to increased new multifamily construction, one developer reported obstacles that could hinder a complete recovery.
“A lack of capital is restraining the ability of developers in many markets across the country from being able to build apartment communities for residents of all income levels,” Michael Costa, president and CEO of Highridge Costa Housing Partners in Gardena, Calif., said in the news release. “Additionally, we are being faced with increases in the cost of building materials and construction labor, which makes it infeasible to build in certain circumstances.”
Fixed mortgage rates moved slightly higher this week, Freddie Mac reported Jan. 24 in its weekly Primary Mortgage Market Survey.
The 30-year fixed rate rose 0.04 percentage points this week to 3.42 percent (down from 3.98 percent a year ago). The 15-year fixed rate increased 0.01 percent to 2.67 percent (down from 3.24 percent a year ago).
The one-year adjustable-rate mortgage remained the same as last week at 2.57 percent (down from 2.74 percent a year ago). The five-year Treasury-indexed adjustable rate also stayed steady at 2.67 percent (down from 2.85 percent a year ago).
“Fixed mortgage rates were up slightly over the holiday week but remain highly affordable and should continue to aid in the ongoing housing recovery,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a news release. “For instance, existing home sales totaled 4.65 million in 2012, showing a 9.2 percent increase over 2011 and the strongest pace in five years. In addition, the Federal Housing Finance Agency's purchase-only house price index rose 5.7 percent over the 12 months ending in November 2012, marking the largest annual increase since June 2006.”
View Freddie Mac’s weekly Primary Mortgage Market Survey.
Media coverage of the Appraisal Institute and its individuals in 2012 was potentially seen, read or heard nearly 2.5 billion times, an all-time high for the organization, resulting in a publicity value of almost $2.7 million, also a record-high, the Appraisal Institute announced Jan. 30.
The latter figure was nearly three times the value of media coverage in 2011.
The Appraisal Institute and its individuals in 2012 appeared in 3,145 stories that ran in 1,375 newspapers, magazines, television and radio stations and online media outlets; both figures represent all-time highs for AI. This coverage generated 2,450,717,203 impressions (defined as the number of times a story may have been seen, read or heard), a 13 percent increase over 2011. The coverage resulted in a publicity value of $2,685,891 (based on a vendor’s proprietary formula that approximates how much the coverage is worth), a 176 percent increase over the previous year. The Appraisal Institute appeared in 16 percent more stories in 2012 than in 2011 and in 2 percent more media outlets.
The Appraisal Institute and its individuals regularly appeared in national media coverage in 2012: daily newspapers such as The Wall Street Journal, The Washington Post and The New York Times; national television and radio shows such as ABC’s “Nightline,” NBC’s “Today Show,” CNBC’s “Street Signs” and “Real Estate Today” (the National Association of Realtors’ nationally-syndicated radio show); magazines such as Money, National Mortgage News and Scotsman Guide; and online sites including CNNMoney, FoxBusiness, MSN Real Estate and Bloomberg. AI and its individuals also were featured in local media, appearing in statewide newspapers, on local radio stations and on network affiliate television newscasts across the country.
Appraisal Institute officers, other individuals and staff addressed such topics as: appraiser selection, distressed sales as “comps,” which home improvements are good investments, divorce appraisals, AI’s “green” addendum and so-called “low” appraisals.
View a five-minute highlights video of the Appraisal Institute’s media coverage from the second half of 2012, or download the video. The video can be shown at AI chapter meetings.
Designated members Danny Wiley, SRA; Rick R. Lifferth, MAI, SRA; and Daniel (Dan) Fries, SRA, discussed in The Wall Street Journal Jan. 25 the challenges of appraising luxury homes, particularly those priced higher than others in its neighborhood, which can make it harder to find comparable sales.
“The higher you go up the ladder in value generally the less data you have," Wiley, chief appraiser for LSI in Irvine, Calif., told the Journal.
One common trap that sellers often fall into is upgrading beyond neighborhood norms — particularly highly customized upgrades such as a recording studio or a water feature that could actually lower a home’s value, the Journal reported.
Buyers typically offer 20 percent below the asking price on highly customized homes, Lifferth, president of Lifferth Appraisal Company in Layton, Utah, told the Journal. Those lower purchase prices work their way into comparable sales data, which then results in lower appraisal values.
Fries, president of Daniel Fries & Associates in Cumming, Ga., told the Journal that it’s not always the homeowners at fault. Rather, the county’s assessment of home values and resulting property taxes can dissuade potential buyers.
Read the complete Wall Street Journal article (subscription required).