by Calculated Risk on 4/13/2012 05:29:00 PM

Economist Tom Lawler wrote today: "Incoming data point to a YOY increase in the NAR’s Median Existing Home Sales Price of about 3% in March."

CR: Of course the median price is impacted by the mix, and the increase in the median is probably due to fewer foreclosures at the low end. Tom will probably send me a projection for March existing home sales early next week.

Tom also sent me an update to the following table for several distressed areas. For all of the areas, the share of distressed sales is down from March 2011, the share of short sales has mostly increased and the share of foreclosure sales are down - and down significantly in some areas.

Note: The table is a percentage of total sales.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Mar	11-Mar	12-Mar	11-Mar	12-Mar	11-Mar
Las Vegas	26.6%	23.6%	40.7%	47.6%	67.3%	71.2%
Reno	34.0%	30.0%	32.0%	41.0%	66.0%	71.0%
Phoenix	25.7%	19.1%	21.1%	46.2%	46.7%	65.3%
Sacramento	29.0%	22.3%	30.7%	48.4%	59.7%	70.7%
Minneapolis	12.4%	12.8%	36.8%	45.9%	49.2%	58.7%
Mid-Atlantic (MRIS)	13.2%	13.1%	14.7%	26.3%	27.9%	39.5%

by Calculated Risk on 4/13/2012 03:08:00 PM

Earlier this week, Zach Carter at the HuffPo wrote: Bank Of America Sues Itself In Unusual Foreclosure Case (ht T. Stone)

Over the past two years, the nation's largest banks and the Obama administration have repeatedly vowed to clean up the foreclosure fraud mess. ... But in Florida's Palm Beach County alone, Bank of America has sued itself for foreclosure 11 times since late March, according to foreclosure fraud activist Lynn Szymoniak, who forwarded one such foreclosure filing, dated March 29, 2012, to The Huffington Post.

This sounds like BofA is making a mistake. Nope.

From the article:

"We are servicing the first mortgage on behalf of an investor and we own the second mortgage," Bank of America spokeswoman Jumana Bauwens told HuffPost. "Naming the second-lien holder in the suit is necessary to eliminate the junior interest," Bauwens said.

Correct.

With a little digging (credit: reader Z dug up the supporting documents, and sent me the following bullet points and more), here are a few details:
• April 28, 2005: property purchased for $210,000 with a BofA purchase mortgage for $192,691.20
• September 29, 2006: BofA second-lien home-equity line-of-credit mortgage for $75,000
• May 27, 2010: condo association lien for delinquent 2010 condo fees ($8,185)
• June 30, 2011: condo association lien for delinquent 2011 condo fees ($9,699)
• March 29, 2012: BofA files lis pendens on the first-lien purchase mortgage and names defendants including, in order, the borrowers, BofA (itself), the condo association, and any tenants (#1-4) that may be present

Here is the BofA filing in Palm Beach, Florida.

There are two reasons this is OK. First, as anyone who read the excellent overview "US mortgage and foreclosure law" by Kimball and Willen, at The New Palgrave Dictionary of Economics, the top priority for BofA as servicer of the first lien is to clear title. Suing the other lien holders is part of the judicial process in Florida. If BofA owned both loans, they could probably avoid suing themselves, but clearing title is priority one - so who cares.

Second, in this specific case, it appears the purchase loan was placed in an MBS and BofA is now only the servicer of the loan. (The BofA spokeswoman said "We are servicing the first mortgage on behalf of an investor and we own the second mortgage"). As the servicer, BofA has a legal obligation to the MBS investors. In this specific case, to clear the publicly recorded second lien that BofA owns, BofA, as servicer of the first lien, is obligated to sue BofA, as holder of the second, to clear title.

This is not evidence of "robo foreclosure" or anything remotely close. Yawn.

by Calculated Risk on 4/13/2012 01:20:00 PM

Note: Bernanke didn't discuss current monetary policy.

From Fed Chairman Ben Bernanke: "Some Reflections on the Crisis and the Policy Response"

On the originate-to-distribute model:

Private-sector risk management also failed to keep up with financial innovation in many cases. An important example is the extension of the traditional originate-to-distribute business model to encompass increasingly complex securitized credit products, with wholesale market funding playing a key role. In general, the originate-to-distribute model breaks down the process of credit extension into components or stages--from origination to financing and to the postfinancing monitoring of the borrower's ability to repay--in a manner reminiscent of how manufacturers distribute the stages of production across firms and locations. This general approach has been used in various forms for many years and can produce significant benefits, including lower credit costs and increased access of consumers and small and medium-sized businesses to capital markets. However, the expanded use of this model to finance subprime mortgages through securitization was mismanaged at several points, including the initial underwriting, which deteriorated markedly, in part because of incentive schemes that effectively rewarded originators for the quantity rather than the quality of the mortgages extended. Loans were then packaged into securities that proved complex, opaque, and unwieldy; for example, when defaults became widespread, the legal agreements underlying the securitizations made reasonable modifications of troubled mortgages difficult. Rating agencies' ratings of asset-backed securities were revealed to be subject to conflicts of interest and faulty models. At the end of the chain were investors who often relied mainly on ratings and did not make distinctions among AAA-rated securities. Even if the ultimate investors wanted to do their own credit analysis, the information needed to do so was often difficult or impossible to obtain.

CR Note: This wasn't just for subprime. Even worse were the Alt-A loans! Also I don't think Bernanke spent enough time on the failure of regulators to recognize the very loose lending.

I think the housing bubble (and subsequent bust) can be understood very well by looking at each step of originate-to-distribute model, and also at the willful lack of regulatory oversight. Bernanke suggests housing was just the trigger, but if the regulators couldn't see that loaning people 100+ LTV, with stated income, and a low teaser rate would end poorly, then there was no way they could see the systemic risk!

Bernanke concludes:

The financial crisis of 2007-09 was difficult to anticipate for two reasons: First, financial panics, being to a significant extent self-fulfilling crises of confidence, are inherently difficult to foresee. Second, although the crisis bore some resemblance at a conceptual level to the panics known to Bagehot, it occurred in a rather different institutional context and was propagated and amplified by a number of vulnerabilities that had developed outside the traditional banking sector. Once identified, however, the panic could be addressed to a significant extent using classic tools, including backstop liquidity provision by central banks, both here and abroad.

I disagree that the crisis "was difficult to anticipate". I think the potential for the housing bust to lead to a financial crisis was fairly obvious (I first mentioned the possibility of a financial crisis as a result of the then coming housing bust in 2005).

by Calculated Risk on 4/13/2012 11:54:00 AM

Earlier today the BLS reported:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in March on a seasonally adjusted basis ... The index for all items less food and energy rose 0.2 percent in March

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.2% annualized rate) in March. The 16% trimmed-mean Consumer Price Index increased 0.2% (2.7% annualized rate) during the month.
...
Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers increased 0.3% (3.5% annualized rate) in March. The CPI less food and energy increased 0.2% (2.8% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for March here.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.4%, the trimmed-mean CPI rose 2.4%, and core CPI rose 2.3%. Core PCE is for February and increased 1.9% year-over-year.

These measures show inflation on a year-over-year basis is mostly still above the Fed's 2% target.

by Calculated Risk on 4/13/2012 09:55:00 AM

Click on graph for larger image.

The preliminary Reuters / University of Michigan consumer sentiment index for April declined slightly to 75.7, down from the final March reading of 76.2.

This was below the consensus forecast of 76.2. Overall sentiment is still fairly weak - probably due to a combination of the high unemployment rate, high gasoline prices and sluggish economy - however sentiment has rebounded from the decline last summer and is up from 69.8 in April 2011.

by Calculated Risk on 4/13/2012 08:33:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in March on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment.
...
The gasoline index continued to rise, more than offsetting a decline in the household energy index and leading to a 0.9 percent increase in the energy index. The food index rose 0.2 percent as the index for meats, poultry, fish, and eggs increased notably.

The index for all items less food and energy rose 0.2 percent in March after increasing 0.1 percent in February.

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was at the consensus forecast of a 0.3% increase in CPI and a 0.2% increase in core CPI.

by Calculated Risk on 4/12/2012 08:52:00 PM

From Freddie Mac: 15-Year Fixed-Rate Mortgage Hits New All-Time Record Low

Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates declining for the third consecutive week ... The 30-year fixed averaged just above its record low while the 15-year fixed averaged a new all-time record low of 3.11 percent breaking its previous low of 3.13 percent on March 8, 2012.
...
30-year fixed-rate mortgage (FRM) averaged 3.88 percent with an average 0.7 point for the week ending April 12, 2012, down from last week when it averaged 3.98 percent. Last year at this time, the 30-year FRM averaged 4.91 percent.

Click on graph for larger image.

This graph shows the 15 and 30 year fixed rates from the Freddie Mac survey. The Primary Mortgage Market Survey® started in 1971 (15 year in 1991).

This reminds me: I had an 11% assumable mortgage on a house I was selling in the early '80s, and the "low" mortgage rate was a strong selling feature!

by Calculated Risk on 4/12/2012 04:01:00 PM

This is from real estate analyst G.U. Krueger in the O.C. Register: Analyst: Rent hikes turning renters into buyers

USC’s 2012 Casden Multifamily Forecast predicts two more golden years of apartment Southern California rent growth. The sky seems to be the limit for ecstatic landlords right now.

However, emphatic landlords raising rents with gusto could tip the cost of housing in favor of ownership while at the same time a supply response (more construction) could keep vacancy rates from dropping much further.
...
The “witching hour” for apartment rents may not be far off. The relative cost between rentals and ownership advances in favor of home purchases.

Click on graph for larger image.

CR: The price-to-rent ratio is close to normal (see: Real House Prices and Price-to-Rent Ratio decline to late '90s Levels )

As G.U. notes, rising rents and falling house prices will eventually tip the balance back to ownership.

by Calculated Risk on 4/12/2012 01:21:00 PM

I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

So far there has been a shift from REO to short sales, and the percentage of distressed sales has been declining year-over-year. This data would suggest improvement, however we do not know the impact of the mortgage settlement yet (the court signed off on the agreement last week).

In March 2012, 59.6% of all resales (single family homes and condos) were distressed sales. This was down from 70.7% in March 2011, and the lowest percentage of distressed sales since Sacramento started breaking out the data in May 2008. Still almost 60% distressed is extremely high!

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales. There is a seasonal pattern for conventional sales (stronger in the spring and summer), and distressed sales happen all year - so the percentage of distressed sales decreases every summer and the increases in the fall and winter.

There will be probably be more foreclosures following the mortgage servicer settlement, but this is still a sharp increase in conventional sales. In another change, short sales are almost at the same level as REOs.

Total sales were down 2.9% compared to March 2011, but conventional sales were up 34% year-over-year. Active Listing Inventory declined 59.5% from last March, and total inventory, including "short sale contingent", was off 31% year-over-year.

Cash buyers accounted for 32.0% of all sales (frequently investors), and median prices were unchanged from last March (mean prices were up 2.8%).

I've been hoping this data would help determine when the market is improving. Unfortunately the mortgage settlement is a big unknown. Otherwise this would be considered progress, although the market is still in distress.

A few key points:
• Inventory is off sharply year-over-year even including "short sale contingent" listings.
• Conventional sales are up sharply (up 34% from March 2011).
• The median sales price is unchanged from last year (probably because of fewer REOs), and the mean price is up 2.8%.
• This is the lowest percentage of distressed sales since the Sacramento Association started breaking out distressed sales.

We are seeing similar patterns in other distressed areas. This will be interesting to watch over the next few months to see the impact of the mortgage settlement.

by Calculated Risk on 4/12/2012 11:42:00 AM

In FHFA acting director Ed DeMarco's speech on Tuesday, he discussed the risk of "strategic modifiers". Felix Salmon and I have been discussing this via email. Here is Salmon's post this morning: Ed DeMarco and the spectre of strategic modifiers

A couple of definitions: A "strategic defaulter" is a borrower who is underwater on their home mortgage (they owe more than the house is worth), and who is willing to walk away from their home, even though they have the capacity to make the payments. Strategic defaulters intend to go to foreclosure - and probably will - even if offered a modification.

A "strategic modifier" is a borrower who intends to stay in their home, but is willing to miss some payments to qualify for a loan modification.

Salmon writes:

I don’t believe that the problem of strategic modifiers (over and above the problem of strategic defaulters) is likely to be huge. One reason is that I’ve been writing about the upside of strategic default for a long time, and it really hasn’t caught on, outside a few second homes and the like. Strategic default is not something that Americans like to do, and one of the main reasons is that they really care about their credit rating. Even if a strategic modifier keeps her house, she’ll suffer the same hit to her credit rating as a strategic defaulter would. And people don’t like that at all.

I disagree somewhat. First, someone who goes to foreclosure will take a much larger hit to their credit than someone who misses a few payments. So there is a difference - "strategic modifiers" will not take the same credit hit as "strategic defaulters".

Second, I think most people feel an obligation to pay their mortgage, if they can, even if they owe more than their home is worth. But some of those same people will be willing to stand in the "free money" line (principal reduction), even if that means missing a few payments.

So, depending on the guidelines, I think there will be a higher percentage of "strategic modifiers" than "strategic defaulters".

Salmon concludes:

[L]et’s try principal reductions in the real world, and see what happens. If they turn out to be incredibly expensive, then we can revisit the issue. But my guess for the most likely outcome is not a wave of strategic modifiers. Rather, it’s that the program turns out to be much like all other government attempts to deal with underwater borrowers: a damp squib where very little happens at all.

I think some sort of principal reduction program will be announced, with tight guidelines, but I agree with Salmon, I expect the program will have little impact.