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1  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: April 03, 2014, 07:29:51 PM
Several reasons they are down all over:

1.  Increased values allow for selling before foreclosure.

2.  Automatic GSE mod approvals for loans that are from 90 days to 270 days late.

3. Private Label MBS is down to about 25% of volume in 2007.  Those loans left tend to be stronger borrowers.

4. Adjustable Rate loans have defacto modifications, thanks to the low interest rates.  Current rates are about 2.75% to 3.25% in most cases.

5. GSE new loan originations have since 2009 been to very strong borrowers.  Default rate is .0025% for those loans.

6. HARP refinances of negative equity loans reduced rates to 3.5% and saved borrowers hundreds per month. 

7. Low income and poor credit borrowers, i.e. Community Reinvestment Act loans, have been greatly reduced, hence less foreclosures.

Watch out for FHA though. It is going to get real messy soon.
2  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: March 29, 2014, 09:25:29 PM

Look carefully at Housing appreciation. The truth is that Housing as an investment is greatly overstated.  Housing over the long run appreciates at 2-3% per year and nothing more.  The years of 2002-2006 were an aberration, and 2012-2013 will turn out to be similar.

My sources, and they are one hell of a lot better than Wesbury and the National Association of Realtors, are now "hunkering down".  The so called recovery is over, as they will tell insiders. The recovery only existed due to Fed actions and Regulatory Agency actions, and that is being phased out. 2014 is expected to be a "change" year, and unless the Fed steps in again to try and support interest rates, home prices, and MBS values, the recovery is now again in free fall in 2015.

You might have seen Existing Sales reported this week.  It is down Year over Year, just like New Home Sales, but you would have to look hard to see where that was reported.  Home values are also beginning to fall, but it will be several months before that is reported officially.

Even worse, the new Qualified Mortgage Lending Standards are paying havoc with the industry. No one knows yet how the courts will interpret the first lawsuits by homeowners, nor even what constitutes "compliance" with the statutes, so they have been slow to act so far.  In the next few months, they will act, loosening standards because they assume that they are protected under the new QM Safe Harbor provision.  Little do they know what awaits...............there is a hole in QM that if it had been the Super Bowl, Manning could have RUN for 5 90 year TD's in the first quarter alone.

Also,trends to be aware of when thinking of investing in real estate.

1.  The 24-35 age cohort have a completely different view of real estate than previous age groups. They no longer see it as an investment opportunity and recognize it to be likely drag on investments in the future.

2.  Firms who buy homes are "arbitrage" traders. They look for the difference in "spreads", the difference in what they make and what they pat.  As spreads decrease, they bail out, which is what is happening now with Blackstone.  Best way to describe them is a "cloud of locusts" who sweep in from the skies, rape, pillage and plunder, and then move on.  Right now, they are moving on.

3.  The so called drop in foreclosures is artificial as well.  It is going to be increasing again soon, especially as Obamacare hits families over the next year or two.

There is much, much more I could write about, but the important thing to remember is that Housing, just like most things, is not existing as a stand alone function. Far too many factors affect housing and must be considered in any evaluation of what is to come. But the NAR, Wesbury and others ignore those factors because it would contradict what they want to believe.

3  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: March 21, 2014, 11:20:08 AM

Long time no post from me.  I have been extremely busy with the development of new products for lenders and servicers to solve the problems that they are currently facing.

CD sent me a post from Wesbury, knowing it would piss me off.  Here was the post.

Existing Home Sales Declined 0.4% in February to a 4.60 Million Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 3/20/2014

Existing home sales declined 0.4% in February to a 4.60 million annual rate, coming in exactly as the consensus expected. Sales are down 7.1% versus a year ago.
Sales in February were down in the Northeast and Midwest, but were up in the South and West. The decline in sales was due to slightly lower sales of both single-family homes and condos/coops.
The median price of an existing home rose to $189,000 in February (not seasonally adjusted) and is up 9.1% versus a year ago. Average prices are up 7.4% versus last year.
The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) rose to 5.2 months in February. The increase in the months’ supply was mainly due to a 120,000 increase in inventories.
Implications: Existing home sales declined 0.4% in February to the slowest pace since July 2012. However, this was exactly what the consensus expected and should not change anyone’s impression about the economy. Existing home sales are counted at closing, and given harsh winter weather in December and January, when prospective buyers would have been placing contracts on homes, it makes sense that sales were weak in February. Besides the weather, another reason for slower sales is a lack of inventory, which could lead some buyers to purchase a new home instead. The good news was that inventories increased by 120,000 units in February and this suggests that the pace of sales will pick up in March and April, as contracts signed in February will show up in March and April sales. Expect more inventory to come onto the market in 2014 as home prices continue to move higher (median prices for existing homes are up 9.1% from a year ago). Also, credit remains tight, making it hard to get a loan to buy a home. This explains why 35% of all sales in February were all-cash transactions. However, we do not believe higher mortgage rates are noticeably holding back sales. The US had a bubble in housing during 2003-05, when 30-year mortgage rates averaged 5.8%. Today they are 4.3%. We remain convinced that the underlying trend for housing remains strong. Also, remember, existing home sales contribute almost zero to GDP, so there will be no noticeable negative effect to GDP from the temporary slowdown in sales. In other news this morning, initial claims for unemployment insurance increased 5,000 last week to 320,000. Continuing claims increased 41,000 to 2.86 million. On the manufacturing front, the Philly Fed index, a measure of factory sentiment in that region, rose to +9.0 in March from -6.3 in February.

My comments:

Once again we see a steaming pile of excrement shoveled out by the National Association of Realtors, doing their best effort to meet the quality of spinning that is regularly done from D.C.  Then people like Wesbury take the data and perform “projectile regurgitation of numbers vomit” and put their own spin on the data, and without doing any independent and in depth analysis.

1.   Sales were down because of weather is a major reason according to the NAR.  You stupid fools!!!!  What do you think Seasonal Adjustments are about?  The Seasonal Adjustment corrects for weather and other factors.  Why then when things are worse does the NAR continue to blame the weather  even after the seasonal adjustments are accounted for?

2.   Did Wesbury even look at the real data? Since Jun 2013, Seasonally Adjusted Sales have fallen from 5.38m to 4.6m.  This is a clear trend line that cannot be spun to the good, even though SA is designed to do just that.

3.   Non SA dropped from 519k to 283k, but that is a number no one wants to report.  You can’t spin raw data so easily.

4.   All four regions, North, South, East and West are dropping in sales volume over the last 9 months.  No one area is increasing.  Year over Year and Month over Month will not report that.

5.   The West dropped by 3000 units in the raw data, but it increased 60,000 in the SA data. 57k in SA adjustments?  Does this make sense? Or is this just pure data manipulation?

6.   For the first time, the NAR blames Student Debt as a contributing factor to lower sales.  I have been screaming about this for three years, and the media for one year.  The NAR and Wesbury only recognize it now?

7.   The NAR now references slowing Investor Sales as a problem, but expects increasing inventory to offset the slowing sales through increased homeowner purchases.  (Blackrock has decreased their purchases by 70% over last year.) After all, without the inventory buyers were “forced to buy” new homes.  Hasn’t anyone told the NRA or Wesbury that new home construction is still at the lowest levels since data started to be kept in 1963?  If inventory increases and people can buy existing homes again, then what happens to new home construction?

8.   Wesbuy does not believe that the increase in rates that has occurred will pose a problem.  He cites the higher rates in 2003-2005 and the sales volume as proof.  The STUPID FUCKING IDIOT!!!  2003-2005 also saw the Stated Income products and the Option ARMs that heavily influenced sales volume.  Those products no longer exist.  Existing sales compared to the increase in rates show the change and slow down.

9.   The higher interest rates also affect homeowner affordability. Higher rates and prices mean less affordability and less affordability, especially among the first time buyers who are already priced out of the market to due high Student Debt and low income.

10.   What about the Qualified Mortgage and its restrictions?  Lenders now have a fiduciary duty to a borrower to approve Ability to Repay the loan. If the borrower goes into default, they can sue for fees, all interest paid up to 3 years in length, attorney fees and damages. Lenders have no idea what the liability is and as a result, they are being very restrictive in lending. Furthermore, non QM loans will be subject to such scrutiny that most will not get done.

I could go on and on but you should probably realize by now the absurdity of what is being reported.  What we see here is Empirical Analysis only where “observations” are made in the existing sales and then excuses are made for the results. No real analysis of the data is made.  As a result, Empirical tells us nothing about what is really going on.

Fundamental Analysis is needed to improve upon the QA. FA requires in depth review of the different regions, looking at the various economic conditions, geographical conditions, demographics and other relevant factors that have an influence on sales.  Then Quantitative Analysis is done to determine what is really going on.

The NAR and others don’t engage in the FA and QA Analysis. That is because it is costly, time consuming to set up the models, require personnel knowledgeable in Applied Mathematics, Statistics, Lending, Demographic Analysis and a variety of other disciplines to evaluate the data and models.  More important, the results will more often than not, reveal the true underlying weakness in the positions that they regularly take about how the real estate market is improving.

What you do not hear are the people who are involved day to day in the real estate and lending industry and what they are reporting. Nor do you hear from the people who are truly evaluating the market, and who do not have a vested interest in reporting “good and improving” markets.  The true experts know that the whole “real estate recovery” is nothing but propaganda trying to keep a failing market from tumbling further.
4  Politics, Religion, Science, Culture and Humanities / Politics & Religion / New Case Law in CA on: August 08, 2013, 06:42:50 PM
Have you bought a foreclosure in CA? Do you think that you own the property?  Think again!  You may not.........

A case has been winding its way through the courts for several years. The case, Glaski v Bank of America, was contesting the legality of foreclosures in CA, based upon New York Trust Law, which cites that the loan must be assigned to the Trust prior to the closing date of the Trust, or it never made it into the Trust.  If it never made it into the Trust, then the Trust has no legal standing to foreclose.

"We conclude that a borrower may challenge the securitized trust's claim to ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust's closing date. Transfers that violate the terms of the trust instrument are void under New York law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement."[/b]]

CA courts are now split on this opinion and chaos is sure to reign until the 9th Circuit and eventually the US Supreme Court rules for or against.  In the meantime, over 50% of all foreclosures, past, present and future are now affected by this.  Here is what a mess it is.

The Investors have paid cash for the bonds, which was paid to the Depositor who organized the Trusts.  Per agreements, they would be the owners now, but that poses issues.

1.  Large numbers of Depositors are out of business.

2.  If the Depositor is in business, they have been paid for the loan, so they are trying to foreclose on a property that they no longer have any financial interest in having been paid. How do you foreclose on a loan that you have been paid on?

3.  All Servicing Agreements between the Servicers and the Trusts are now void, so Servicer actions are unlawful, and they have no ability to collect for the Trust. Assignments, Reconveyances, etc are void when executed by the servicer.

4.  One could argue that the Sponsor who sold to the Trusts were the new owners, but most are out of business.  Those left in business have been paid off as well.

5.  Next, you look to the Originator, but they have also either gone out of business, or have been paid off.

6.  If the Assignments are void, then half the foreclosures in CA are likely void.  The buyers of those properties are now in limbo.  They don't own the properties.  And the liens securing the loans are void, so the Notes are unsecured.

7.  Title companies are now completely at risk, providing title insurance on properties that are now clouded, and the companies may have to finally start paying out claims.

8. Foreclosure Homes Sales are now at risk.

I have been waiting for this type of ruling. I know how to defend against it, if given the opportunity.

5  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: August 07, 2013, 11:16:40 AM
I was in a meeting yesterday when this came out and the comments were not positive. Everything he said was contradictory or worse.

1.  He wants to replace Fannie and Freddie, but the legislation appears to support the creation of "smaller" entities that would act like the GSE's.  Guess who would likely run them.

2.  He wants to replace the GSE guarantees with a new Federal  Guarantee program, that would step into play after certain investor losses had occurred.  Just a "vague" notion with no flesh.

3.  He wants to keep rates low like right now for "affordable housing" for the poor to buy, and with  30 year mortgages. 

This is all smoke and mirrors.  Investors will  not purchase loans that have such low interest rates especially over 30 years with the high risk involved.  The losses would wip them out from defaults, even if higher inflation did not.

Also, the GSE's have bought their way to power through campaign donations.  They will continue to do so and will likely never disappear. 

There is no system in place to replace the GSEs.  Private investment which would have to supply the funds will not buy the loans without an ability to determine what they are buying.  This ability does not exist at this moment because the lenders haven't the ability to determine default risk, probability of default, loss given defaults or ongoing risk assessment on products at this time. And banks cannot portfolio lend because of these same reasons, and also because of BASEL III requirements.

That said, things begin to change on Aug 24.  (More to come on this.)

6  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: August 06, 2013, 01:53:08 PM
As I posted a response to the other site.

How can you trust a source that believes:

"At this pace, the Fed will soon accomplish their unstated goal of eliminating negative equity, which will allow for refinancing that will be great for the economy."

This is an absurd statement.  HARP already allows for Negative Equity financing, so who needs to artificially inflate values to eliminate negative equity again.   Inflating the values will only serve to prolong the housing crisis.

If you want to eliminate negative equity for refinancing, then you have to inflate to cover 25% of the homes with a mortgage.  This means another 10-20%.  But, that now means that you price buyers out of the market with the higher values.

This is a firm that does Real Estate Consulting?  Sounds like they are an off shoot of the NAR.

7  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: The Hillbillary Clintons long, sordid, and often criminal history on: July 30, 2013, 02:10:11 PM

You had to ruin your post by posting a photo of the old hag.  Turned my stomach.
8  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: July 30, 2013, 02:07:35 PM
Here we go again.  Richmond,  the Bay Area crime capital, murder capital per capita, haven for gangs and drug dealers, is now going to try Eminent Domain to take underwater properties and sell them back to the homeowners, after screwing the investors.

This is a scam being perpetrated by Mortgage Resolution Partners, former mortgage brokers who now have a group of investors.  They and Richmond are essentially putting together a program whereby they will "steal" the properties from legitimate investors, and then earn a substantial profit when they take the home for 80% lf LTV, and then write down the underwater part of the original mortgage to 95%.  Then the borrower refinances into a 95% ltv loan.

Outside of theft, here are the other aspects.

1.  No defaulted loans allowed.  The borrower must be current, and probably have good credit.

2.  With 95% loan to value, the borrower must have cash to close to keep the 95% ltv.  How many have the funds?

3.  The loans would most likely be run through FHA.  Most GSE products would probably decline the loans.

4.  It is the original investors in MBS who get screwed.  GSE loans will not be  touched.  Banks might also be on the target list.

5.  Mortgage Resolution Partners make all the money.

Of course, the mayor of Richmond is a former school teacher.  She has no clue about the law, and the consequences of such as action.  You want to ruin Private Lending in the future, then watch what happens if Richmond succeeds.


A City Invokes Seizure Laws to Save Homes

The power of eminent domain has traditionally worked against homeowners, who can be forced to sell their property to make way for a new highway or shopping mall. But now the working-class city of Richmond, Calif., hopes to use the same legal tool to help people stay right where they are.

An abandoned home in Richmond, where roughly half of all homeowners with mortgages are underwater, meaning they owe more than their home is currently worth.

Scarcely touched by the nation’s housing recovery and tired of waiting for federal help, Richmond is about to become the first city in the nation to try eminent domain as a way to stop foreclosures.

The results will be closely watched by both Wall Street banks, which have vigorously opposed the use of eminent domain to buy mortgages and reduce homeowner debt, and a host of cities across the country that are considering emulating Richmond.

The banks have warned that such a move will bring down a hail of lawsuits and all but halt mortgage lending in any city with the temerity to try it.

But local officials, frustrated at the lack of large-scale relief from the Obama administration, relatively free of the influence that Wall Street wields in Washington, and faced with fraying neighborhoods and a depleted middle class, are beginning to shrug off those threats.

“We’re not willing to back down on this,” said Gayle McLaughlin, the former schoolteacher who is serving her second term as Richmond’s mayor. “They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.”

Despite rising home prices in many parts of the country, including California, roughly half of all homeowners with mortgages in Richmond are underwater, meaning they owe more — in some cases three or four times as much more — than their home is currently worth. On Monday, the city sent a round of letters to the owners and servicers of the loans, offering to buy 626 underwater loans. In some cases, the homeowner is already behind on the payments. Others are considered to be at risk of default, mainly because home values have fallen so much that the homeowner has little incentive to keep paying.

Many cities, particularly those where minority residents were steered into predatory loans, face a situation similar to that in Richmond, which is largely black and Hispanic. About two dozen other local and state governments, including Newark, Seattle and a handful of cities in California, are looking at the eminent domain strategy, according to a count by Robert Hockett, a Cornell University law professor and one of the plan’s chief proponents. Irvington, N.J., passed a resolution supporting its use in July. North Las Vegas will consider an eminent domain proposal in August, and El Monte, Calif., is poised to act after hearing out the opposition this week.

But the cities face an uphill battle. Some have already backed off, and those that proceed will be challenged in court. After San Bernardino County dropped the idea earlier this year, a network of housing groups and unions began working to win community support and develop nonprofit alternatives to Mortgage Resolution Partners, the firm that is managing the Richmond program.

“Our local electeds can’t do this alone, they need the backup support from their constituents,” said Amy Schur, a campaign director for the national Home Defenders League. “That’s what’s been the game changer in this effort.”

Richmond is offering to buy both current and delinquent loans. To defend against the charge that irresponsible homeowners who used their homes as A.T.M.’s are being helped at the expense of investors, the first pool of 626 loans does not include any homes with large second mortgages, said Steven M. Gluckstern, the chairman of Mortgage Resolution Partners.

The city is offering to buy the loans at what it considers the fair market value. In a hypothetical example, a home mortgaged for $400,000 is now worth $200,000. The city plans to buy the loan for $160,000, or about 80 percent of the value of the home, a discount that factors in the risk of default.

Then, the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program. The $30,000 difference goes to the city, the investors who put up the money to buy the loan, closing costs and M.R.P. The homeowner would go from owing twice what the home is worth to having $10,000 in equity.

All of the loans in question are tied up in what are called private label securities, meaning they were bundled and sold to private investors. Such loans are generally the most unfavorable to borrowers and the most likely to default, Mr. Gluckstern said. But they are also the most difficult to modify because they are controlled by loan servicers and trustees for the investors, not the investors themselves. If Richmond’s purchase offer is declined, the city intends to use eminent domain to condemn and buy the loans.

The banks and the real estate industry have argued that such a move would be unprecedented and unconstitutional. But Mr. Hockett says that all types of property, not just land and buildings, are subject to eminent domain if the government can show it is needed to promote the public good, in this case fighting blight and keeping communities intact. Railroad stocks, private bus companies, sports teams and even some mortgages have been subject to eminent domain.

Opponents, including the Securities Industry and Financial Markets Association, the American Bankers Association, the National Association of Realtors and some big investors have mounted a concerted opposition campaign on multiple levels, including flying lobbyists to California city halls and pressuring Fannie Mae, Freddie Mac and the Federal Housing Administration to use their control of the mortgage industry to ban the practice.

Tim Cameron, the head of Sifma’s Asset Management Group, said any city using eminent domain would make borrowing more expensive for everyone in the community and divert profits from the investors who now own the loan to M.R.P. and the investors financing the new program. “Eminent domain is used for roads and schools and bridges that benefit an entire community, not something that cherry-picks who the winners are and who the losers are,” he said.

Representative John Campbell, Republican of California, has introduced a bill that would prohibit Fannie, Freddie and the F.H.A. from making, guaranteeing or insuring a mortgage in any community that has used eminent domain in this way. Eminent domain supporters say such limits would constitute a throwback to the illegal practice called redlining, when banks refused to lend in minority communities.

Opponents have also employed hardball tactics. In North Las Vegas, a mass mailer paid for by real estate brokers warned that M.R.P. had “hatched a plan to make millions of dollars by foreclosing on homeowners who are current on their payments.”

In a letter to the Justice Department, Lt. Gov. Gavin Newsom of California complained that the opposition was violating antitrust laws and that one unnamed hedge fund had threatened an investor in the project.

But not all mortgage investors oppose the plan. Some have long argued that writing down homeowner debt makes sense in many cases. “This is not the first choice, but it’s rapidly becoming the only choice on how to fix this mess,” said William Frey, an investor advocate.

Mr. Frey said that the big banks were terrified that if eminent domain strategies became widespread, they would engulf not only primary mortgages but some $450 billion in second liens and home equity loans that are on the banks’ balance sheets. “It has nothing to do with morality or anything like that, it has to do with second liens.”

Many of the communities considering eminent domain were targeted by lenders who steered minority families eligible for conventional mortgages into loans with higher interest rates and ballooning payments. Robert and Patricia Castillo bought a three-bedroom, one-bathroom home in Richmond because their son, who is severely autistic, would anger landlords with his destructive impulses. They paid $420,000 for a home that is now worth $125,000, Mr. Castillo, a mechanic, said.

They have watched as their daughter’s playmates on the block have, one by one, lost their homes. But they are reluctant to walk away from the house in part for the sake of their son.

“We’re in a bad situation,” Mr. Castillo, 44, said. “Not only me and my family, but the whole of Richmond.”

9  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: July 29, 2013, 06:59:13 PM
What can go wrong?  Try this!!! 

Notice how the NAR is trying to spin the news.  Especially the last paragraph.  The lack of investors will lead to higher prices?  What planet are they on?  It has been the investors who have caused prices to increase.  The whole article is about spin.


Rising interest rates constrain pending home sales

After reaching a six-year high, pending home sales fell in June.

The decline in pending home sales is attributed to rising mortgage interest rates, which are beginning to impact the housing market, the National Association of Realtors reports.

NAR’s Pending Home Sales Index edged down 0.4% to an index score of 110.9 in June, dropping from a downwardly revised 111.3 in May. From last year, the index is up 10.9%.

"Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June," said NAR chief economist Lawrence Yun.

He added, "The persistent lack of inventory also is contributing to lower contract signings."

On the upside, pending sales have been above year-ago levels for the past 26 months.

Nationwide Insurance chief economist David Berson told HousingWire that although mortgage rates tend to dampen housing demand, stronger job growth, rising numbers of households and increasing household wealth can offset rising interest rates.

"Despite an increase of about half a percentage point for mortgage rates in June, however, the index remains at a high level (other than in May, the index is at the highest level since the end of 2006)," Berson stated.

He added, "This suggests that reported home sales will remain strong for the next couple of months (especially when combined with the large jump in the Index in May)."

Meanwhile, not all pending sales contracts are closing.

The issue is that there are some homebuyers who sign contracts with strong lender commitment letters, but have floating mortgage interest rates.

"Those rates can be locked as late as 10 to 14 days before closing, so some homebuyers may change their mind if the rate rises too much, which apparently happened with some sales scheduled to close in June," Yun explained.

As a result, closed sales are expected to edge down in the months ahead, but will stay above year-ago levels, according to NAR's chief economist.

The PHSI in the Northeast remained unchanged at 87.2 in June but is 12.2% above year ago levels.

In the Midwest, the index slipped 1% to 114.3 in June and is 19.5% higher than in June 2012.

Pending home sales in the South fell 2.1% to an index score of 118.3 in June, up 9.5% from a year ago.

Meanwhile, the index for the West jumped 3.3% to 114.2 and is 4.4% above year ago levels.

Existing-home sales are expected to rise more than 8% for the remainder of the year.

Additionally, investor shortages will lead the median home price to rise by nearly 11% this year, NAR concluded.
10  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: July 25, 2013, 05:46:34 PM

Here is some info to show all how screwed up things are.  These are Default Percentages of Loans originated through the GSE's in 2008 and 2009.  By that time, underwriting had tightened considerably, but there were still high LTV loans being done.

With the data, you can see the impact that low credit scores had on Default Percentages, but there are contrary indications that don't make sense at first.  What I am doing is evaluating a 15m loan data base from Freddie to understand why the outliers exist, the causes of such, and how my new scoring model can account for those factors.  Additionally, I and others are engaged in taking this data, using it to determine default risk probability, and then use the data to identify Tier 1 & 2 Capital requirements for banks under BASEL III.  The bad part is that I am not getting paid for this yet.  That only occurs when we roll everything out next month, and then start signing up banks.  At that point, my Patents Rights and Royalties kick in.  But until then, I am eating beans, without the ham hocks.

                         GSE Loan Default Rates 2008-2009 Loan Originations

                                     Loan to Value 25% to 75%

   FICO                           350-639   640-679   680-719   720-950

   DTI         20.1-25    14.80%     5.20%   3.00%     0.50%
   DTI         25.1-30    16.70%     6.70%   3.50%     0.80%
   DTI         30.1-35      17.60%     7.80%   4.30%     1.00%
   DTI         35.1-40   19.90%     9.00%   5.60%     1.50%
   DTI         40.1-45   22.20%   11.20%   6.40%     1.80%
   DTI         45.1-50   23.00%   11.50%   7.20%   21.00%
With this data, notice the increase in Default % for the 720 bracket.  This is purely a result of the high DTI.  Probably, it also means that the loan amounts were lower than $200k and presents a small positive Cash Flow after living expenses are considered.

For the under 640 bracket, notice the consistent high default percentages.  Typical of that credit profile. 

This data shows the nexus of DTI to FICO, especially when loan amounts are smaller and not larger.

                                       Loan To Value  75.% - 85%
   FICO                           350-639    640-679   680-719   720-950

   DTI         20.1-25   17.50%   8.90%   5.40%   1.30%
   DTI         25.1-30   19.00%   9.30%   5.90%   1.60%
   DTI         30.1-35   22.20%   11.00%   7.20%   2.20%
   DTI         35.1-40   24.20%   13.20%   9.20%   3.20%
   DTI         40.1-45   27.10%   15.40%   10.90%   3.90%
   DTI         45.1-50   27.60%   16.50%   11.40%   4.60%

At the 75-85% LTV, Defaults have increased across all cohorts.  This is the stronger influence of the higher LTV at work.  This is in line with studies that indicate the higher the LTV, the greater the risk.  A likely reason in this case is that many of the homes dropped in value from origination, preventing an ability to "exit" the loan as finances got worse.  Positive cash flow would be an issue with the DTI above 40%, for many of the loans.

                                            Loan To Value 85.1% to 95%

   FICO                          350-639   640-679   680-719   720-950

   DTI        20.1-25    17.40%   7.80%   5.00%   2.10%
   DTI        25.1-30    19.40%   9.00%   5.50%   2.50%
   DTI        30.1-35    22.40%   10.70%   6.70%   3.10%
        DTI        35.1-40    25.00%   12.70%   9.40%   4.30%
   DTI        40.1-45    27.20%   15.00%   11.10%   5.80%
   DTI        45.1-50    28.20%   16.20%   12.10%   6.80%
This chart offers an interesting observation.  With it, defaults from 719 and lower have remained reasonably steady.  This suggests that that there might be a "Cap" at some level for increased default risk.  (Means I have more research to do to figure this out.  For the 720 and up group, we see that the influence of DTI is being felt more.  Also, with the higher LTV, the possibility of exiting the loan through refinance or selling the property may have diminished, leading to a higher default rate.

                                                  Loan to Value 95.1 +

   FICO                           350-639   640-679   680-719   720-950

   DTI         20.1-25   19.00%   6.80%   3.10%   1.30%
   DTI         25.1-30   21.00%   7.40%   3.50%   1.40%
        DTI         30.1-35   22.20%   8.50%   4.10%   1.70%
        DTI         35.1-40   25.10%   10.10%   5.00%   2.10%
   DTI         40.1-45   26.50%   11.60%   6.30%   2.80%
   DTI         45.1-50   26.20%   12.70%   6.80%   3.60%

The 95 plus LTV group has thrown me for a complete loss.  Default rates have fallen for the 640 and above credit scores.  Yet, they essentially remain the same for the 639 and lower scores.  From a risk viewpoint, we know that 95% plus LTVs have a much greater default rate than the 85-95 group, but this does not reflect that reality.

Different factors may come into play, from the volume of such loans being much lower, whether a purchase or cash out refinance, to even regional differences of where the homes are.  But without in depth analysis, who the hell knows. Or there could be one or more of 28 other factors that play a role in default risk.

Additionally, has HAMP played a part as well? Or the offering of Short Sales before a person went into default?

The good news is that the number of defaults have fallen in the 2010 and 2011 vintages, but they have one to two years less performance to evaluate.  Additionally, they were subjected to more stringent underwriting, than in 08 or 09.  But defaults are surely going to rise, especially when the Fed quits QE, and also when HAMP loans begin to experience interest rate increases in 2014. 

Understanding this data is critical for the banks.  Under BASEL III,  Loan Risk is a key factor in determining Capital  (iow, shareholder equity) requirements for liquidity and loss purposes.  Banks have to increase their Capital  from 6 to 8%, based upon risk calculations.  But the problem is quantifying risk, and that is what I am engaged in now.

11  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Scott Grannis and friends: on: July 24, 2013, 06:33:20 PM

I have been missing out on things here. Once I get wrapped up on some work I have been doing, I might have the time to play again.

What CD posted is part of an ongoing argument that Scott, Tom and I have been having regarding the Fed.  The arguments are based upon whether the Fed is creating money in the traditional sense or not, and whether the Fed is manipulating money supply in a manner that does not effect M2.  Then, it evolves to whether the "Housing Recovery" is being caused by the Fed easy money policies, whether it is sustainable, or even if it is a recovery at all. Finally, it goes to whether the stock market and  bond market are up because of Fed policies and easy money or not.

Of course, I take the opposite position of Scott in every way imaginable.  (Note: I will admit finally that the Fed is not "creating money" by the technical definition, but I will argue all day long that they are manipulating money supply.)

It has been a very frustrated and heated argument at times, and often extremely confusing. But that can be the fun of it.
12  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: May 01, 2013, 03:49:24 PM
Watt is going to do everything that he can to force Principal Reductions on GSE loans.  Of course, that means two things.

1.  Ginnie Mae bond holders (includes Fannie & Freddie) will suffer additional losses in income revenue from the reduced payments.

2.  Taxpayers will be bailing out the GSE's for further losses.

Additionally, he is going to push lower lending standards for people who can't qualify at established standards, which means that we will be back to the standards that led to the Housing Crisis.

How will the market ever recover with these idiots in charge?

13  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Rep Mel Watt to head FHFA on: May 01, 2013, 10:57:48 AM

Rep Mel Watt being named to run the FHFA and therefore the GSE's. Among other things:

1.  Took campaign donations from Fannie and Freddie

2.  Supports more mortgage lending for low income borrowers

3.  Supports more mortgage lending for blacks

4.  Supporter of Community Reinvestment Act

5.  Supporter of the GSE's

6.  Opposed restructuring of the GSE's in 2003

7.  Against making the Fed more "transparent" and more regulated

8.  In favor of principal reductions on underwater loans and borrowers in default

9.  Wants to keep the GSE's

And I thought Mark Zandi would  be bad.........................

Welcome to socialized housing............not that it doesn't exist now.


14  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Housing Recovery on: April 30, 2013, 12:03:29 PM
I'm baaaaaack!

To put housing into perspective, since I haven't had the time lately to do much of anything, here is a report that really talks about the Housing Recovery for what it is.  I normally do not agree with Lee Adler on many things, but here I do.

It’s A Housing “Recovery” In Orwellian Terms – Here’s The Reality

April 23, 2013

The Commerce Department  today reported really good March home sales  relative the the past 4 years of the housing depression. Media reports included only the seasonally adjusted annualized sales rate, which was 417,000 versus a consensus estimate of 415,000. PR flaks at the major financial infomercial outlets were breathless in their reports. Bloomberg proclaimed “A dearth of existing properties is encouraging builders to undertake new projects that will keep fueling the economy. Mortgage rates close to record lows, higher home values and rising household formation are helping lay the groundwork for increased buyer traffic in 2013.”

It’s mostly mindless bullshit as usual. The numbers were good relative only to the recent past, and with the tailwind of Benito Bernanke’s massive mortgage rate subsidy. Looking at the actual numbers from the Commerce Department surveys, not annualized and not seasonally adjusted, we get a better view of current reality.

New house sales rose by 7,000 units to 40,000 in March. This was better than last year’s March gain of 4,000 units to 34,000, and better than the March 2011 gain of 6,000 to 28,000. Sales are up 43% in two years. Wow.

But let’s put this in perspective. It’s still below the 48,000 units that were sold in March 2008 in the middle of the housing market crash, the 120,000 units a month during the bubble years, and the 80,000 units per month typical before that.

New house sales normally peak in April, so there may yet be another peak ahead, but the NAHB builder survey indexes for March and April suggest that sales have already peak. Builders reported lower sales and traffic from mid March to mid April. This may be as good as it gets in this cycle.

Even with the Fed’s massive mortgage rate subsidy, sales have not surpassed 40,0o0 units per month. That’s half or less than half the peak levels reached from 1997 to 2007.

But builders are supplying enough houses to meet demand. The talk of inventory shortage is overblown.  Demand is weak. New supply production is consistent with the level of demand.

The talk of inventory shortage is overblown.  Supply production is consistent with the level of demand.  The inventory of new homes relative to sales is below the bubble years, but at normal levels relative to those seen in 2003-2005.

Median reported new house sale prices have risen 20% since 2009. Effective sale prices may have risen even more than that as builders were giving large incentives, including extra amenities, or discounts not reflected in prices as late as last year. Effective sale prices at the 2009 lows were lower than reported prices. The discounts and incentives have ended or been reduced in many cases.

Meanwhile, the average sale price dropped back over the past year as the ratio of cheap to expensive houses sold rose

The so called recovery is mostly a recovery in prices. Thanks to the Fed mortgage subsidy, we have housing inflation, but not much recovery in housing activity relative to historical norms. The market has bounced back to around 50% of historically normal levels only with the help of the massive Fed subsidy. We have to wonder where the market would be without that, or rather what will happen when that subsidy is withdrawn.  Knowing that removing this subsidy could devastate the so called housing recovery, it seems unlikely that the Fed would only do so under extreme pressure from the market in the form of consumer price inflation.  The government has managed to keep those numbers suppressed.
15  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: March 31, 2013, 04:32:40 PM
If you look at Shiller from a year ago, he was much more optimistic about a Housing Recovery.  Then about 6 months ago, he decided that recovery to 2007 prices might take up to 50 years.

At least he can change his mind a bit.

Tom Lawler is another one.  After leaving Fannie Mae, he started a Real Estate Consulting business.  He is extremely optimistic about recovery.  Of course, he must be so he can sell his services.

I don't think that anyone other than those who are actually engaged in the mechanics of trying to create a stable lending environment, in conjunction with meeting Basel 3, and the restoration of Securitized Lending, understand what the actual difficulties present are.

Heck, I can barely get my head around the tiniest of basics on Basel 3.  You can't believe how simple they have to make explanations for me. Even then, I only get about 10%.
16  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: March 27, 2013, 08:08:41 PM
But Wesbury says otherwise, so who is to argue?

The idiot................
17  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: March 27, 2013, 06:20:25 PM

The article you posted can be verified through US Census Data that breaks down home ownership by Age Cohorts.  The data shows that there is not enough new potential Home Buyers coming up in the 19-24 age cohort, the 25-34 cohort, or the 35 to 44 cohort to stimulate housing purchases.  This is because only the 35 to 44 cohort actually engages in buying behavior, and they are already at average highs.  The lower cohorts haven't the income, and don't engage in the same buying behavior.

But, when I have pointed this out before elsewhere, I have been pooh-poohed...................

BTW, the GSE's have just announced a new Modification Program for their loans beginning in Jul 2013, and extending through Aug 2015.  They will be No Income Doc and No Hardship Letter Streamline Programs.  As long as you have made payments for 12 successive months on time, at any time in the past, but are now behind from 90 days up to 720 days, you are automatically eligible.  You must also have Mark to Market LTVs greater than 80%.  Principal Forbearance will be granted.

What does this mean?  Essentially, the GSE's will be stopping foreclosures for those who chose to accept it.  Just let us know and we will provide you the Interest Rate relief that you want, and forbearance relief as well.   And, if we deny you a modification if you are up to date, then just stop making payments and we will modify your loan.

This is about nothing more than pumping more money into the economy by reducing homeowner monthly payments in one manner or another.  Whether HARP, HAMP or the new program, the government is going to keep the economy going by reducing mortgage rates.

Now, here is something that I am wondering, but there are no answers to yet:

Since the GSE's are going to be "ended" (we hope) in about 5 - 7 years, is this designed to effective pump up the economy through the destruction of the GSE loans?  Is the private lending going to be left to pick up the pieces of the Real Estate Industry from there?  Or is this designed to ensure that the GSE's cannot stop their lending?

After the willful modification of these loans, essentially the GSE loans mean that this bulk of homeowners are out of the RE market, pretty much for life.  That accounts for perhaps 50% or more of the entire market, and 95% of all loans done in the past 5 years.

Now you see why I was so depressed yesterday.  It is plain b.s. what is being done.  And we are left to create the new lending industry for the future.

18  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: March 27, 2013, 11:52:22 AM
You are probably right about the quote.  My memory gets worse daily.  If only I could "delete" memories and information to free up space like on a hard drive.

Reading the articles written by various commentators and financial analysts is so frustrating.  They just look at the raw data, and make proclamations without any real understanding of what is going on in "backrooms" across the country.  There are very well intentioned and knowledgeable people who are trying to develop the systems and the processes to restore not just the housing market, but lending in general.  As well, they are engaged in creating the monitoring systems to evaluate risk across portfolios, and then determine true reserve requirements under various scenarios.  Stress testing is a large part.

One of the things that we often read is how lending requirements are so tight, and they must be loosened.  But they make no recommendations, and just assume it is easily done.  That is not the case.

To create "loosened" lending standards is not simply a matter of reducing FICO Scores, or allowing for higher Debt Ratios, etc.  Each loan must be looked at from its own unique perspective, taking into account a large number of different factors.  My process looks at over 40 different factors alone and then the endless combinations that will affect default risk. Even then, it will be revised frequently to take account of changing economic conditions.

To give an example of how difficult loosening lending restrictions will be, we simply look at Fannie, Freddie and FHA.  Right now, F&F have extremely high qualifying standards, but not to the extreme that the new Qualified Residential Mortgage is expected to impose.  F&F defaults are at a semi-reasonable rate.  FHA, which has looser standards, but is still greater than what was occurring during the Housing Boom, is running delinquency rates of about 17%, and default rates of 9%.  Eventually, we expect to see defaults up to 30% over a 5 year time for FHA.

Qualifying for each of the programs are based upon FICO, Loan to Value and Debt to Income Ratios.  These are loosely linked together. 

The problem with this approach is that like with FHA, far too many bad loans are being funded, but also far too many good loans are being denied because the borrowers do not meet certain standards. 

To loosen the qualifying standards means more than just reviewing FICO, Loan to Value and Debt to Income.  One must also consider actual debt loads, family size, loan size, residual income, loan purpose, borrower behavior, and many other factors not currently considered and factored into the decision. 

A person with a 780 credit score, debt to income of 41%, and loan to value of 80% might seem like a very qualified borrower. But, if we are looking at a first time buyer, new construction home, loan amount of $150k, 4 kids, payment shock and medical insurance costs,  then this borrower is almost certainly going to default on the loan at some point. It is inevitable. 

Yet, at the same time, you could have a borrower who wants a loan, 90% loan to value, cash out debt consolidation, 36% debt ratio, but has a FICO of 603, and may very well be a perfect candidate for a loan, especially if the loan amount was $500k, and no kids.  But change the parameters to 45% debt ratio and a loan amount of $150k, and there is a significantly increased risk of default.

These are the types of problems that are being addressed, and we must resolve to allow for loosened qualifying standards.  But even then, it does not end at that point. 

How are the loans going to effect Basel 3 requirements for risk?  Greater risk means greater reserve requirements.  And if economic factors change, like increased costs from Obamacare, how is that going to affect borrower default risk?  What about decreasing home values, based upon rising interest rates?  What about exit strategies for loans going into default?

Then, how does one identify loans going bad, before they do, and how to institute loss mitigation procedures before it is too late? 

Or, how does one create a good pool of mortgages for securitization, which needs to be done if there is going to be a wind down of F & F?

These are the types of questions being asked daily, and for which we are looking for answers.

19  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: March 26, 2013, 05:56:31 PM
Thought it was time to check in again, and see what was being posted.  I have been heavily involved in Expert Witness work for a couple of homeowners and also further development of the Loan Default Risk Score.

Yesterday, I was in a meeting with people who are working on the Compliance Systems for lenders for Basel 3 risk issues. We were discussing different things, and of course FHA came up, as well as many different things.  All present, even a former Fannie Mae Risk Expert, had the same view of FHA, "bury it".

The consensus of all was that the Housing Recovery is smoke and mirrors, especially in light of 50% of home sales now being cash offers.  It is a propped up market, with much to fear, especially if the Fed can effect a 2% Inflationary effect as they desire. If that happens, Interest Rates would go to 4%, and there goes any Housing Recovery by the wayside.

A key issue that we are working on is related to Risk Evaluation of Existing Loans.  Noting that not only are Living Expenses increasing, which drives up risk, but also with the costs that Obamacare will end up in reducing Disposable Income, we are trying to expand upon the Default Risk Model to reflect the added Default Probability Percentage that will certainly occur. A difficult task, but one that needs to be taken into consideration at the very least, it will go to the heart of Basel 3 needs.

The simple fact is that foreclosures are going to increase again, as Living Expenses rise, and as Obamacare and other regulatory costs increase. People cannot realistically meet needs now, for up to 50% of the population. How will they do it 5 years, or 10 years in the future?

The idiots in Washington, and in each State Capital, haven't got a clue what they are actually doing.  The added costs from the b.s. programs that they are putting together will only serve to hasten collapse further, across all demographic divisions and divides.  The strains that the Middle Class is feeling now is only going to increase, and at a certain point, is going  to completely break in the next few years.  Then, the Depression will seem like the Roaring 20's.

Sorry about the rambling thoughts, but it is very disheartening when you meet with people who have far greater understanding of the factors at play, than you do and they confirm your thoughts.  Then, when you try and develop programs to stave off or lessen collapse, the idiots in Washington and elsewhere find new ways to destroy things in the name of "good".

Over the past decade I have really come to appreciate Thomas Jefferson and his comments about the "Tree of Liberty" needing to be replenished with the blood of patriots from time to time.  And I can really accept his belief that this must be done every generation.

Time to have a glass of wine and prepare for tomorrow................Cheers!!!!!
20  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: February 20, 2013, 11:49:57 AM

Why don't people like Wesbury look behind the numbers to what is really occurring?  At a certain point, this gets absurd. 

21  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Market Share of the GSE's on: February 20, 2013, 11:37:18 AM

Here is the Market Share of the GSE's, etc.  Sure, this is a "healthy" recovery........

The reality is that with the CFPB and their new mortgage regulations, with the Safe Harbor for GSE loans, we will never be rid of the GSE's.  They are and will be the only market for home loans.

Federal government controlled 99.3 percent of mortgage market in 2012

Fannie Mae, Freddie Mac, and Ginnie Mae, the three major Government Enterprises created to control the U.S. housing market, issued 99.3 percent of all mortgage backed securities (MBS) in 2012, according to Freddie Mac’s 2013 Investor Presentation. As recently as 2005 these government agencies backed just 45 percent of all mortgages issued in the United States, although they did purchase vast quantities of the mortgages backed by private issuers.

Fannie Mae, created by President Roosevelt during the New Deal, and Freddie Mac, created by Congress in 1970, were both nominally private corporations before the housing bubble popped in 2008. Investors had long charged Fannie and Freddie less to borrow money since they were created by the federal government and it was assumed creditors would be bailed out if the companies ever went under. That is exactly what happened during the financially crisis costing U.S. taxpayers $154 billion so far.

Last year, Treasury Secretary Tim Geithner announced that the Obama administration would pursue legislation that would “wind down the GSEs and bring private capital back into the market, reducing the government’s direct role in the housing market.” That, of course, never happened. Instead, government control of the housing sector rose every year under Geithner’s watch from 95.2 percent in 2008 to 99.3 percent today.

Conservatives have long pushed for elimination of the housing Government Enterprises, arguing that the federal government’s role only enriches bankers at the taxpayers expense, distorts markets, and makes housing unaffordable. A recent Heritage Foundation study found the Fannie and Freddie could be completely privatized without any major disruption to the U.S. housing market.
22  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Housing Starts Jan 2013 on: February 20, 2013, 11:32:33 AM

Housing Starts are in for January.

58k total Starts, Non Adjusted.  Called it right.

Single Family ran 39.6, up 1900 from Dec 2012.  Off by 5600.  Surprise that these were up. 

Key points

Northeast had 3k, down 800 from the previous month. 
Midwest down 1200 to 4.1k
South up 3300 to 23.6k
West up 900 to 8.9k

Year over Year, there were 6500 more Single Family housing starts than last year.  All areas had increases, with the South having 3900 more, the West at 2800 more, 400 for both the Midwest and the Northeast. An improvement, but it does not mean much.

Why are Housing Starts increasing?  Could it have anything to do with the low inventory of homes on the MLS?  Are people buying new homes over resales because of the "status" of a new home?

23  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: February 19, 2013, 07:22:38 PM
Scott mentions his experience on buying a piece of property.  Where I live in the Bay Area, similar things are happening.  Here are the facts behind what is happening here.

1.  Inventory is down to one month's supply. An equal mixture of homes under 2000 sq feet and above 2000 sq feet.

2.  Huge amount of foreclosures being held from market.  It is nothing to see a year before they are listed.

3.  Even greater number of delinquent homes over 90 days without Notice of Defaults filed.

4.  Large numbers of homes in the mod process, taking 6 months or more for a decision.

5.  25% of purchases for cash, Asian buyers.

6.  About 35% are REITS, buying straight from the lenders without listings.

7.  10% Move Up Buyers.

8.  Rest FHA, about 30%, 3.5% down, usually Hispanic buyers.

9.  Homes under 1900 sq ft are going for about $125 to $135 per sq foot, more than 20% above true market value, but going for that due to buyer bidding war for the properties, from lack of inventory.

10. Homes above 2300 sq ft generally going about $100 per sq ft.  Above 3000 sq ft, about $90 per ft.

11.  Investors buying homes no more than 1800 sq ft, and paying no more than $140k at the most. They try to keep purchase prices under $120k.

Does this sound like a healthy market? Or one that is recovering?  The media and realtors say so, but I don't believe them.
24  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: February 19, 2013, 01:41:59 PM

Thanks Doug.  Scott and I do have significant differences.


My guess on Housing Starts coming out.  

Adjusted Starts will be up by 10%, month over month, and 30% year over year.

Non Adjusted will be about 58k  total, and about 34k single family.  Just a WAG...............but we shall see.
25  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: February 19, 2013, 01:36:41 PM
Scott and I have our differences on the Housing Market.  In his comments, he states:

"Buyers are getting desperate. Inventory is low. Prices are moving up. A classic picture of a turnaround."

But with this comment, he ignores salient issues that have caused the above.  The simple truth is that the inventory is low because banks are deliberately withholding inventory from market, either by not foreclosing, or not listing foreclosed properties on the MLS.  Therefore, in most of CA, there is a one month inventory of homes for sale.  Of course this will drive up prices.  But this is not a turnaround. 

The problem is when you go inside the numbers and what you see.

a. The growth in Housing Starts is generally confined to multiple unit, not single family.  Multiple units are mostly apartments being built for renters who cannot afford anything else. In other words, investors who partake in housing construction see where the future is, and it is not single family.

b. Single Family Starts is misleading, especially when quoting the Seasonally Adjusted Numbers.  Single Family for 2012 was the 3rd worst since 1963, when records began to be kept.  And, 1963 had only 178m people in the US.  (Three of the 5 worst years have been since the crash.)

c.  Housing Starts are only occurring because of the reduced inventory available for sale.  If the banks were doing foreclosures, then there would be much more inventory and prices would be much less.

d.  There are over 6 million homes, delinquent or in foreclosure.  90% of the homes will eventually be foreclosed upon. They are only being delayed because of regulations from the Fed and States.  Also, banks do not want to foreclosure because the added inventory will drive home values down.

e.  52% of homeowners are in either Negative Equity or Near Negative Equity positions, or haven't enough equity to sell and purchase a new home as a move up buyer.  There is no Move Up Market to speak of, yet Move Up Buyers are the key to any recovery.

f.  If home values decrease, whether from more foreclosures, or higher interest rates, more Negative Equity situations occur.  When this happens, the more defaults than occur, especially as Negative Equity hits 125%.  At that point, more defaults occur which drives prices down, causing more defaults.  The "Housing Death Spiral".

g.  If you look at the areas where home values are increasing, it is because inventory is down to about 1 month supply. Yet, the numbers of homes in foreclosure in each area is extremely high. (Las Vegas, Phoenix, CA, and elsewhere.) Let the foreclosures begin again, and values will begin to drop.

h.  A large portion, over 30% are investors doing cash sales. In CA, from what I hear from realtors, up to 50% is money from China, and most of the rest is from REIT's.  Homeowner investors are taking out seconds on their property, or investment properties that they own, to buy.  (Surprise, surprise, surprise.)  This is not representative of a healthy market.

i.  The 25-35 age cohort simply does not have the income available to buy.  They are debt laden and cannot afford anything.  Homeownership rates in the cohort is dropping fast.

j.  The 35-45 cohort is in a similar position, except that the ones owning  homes haven't the equity or income to become Move Up buyers.

k.  The homeowners that bought investment properties in the Boom Years were generally in the 55-65 age cohort.  They are out of the market now, due to aging and equity issues.  The ones replacing them in the cohort were the 45-55 group that lost out big in the collapse.

l.  New family creation is stymied at about 600k per year.  This does not even cover total Starts, Single Family & Multi Unit, even if they could afford to buy.

m.  Immigration is about 800,000 legal per year.  Unless they bring money, they cannot afford to buy.

n.  Falling incomes and lack of jobs is creating less opportunity to buy, and more foreclosures.

o.  The new Qualified Residential Mortgage Rules coming out still require no more than 80% loan to value and no piggy back 2nds, increasing the loan to value.  If it is finally adopted in 2014, then that will preclude further buyers, unless they go FHA.  Of course, FHA is now underwater itself, and is experiencing 16.7% default rates.

p.  The Fed continues to buy $85 billion per month in mortgages, whether MBS ($40b) or New Originations, ($45b). Pull this out, and here comes the collapse.

q.  New laws like the CA Homeowner Bill of Rights only serves to delay foreclosures further.  In fact, it was solely because of lenders changing procedures for foreclosures and the drop in CA was so massive that it caused the slowdown across the country.  Soon, CA will become almost all Judicial Foreclosure, and go away from Non-Judicial Foreclosure. That is because the Bill of Rights states that for every violation in the foreclosure process, the "lender/foreclosure firm" will pay $7500 to the state.  And, if a foreclosure is concluded with defects, then the Homeowner has actual damages from $50k minimum up, whichever is greater.  (I can find flaws with most foreclosures.)  So, lenders will end up taking the foreclosures to court, instead of risking the fines.

I speak with very involved people who are active in the housing industry.  Many are doing Portfolio Risk evaluations, and one was the former Risk Officer for Freddie Mac.  Others are former Risk Officers of banks.  All say that the "recovery" is a joke, and is not to be believed.  Their time frames for an actual recovery, though at a slow rate, is from 10 to 15 years out.
26  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: January 17, 2013, 04:18:48 PM

I  have been waiting for you to yank my leash on this.............

Here is the link to the release

Here are key elements:

Total Starts are DOWN from Nov at 66,500 to Dec at 64,200, a drop of 2300 units.

Single Family DOWN from 40,100 to 36,400, a drop of 3700

The Northeast Region remained steady at 3300 for the second month in a row.  All other regions declined.

If you look close, Year over Year Seasonal Adjustments are quoted at 28%.  They don't quote Year over Year non seasonal.

Zerohedge had good charts showing what is going on.

Kinda get the idea that someone plays games with the numbers?

Meanwhile, Calculated Risk continues to play the cheerleader

And Scott Grannis carries the pom poms


And Scott Grannis carries the pom poms


It is actually rather amazing. I spent most of Tuesday in conversations with the head of a major Risk Management and Consulting Firm, heavily involved in the Housing Market.  Last week, the guy was in Vegas last week, having dinner with a top FHA official.  Both fully agree with my opinions on housing.

The FHA guy said that all housing programs now, like over the past decade have not been about realistic housing policies.  It is all political, influenced by the politicians in the White House and on Capital Hill.  The Agencies know what will eventually happen, but no one has the cajones to do anything realistic about it.

27  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: January 11, 2013, 01:43:56 PM

Of course, the Taxes/Ins is calculated into the 43%, so it does not really matter.

Let's assume a mortgage of $500k

Loan Amount of      $500,000
Interest Rate                 3.25
Monthly Payment      $2176
Taxes/Ins                 $600.00
Total Payment          $2776

Total Income to Qualify  $6200 per month
Take home per month  -  $4500

Disposable Income after Debt Service  $1824.  (Still, the homeowner would likely be negative cash flow.)

So the higher the income, the more likely that a homeowner will be able to pay.  Of course, as we all know, the higher the income and the more expensive the home, the greater the likelihood that the family will have far more expenses. 

(Expenses grow to take up excess disposable income.)

BTW, I used the $175k loan amount because it more closely reflects the average home values across the US.  One more reflection that first time buyers do not exist to pull the market out of the rut it is in.  Additionally, the constraints on move up buyers is just as pronounced.

28  Politics, Religion, Science, Culture and Humanities / Politics & Religion / New Mortgage Rules - Ability to Pay on: January 11, 2013, 10:07:16 AM
Yesterday, the Consumer Bank Finance Protection Bureau came out with its final rules on Ability to Pay.

The BFPB was set up to protect the Homeowner. Among its requirements would be the lender having a Fiduciary Duty to a borrower to determine the Ability to Repay a loan. For enforcement, the homeowner would have a Private Right of Action to sue the lender. Yesterday, we found out where that would go.

The new Debt Ratio Guidelines establishes a 43% maximum Debt Ratio for the Qualified Residential Mortgage. The income and other factors of the loan would have to be properly verified. If so, then by having a 43% or less Debt to Income, the lender has a Safe Harbor, whereby the homeowner has no Private Right of Action.

The 43% DTI is greater than what the GSE's and FHA are doing right now. The GSE's are at 36% and the FHA is at 41%. So in effect, the BFPB has given permission to the GSE's to increase their Debt Ratio allowances, to 43%. But it does not stop there.

The BFPB also stated that any loan, even above 43%, if bought by the GSE's would qualify for the Safe Harbor. So, the GSE's and FHA can go up to whatever Debt Ratio that they desire, and originating lenders would be protected from the Ability to Pay legal issues.

Note that at 41%, the FHA has a 16% delinquency rate at this time.  Where is the sense of 43%?

Let's take a loan of $175k.  Borrower is married with 2 kids in grade school.  Here is reality

Loan Amount of      $175,000
Interest Rate                 3.25
Monthly Payment      $761.61
Taxes/Ins                 $100.00
Total Payment          $861.61

Total Income to Qualify  $2000 per month
Take home per month  -  $1605

Disposable Income after Debt Service  $734

Pray tell how a family of 4 will live off $734 per month, especially since they have coming out of this

Household Goods
Other expenses

The US Census for 2010 found that for a family of 2.5 people, living expenses average $1905 per month.  How will these people make it at 43%

Now, what are the implications for lending in the future?

1.  The GSE's and FHA will buy all Qualified Loans since the lenders will have the Safe Harbor provision on Ability to Pay.
2.  Politicians will put pressure on the GSE's and FHA to up Debt Ratios because the housing market will not be growing enough.
3.  Loan not meeting GSE or Safe Harbor requirements, including Stated Income, Interest Only, higher Debt Ratios, will only have either Private Securitization or Hard Money lenders for financing.
4.  Private Securitization will only accept a few loans, the best, since there is no Safe Harbor.
5.  Hard Money will only take loans with 65% or less Loan to Value.

The bottom line is that contrary to what is being said regarding the end of the GSE's in another 7 years, it will not happen. The GSE's will only cement their control of the Mortgage Market, maintaining their control of market share. Politicians will respond to the problem by allowing the GSE's to remain in business.

FHA will continue to grow, especially since they will continue to offer 3.5% equity loans. Never mind that these loans will fail in increasing numbers.

Private lending will continue to suffer.

Nothing changes.............

29  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: House Flipping on: January 03, 2013, 12:30:50 PM
Here is one thing to consider:

We know that house flipping has returned with a vengence. Even FHA allows for flipping to occur. No more 3 or 6 month limits. 

One has to ask how many house flipping sales are occurring.  Doesn't this artificially inflate home sales?

30  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 28, 2012, 09:24:03 PM
Yet I have gone blue in the face arguing with Scott.  He believes that the housing market is recovering and no matter what I try to show otherwise, he does not accept it.

Of course, he does not believe that the Fed is creating money either, or is deliberately lowering interest rates.  For him, it is all supply and demand.  That is much to general of an argument for me.  I want to know why there is no demand.

31  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 28, 2012, 05:21:13 PM

That is a part of the reasoning, but there is more to it than that.  Imagine reducing people's house payment from 6% down to 3.25%.  Imagine the increase in disposable income in a homeowner's pocket.  That amounts to billions freed up. 

Also, another reason exists.  LTV's greater than 125% have a higher likelihood of default.  So the new action would be expected to reduce defaults to some degree. But, this assumes that people are interested in keeping their homes when they are severely underwater, and that a payment reduction would make a big difference in default likelihood.

For large numbers of homeowners who are in such negative equity positions, this may not the case.  Many are now recognizing that they will never be above water in their lifetimes.  At that point, why not go into default, walk away, and then re-buy a better home in 3-4 years, at a much better price than what they were paying on the old home.

The people who are receiving the HARP offers, whether GSE or Private currently, are making their payments.  Liquidity does not appear to be a problem for them.  Why would the Feds offer them a break, except to either free up additional disposable income, or stop the potential strategic defaults?

Even more disconcerting for me is that the GSE's will guarantee these loans.  It is further reason to believe that the GSE's are not going away.  And when the new Underwriting Guidelines come out next month, it will be a clear indication of what we can really expect with the GSE's.
32  Politics, Religion, Science, Culture and Humanities / Politics & Religion / RMBS Loans on: December 28, 2012, 04:00:21 PM
The government and CFPB is seriously considering taking Privately Securitized Mortgages and allowing those over 125% LTV to refinance through HARP into the GSE's.  For 5 years, the government would pay the difference between the new interest rate, currently about 3.25%, and what the previous rate was on each loan, usually above 6%.  After 5 years, this guarantee ends and the investor gets the new rate.

There are some things about this article that are "puzzling". 

1. If the GSE's are refinancing the loans, then why is the RMBS investors going to continue receiving both the new interest rate, and also the guarantee on the original rate?  If it is a refinance, then the RMBS no longer have the loans on their books. The loans have been retired.

2. Why will the RMBS continue to receive the new interest rate after 5 years? Again, the loan was retired.

3. If the RMBS is keeping the new loan, why are the GSE's guaranteeing the loans?  Why is the tax payer assuming all the risk on privately held mortgages?

It sounds like the government is almost turning the loans into modifications and not refinances, and guaranteeing the loans.

Again, I believe that Dodd Frank, the CFPB and the government is doing nothing more than trying to eliminate the Private Housing Market.

Government Refi Idea Gets Chilly Reception

The Treasury Department is considering a plan to expand the government's refinancing program to help borrowers whose loans aren't backed by the government, but the idea is getting a chilly reception from a mortgage investor group.

The Making Homes Affordable Refinance Program, initiated in 2009, has helped more than a million borrowers stay in their homes by modifying their loans, but it only applies to borrowers who have government-backed loans through Fannie Mae and Freddie Mac. The Obama administration would like to expand the program by transferring loans controlled by private investors to those two government-sponsored mortgage firms..

Under the proposal eligible borrowers must be severely underwater, with a loan to value ratio of 125 percent or higher and must be current with their payment. These borrowers would be given current market interest rates, replacing the 6 percent rates they've been unable to refinance out of (because they don't have any equity in the home) and giving them a lower overall monthly payment. The Treasury Department, probably with leftover TARP funds, would pay investors the difference between the old interest rate and the new for five years.

But the American Securitization Forum, which represents investors in residential mortgage backed securities, is balking at the idea, arguing that while underwater borrowers are at greater risk for default it's not clear reducing their monthly payment will change that. It figures $120 billion worth of loan principal would qualify. Taxpayers would kick in $11.5 billion to make up for the reduced interest payments for the first five years and investors would subsequently lose $9.7 billion for the following years.

"The key question from the policy side for both investors and taxpayers is would providing this reduction in monthly interest payments provide any benefit either to the investors or to the public at large by reducing foreclosures? Our answer is we don't think it will appreciably reduce people walking away from their homes," said Tom Deutsch, executive director of ASF.

Investors have been unwilling to reduce interest amountswithout reducing the risk of default. "If they are getting a 6percent interest now, why would they want to turn that into a 3.5 percentif the borrower would still pay the 6%. It would seem wholly irrational toreduce their interest rate if it's not likely to prevent a walk-away borroweror a foreclosure," said Deutsch.

The latest proposal, first reported by the Wall StreetJournal, emerged as part of the "fiscal cliff" negotiations.

Home prices appear to be making a steady recovery, with the latest S&P Case Shiller report showing a 4.3% annual price increase in October on the 20-city composite. A survey of economists by Zillow expects home prices to keep moving up, with expectations for prices to rise 3.1 percent in 2013. But prices are still 30 percent off their June 2006 peak for the 20-city composite. And it's worse in areas hard-hit by the bust. While Phoenix has been a roll for the last year, with prices up 22 percent, prices are still 47 percent below the peak.

Even with higher prices nearly 11 million borrowers still owe more on their mortgage than their home is worth, according to real estate researcher CoreLogic. Many believe it's those homeowners and those with near-negative equity, borrowers who have some equity, but not enough to afford a move, that will keep the housing market from returning to something close to a normal market.
33  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 27, 2012, 11:17:37 PM
Yeah, I know........and such easy targets.

BTW, for all.............

Jan 21, the Consumer Finance Protection Bureau is coming out with the new Residential Lending Guidelines for GSE loans.  The guidelines will set the "standard" for new lending with what the GSE's will buy.  It will also detail future restrictions on lending and lenders financial "duties" to borrowers.

The CFPB has been considering a few major changes that have been hotly contested.  They are

1. Debt Ratios of 31% for housing and 36% total for GSE loans
2. Loan to Value of 80% or less
3. No simultaneous 2nd mortgage piggy backs
4. No FICO scores used.  Only recent history to include no 60 day mortgage lates in the last two years.
5. Loans not sold to the GSE's requiring the lender to keep a 5% minimum partial interest in the loan.
6. A "Safe Harbor" provision whereby loans meeting the GSE requirements would not allow the borrower to have legal recourse against the GSE's except for TILA/RESPA violations.
7. A method for reducing and then eliminating the GSE's.

The American Securitization Forum and other entities have been trying to work with the CFPB and other groups to develop the new guidelines.  These different groups have felt that the CFPB has been acting in good faith developing the new guidelines. I have been trying to tell the ASF that they are being set up.

The new regulations will do the following.

1. It will reinforce the GSE's position by making them the lender of first resort. Lenders will go to them for the Safe Harbor provision.  The GSE's will cream the best of the loans, those having little risk.

2. It will not restart securitization.  Enough lenders will not exist with the ability to absorb the 5% interest retention.  Mortgage bankers will cease to exist. Only banks will be able to lend for securitization, and they will be reluctant to accept the 5% risk retention.

3. Non GSE loans will not have the Safe Harbor provision. All such loans will have the lender having a Fiduciary Duty to the borrower for ability to repay the loan.  (I have already developed the analysis to show that a borrower could or could not afford the loan. With this, I could either show the Duty has been met, or I could provide the homeowner with the ability to file a legitimate lawsuit against the lender for a Duty violation. I am just waiting for things to happen.)

This whole thing is simply another power grab by the GSE's to maintain their position in the marketplace without fear of risk. They get the best loans, and with a provision that they cannot be sued when things go bad. 

When the new regs come out, I will be doing a complete analysis for a couple of websites. I will also post here.

The idiots
34  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 27, 2012, 05:41:38 PM
Yeah, yeah, yeah..........Wesbury again spouting off.

Hey Wesbury!  Why don't you admit that Sales are on an Annual Basis rate of $363k for the year.  This would be an increase over last year of 18%......Wow!!!!!

The Fed started keeping stats on New Home Sales in 1963, when the population of the US was in the 160's million.

2012 will be the 3rd Worst Year since the stats began............only 2011 and 2010 were worse. 

I don't think I want him for an advisor.

BTW, had a long talk this afternoon with a guy who has a company that does Portfolio Risk Analysis for the big banks.  His partner used to be head of Risk Analysis in Bank of Canada, has done the same for the GSE's, and other US banks.  His perspective is as mine.................everything sucks until we get Securitization of loans back on track, and lenders and investors know what they are buying.

Interesting possibilities for me with this call......................
35  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 27, 2012, 10:43:48 AM

You are absolutely correct about people wanting a new home over re-sales. And this is especially true with any move up buyer.  Why purchase a re-sale when you can get/order a new construction home with all the extras that you desire, and you get to landscape a yard as you desire.  Additionally, you do not have the problems of repairs needed in re-sales.

The first time buyers of new construction will be the ones to really be concerned with.  A first time buyer has no true knowledge of the costs of home ownership. As they buy new construction homes, after closing, they must put  in back yards, furnish and model the rooms, generally buy additional appliances, and who knows what else.  The result is that most of this is done by use of more credit.  Quickly, the homeowner  becomes over extended, and runs into financial stress.  (For first time buyers, re-sales are much more favorable to maintaining a better financial situation, since the work has already been done previously.)

One thing we saw quite often, actually commonplace, were new construction homes being foreclosed upon without having the normal needed upgrades, especially yards, drapery, etc.  The first time buyers could not afford the upgrades, and never did them, unless the home value went up and they refinanced, pulling cash out to pay off debt, and do the needed work.  Of course, this only increased their debt load.  (Hmmm, one more factor I need to include in my Default Risk Analysis.)

One final is VERY common to see after buying a home, for the new homeowner to go out and buy a new car.  This is because they were advised to hold off purchasing a car until after the home closed, otherwise they would not qualify due to debt ratios.  But the second the loan closed, they were out buying a car.

36  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 24, 2012, 10:24:36 AM
The has not been as much publicity on Nov Single Family Housing Starts, and here is why.

Non Seasonally Adjusted Housing Starts were DOWN from Oct.  They were:

Oct 2012   -   50,300
Nov 2012  -    40,000

A drop of 12,600 units

The Northeast fell        400
The South fell           3,500
The Midwest fell        3,200
The West fell            3,100

All total, Single Family is up 97,300 for the year to date.  Total to date is 496,900.
I expect that Dec will show about 38,000 Single Family Starts.

The drop is exactly as expected. The winter always sees drops in activity.  Dec should be even worse.

To put it in perspective,  (Sorry that dates did not show up, but it begins in 1960

The chart shows total housing start data since 1960.  When you consider that population of the US at various  times, you can really understand how bad housing is.
37  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 19, 2012, 04:58:57 PM
Speed up the demise......................

Like wives and step sons?   LOL?  That is me.

Guess I should say something about the latest Housing Starts numbers.
38  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Reverse mortgages on: December 19, 2012, 10:12:28 AM
The Reverse Mortgage is a unique product, to say the least.  Homeowners 65 or over are allowed to take equity out of the home monthly, based upon the equity in the home.

Generally, to get an RM, one had to have sufficient equity in the home.  No more than a 65% Loan to Value was allowed, if I remember correctly.  Payments were based upon the equity, and upon the homeowner living to age 95.  It was thought that this would protect the lender in the event of default.

The "suspect" loans were the loans taken out from 2004 through 2007, while home values were still inflated.  When values fell, the Loan to Values were now 100%, but the homeowner was still able to take the money monthly. So these homes continue to go even more and more Negative Equity, each and every month that the homeowner still lives.

FHA and other reverse lenders cannot determine losses because they have no idea how long the homeowners are going to live. Some who die "quickly", the losses will be small.  Those who die slowly, the losses will be quite severe.

To give you an example of how bad it is, I know one person who took out an RM at the peak.  His home was valued at $550k, and he was 75 at the time.  The loan was based upon $357k, at 65% loan to value.  His home is now worth about $170k, a drop of $380k.  

If this guy lives to 95, the losses are going to be incredible on this loan.
39  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 10, 2012, 11:36:34 AM
These type of actions are becoming more prevalent as time goes by.

I was contacted last month by a law firm representing investors going after the lender.  The law firm is preparing a lawsuit, but has problems in that they do not have enough information regarding the actual loans.  They only have Trust information about loan performance and basic loan level information.  They believe that at this stage, they need more than what they have, but until the lawsuit survives the "dismissal stage", they cannot get access to the loan files.

Most analytic companies can do some work from the available information, primarily reporting the basic numbers and percentages of the loans in default.  But that is generally all that they can do at this stage.

I can go much further, with my loan default analysis, taking the available information and using a predictive model that shows why each loan defaulted among other issues. This would allow for discovery which would end up with the actual loan files being provided for analysis.

If the firm retains me, I can finally put everything I know together in one "package", and really become the "key" to these type suits going forward.
40  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 07, 2012, 11:04:15 AM
File this in the "I know there is a pony in there" when a child sees a pile of horsesh*t file.

First-time homebuyer demographic finds more employment

First-time homebuyers have played only a small part in the nation's housing recovery, with investors and cash buyers doing a lot of the buying in key real estate markets.

But Trulia's chief economist Jed Kolko is more positive about this age group. He sees them turning a corner on the jobs front, which is the first step towards growing homeownership numbers.

He notes the month of November brought forth more solid numbers on the jobs front, especially among the 25-to-34 year old age demographic. With this demographic generally in the prime age group for first-time home buying, Kolko is decidedly more optimistic about what this age group may do for the housing market in the coming years.

"The good news: among 25-34 year-olds, the prime age group for housing demand, 75.2% were employed in November, up from 75.1% in October and from 73.9% in November 2011," Kolko wrote.

The unemployment rate for this age group sat at 7.9% in November, which is high, but down from 9.2% a year earlier.

The student debt situation and employment numbers have weighed heavily on this group, keeping them from homeownership. But Kolko's assessment on Friday is more hopeful.

Will first-time homebuyers make a come back in the next few years? That's the looming question as we steer timidly into 2013.

My comments:

What type of jobs are they getting?  How are they going to purchase a home when all their income will go to meeting living expenses and paying off student debt?  Where is the Down Payment going to come from?

Oh.......FHA............yeah, right...........
41  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 07, 2012, 10:52:29 AM
For housing to recover, demographics plays a crucial role as I have tried to demonstrate.  Here is an article from Business Insider, presenting a chart that tells it all.

CITI'S MATT KING PRESENTS: 'The Most Depressing Slide I've Ever Created'

Citi's Global Head of Credit Strategy, Matt King, has a knack for putting together useful illustrations.

Here, he examines one of the implications of one of the most powerful forces in all of economics: demographics.

King explained his charts to us like this:

It's what I like to call "the most depressing slide I've ever created." In almost every country you look at, the peak in real estate prices has coincided – give or take literally a couple of years – with the peak in the inverse dependency ratio (the proportion of population of working age relative to old and young).

In the past, we all levered up, bought a big house, enjoyed capital gains tax-free, lived in the thing, and then, when the kids grew up and left home, we sold it to someone in our children's generation. Unfortunately, that doesn't work so well when there start to be more pensioners than workers.

The slide:

If this chart is anywhere accurate, then it is simply more evidence of what is to come.
42  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 05, 2012, 11:48:23 AM
Here is the chart I was referencing..........

43  Politics, Religion, Science, Culture and Humanities / Politics & Religion / October 2012 Foreclosure Starts Down 21.9% from Sep 2012 on: December 05, 2012, 10:13:04 AM
Foreclosure Starts are down for both the month, and Year over Year.  Expect some to claim how things are improving.  However, as the article suggests, there are reasons for the drop.

The National Mortgage Settlement (Feb 2012) and the OCC Consent Decree (Apr 2011) have severely reduced foreclosures over the past 18 months. Those in the business began to see significant drops in May 2011, with the Consent Decree.  With the Settlement, it was expected that further drops would occur.

The Settlement requires that when a homeowner misses a payment, the lender must contact the borrower, or attempt to contact the borrower, about foreclosure alternatives. Only after a period of time, usually 14 days to 1 month, can the loan be sent for foreclosure.  (The 14 days to 1 month time frame varies due to different state statutes that might require longer periods of time.) If a borrower responds to the lender contact, all foreclosure processing stops until a modification review is done. This can take from a minimum of three months, to literally a year or more, dependent upon whether the borrower provides additional information quickly or appeals any mod denial.  (I am looking at one that has been ongoing since Jun 2010 and still no decision.) Only when a final decision is reached, and no more appeals allowed, can a lender foreclosure. So, it is easy to see why foreclosure starts are down, and will continue to be so for about 3-6 months.

What is really important to note in the chart is the repeat starts. Repeat starts are generally about 15% to 20% of the total number.  These are modifications that have failed.  The borrowers will have another attempt to modify, so these will not go immediately to a true foreclosure. But, almost all will end up in foreclosure.

LPS: Foreclosure starts drop 21.9% on mortgage servicing settlement

The National Mortgage Settlement and provisions it outlined for mortgage servicers may have accounted for a steep 21.9% drop in foreclosure starts in October, according to Lender Processing Services' Mortgage Monitor.

Year-over-year, October's foreclosure starts were even lower, down 47.8% from the same month in 2011.

While it may be tempting to attribute the drop in starts to an improving housing market, LPS warns not to jump to conclusions about the decline in foreclosure starts.

The data firm attributes the steep drop to servicing changes outlined by the $25 billion mortgage-servicing settlement that took effect around the month of September. One of those changes was a requirement that servicers give borrowers a 14-day notice in writing before referring a loan to foreclosure. Those letters were first mailed in September and the steep drop in foreclosure starts came soon after, according to LPS.

With that in mind, LPS suggests the quick drop in foreclosure starts may be a temporary trend that is subject to change.

At the same time, prices are going up nationwide, with prices up 3.6% year-over-year in September and on track to gain 5% to 7% this year alone.

Still, the housing market is far from recovery, LPS points out. In fact, by the firm's own estimations, the market is now churning sales at half the pace established during the peak of the housing market.

There have been about 4.1 million sales over the past 12 months, compared to 8.2 million in the fall of 2005, LPS said. Furthermore, about a third of the sales in the past 12 months, approximately 1.3 million, were considered distressed. That is well above the 226,000 sales recorded in 2005.  And prices, while improving, are still 23% below peak levels, according to LPS.

But LPS sees its latest mortgage monitor as somewhat of a mixed bag, with prepayment rates showing a possible rise in October originations and mortgage bond spreads performing better.

The percentage of delinquent mortgages in the U.S. hit 7.03% in October. The states with the highest percentage of non-current loans include Florida, Mississippi, New Jersey, Nevada and New York.

Those with the lowest percentage of non-current loans were Montana, Wyoming, South Dakota, Alaska and North Dakota.
44  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: December 03, 2012, 03:30:29 PM
I try.................

Have some  new info on the Baby Boomer cohort and their Property Investment behavior to post.  It does not offer support for a Housing Recovery.

Plus, more data on First Time Home Buyers.  I really believe that truly qualified First Time buyers are now a rarity, if we eliminate FHA buyers.
45  Politics, Religion, Science, Culture and Humanities / Politics & Religion / FHA on: December 03, 2012, 10:52:27 AM
Regarding the FHA article

1.  Gretchen Morgenson has made a name for herself with the foreclosure crisis.  But, she is a poor "researcher" when it comes to her articles or books.  She makes fundamental errors in reporting that calls into question anything she does.  For example, in one book she wrote which was a Times Best Seller, she writes that the GSE's were doing subprime mortgages as early as 1993.  This was completely false.  That one statement alone was significant to call into question all else that she wrote.

2.  Morgenson has spoken with FHA people, and ones associated with FHA, for their views and comments.  Of course, each are optimistic that with higher FHA standards, loans after 2010 will not default.  She does not speak with others who really have different perspectives, instead of which she simply expresses "doubts".  Here is what she has "missed".

-  Early payment defaults are mentioned as "improved".  It is not mentioned as to whether the Early Payment Defaults are on loans that default within 2 - 3 months of origination, or within the first year.  This distinction is important, in that tightened standards should reduce EPD.  But over the long term, it will not affect loan performance.

-   Loan to Value of 96.5% is paid lip service.  At 96.5%, there is a 16% default rate alone. Yet, FHA continues to use these guidelines.

-   Debt to Income Ratios of 41%.  The GSEs have lower default rates in the 3's at 36%.  Yet FHA continues with 41%.  What happens to FHA as income is further degraded?

-   FHA is generally first time buyers.  This poses a far greater risk because these types do not know the true costs of home ownership.

-   FHA brags about the performance at the higher loan amounts of $729k.  Of course this should be expected.  The higher the income, the more the disposable income at 41% debt ratios.  Performance should be better.

3.  Morgenson does not even mention the FHA Study by Andrew Caplin, in conjunction with the NY Fed.  This report was done using data from literally hundreds of thousands of FHA loans. The conclusion was that 30% of these loans will default within 5 years.  (I agree fully with what I have seen and researched.)

Morgenson's article is like washing one window on the Empire State Building at the ground floor. You can see better from that window, but you really have no idea what is around you, or above you.
46  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Comments on the "Widow" on: December 03, 2012, 10:17:46 AM

The problems of surviving spouses as mentioned in the article is a common problem across the US.  But, as with anything housing related, one must look further into the issues presents.

When I read that only the husband was in on title in one case, this indicated that other problems existed not mentioned. When a spouse was omitted from the loan, but kept on the title, this indicated that there would usually be a problem with the spouse, either extensive debt that by not showing her on the loan, would "hide" the debt, or else that credit scores were very low, and would result in a loan denial.  To get around this problem, the spouse would be left off the loan.

This option would work fine, until a death occurred. Then, by the requirements of the original Deed of Trust, anyone assuming the loan (the surviving spouse) would have to requalify. Of course, she could not do so, and then would come foreclosure.  (This also applies to loan modifications.) 

Servicers under different disclosure laws, would not be able to speak to the surviving spouse about the loan, since she was not on it. The only way that this problem would not exist is if the servicer had received an authorization from the borrower prior to death, to speak with the spouse.

In the "real world", the loan should never have been granted, and the couple forced to sell the home, and take the profit, rather than be in a home that they could not truly afford.  (Yes, if the spouse had to be omitted, then the loan should not have been granted.  Likely, for approval, it was also a stated income loan.)

What we see is a "legal trap", created by bad lending practices, and compounded by legal issues.

We see the same issues as above with Reverse Mortgages.  On an RM, if only one of the two parties were 65 or older, then only the older could be on the RM.  The under 65 person was left off.  If the older dies before the younger turns 65, then under the terms of the RM, the RM must be paid off, or the home sold.  Only if the younger has turned 65 can another RM be obtained to solve the problem, if enough equity exists in the home.

Always looke behind the story to find the rest of the story.
47  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Oct Pending Home Sales on: November 29, 2012, 11:18:25 AM
Today, you will be hearing about Oct Pending Sales Index up by 5.04%.  This means nothing to me.

Pending Sales come from NAR data. It covers signed and accepted Sales offers.  The loans must still close at some point.

Dependent upon the source used, from 48% to 60% of all Pending Sales do not close at this time. Either the borrower cannot qualify in the end, or the Appraisal comes in too low and nixes the deal.  And if it is a Short Sale, then the lender or investor must approve the deal, and this failure rate is far above 60%. (How many of the Pending Sales were the result of prior sales falling through, we do not know.  Would be very interesting if someone kept track of the data.)

Mortgage Banker Association reports that Purchase Application are up, and Refinance Applications are down. Purchase Applications would be the result of the Pending Sales increase, but Refinance Applications are now driven solely by either Interest Rates, or Negative Equity refinancing into HARP.

Here is an interesting tidbit for all:

Ellie Mae is a Loan Processing Engine. Information about the proposed loan is uploaded for further processing, etc.  Ellie Mae handles 20% of the entire lending market, so they have a representative sample of loans that can shed light on the quality of loan applicants.  Here is some relevant information on borrowers.


                  Sep 2012   Aug 2012        June 2012    March 2012

Closed Loans

Refinance            65%       61%         54%       61%
Purchase            35%       39%         46%       39%


FHA                    19%       21%         23%       28%
Conventional        72%       70%         67%       64%


                          Closed First                 Denied Loans
(All Types)

FICO Score (FICO)            750                        704
Loan-to-Value (LTV)            78                         88
Debt-to-Income (DTI)            23/34               27/44

Closed Loans     
                             Sep-12       Aug-12


FICO                            716           717 
LTV                               89            89 
DTI                           25/38       25/38 


FICO                             701         700 
LTV                                95          96
DTI                           27/40       27/41

Denied Applications

                                 Sep-12    Aug-12

FICO                             670           671
LTV                                89            88
DTI                            28/45       28/43


FICO                              665          670
LTV                                 95            95
DTI                             31/47       31/47

Conventional Closed Loans

                              Sep-12        Aug-12

FICO                            767            769
LTV                               70              70
DTI                           22/32         22/31


FICO                             762           763 
LTV                                79             79
DTI                            21/33        21/33 

Denied Applications

                                Sep-12       Aug-12

FICO                              723            727
LTV                                 87             87
DTI                             26/43         27/42 


FICO                               729            734
LTV                                  81              81
DTI                              24/43         25/42

Realtors, Brokers, and the media are all complaining about the tightened lending standards since the Crisis began.  This information provides a good perspective of how much lending standards have tightened.  Though these are averages, we can conclude the following:

For Conventional Loans

1.  Lenders have tightened up on FICO Scores.  Unless you have a large amount of a Down Payment or Equity, do not bother if your FICO is under 700. 

2.  Loan to Value is playing a large role again. LTV's over 85% will be extremely difficult to get approved.  It will depend upon whether you can get PMI coverage.

3.  The real key to approval is the Debt Ratio. Lenders are looking for 36% or less.  No more 45% and above allowed.

For FHA loans

The differences between FHA and Conventional are stark, at the very least.

1.  FHA will allow Debt Ratios up to 41%.  This is regularly approved.  At 38% being the average, it is far greater than the 31% for Conventional loans.

2.  95% LTV average, with 96.5% being commonly approved, far  above conventional as well.

3.  FICO of 700 average, with many loans down to 680 with equity present and lower Debt Ratios.

Looking at the differences in approvals, it is clearly evident why FHA has a current default rate of 16% plus, and is projected to reach 30%.  Yet, the GSEs are under 5% generally.

The government has turned FHA into the GSE subprime. Loans that would have been approved 5 years ago by the GSEs, but would be denied today, are the loans being approved by FHA.  Are these loans "credit worthy"?  When you look at the approval parameters, especially DTI, then it is clearly evident that large numbers of these loans are not "credit worthy" and will default in the next 2-3 years.


48  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: November 28, 2012, 04:58:56 PM
Just to add more fuel to the fire:

If you go to this website, you will find Housing Sales data going back to 1963 on a Monthly Basis.  It provides Adjusted and Non Adjusted Sales.

The data really shows just how bad the New Home Sales really are.  Through most of the 2000's up to 2007, total units sold were over 1m.  Even in 1963, Adjusted Sales Monthly were in the 500's most months.  And, this is with a US population base of  189m. 

In fact, if you look at all the data, the two worst years for Housing Starts ever recorded was 2010 and 2011.  2012 is the 3rd worst on record.

How can anyone be optimistic about a few monthly increases?

49  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: November 28, 2012, 10:20:54 AM
Just to predict, Westbury  will say that all is well.


1.  Sep 2012 new home sales were revised down by 20k to an annual rate of 369k, and not 389k as previously reported.  Oct 2012 reported 368k, and expect that this number will be revised down in the Dec report.

2.  Actual Oct 2012 Home Sales, not adjusted, was.....................(drum roll).........................29k. (Sep 2012 was actually 29k as well.)  Multiple 29k by 12 and you have total yearly sales, unadjusted, of 348k.  (See why I hate Adjusted Totals?)

3.  Both the median and average new home price ($237,700 and $278,900) were at the lowest values since June.

4.  The South had about 50% of all sales, at 14k.  The Midwest was 5k, West at 9k, and the Northeast at 2k.

Where is the Housing Recovery?  Am I blind?  I can't see it!!!!

50  Politics, Religion, Science, Culture and Humanities / Politics & Religion / Re: Housing/Mortgage/Real Estate on: November 28, 2012, 09:39:28 AM
Waiting for CD to post the new Wesbury on Oct Home will be interesting to see what the Kool-Aid Drinker has to say..........
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