hat tip to AL for sending this along, from the WSJ:
The Deed for Lease Program, which Fannie plans to roll out on Thursday, will offer borrowers who fail to complete or don’t qualify for a loan modification or other workout to deed their property to the lender in exchange for a lease. Borrowers-turned-tenants will be able to sign leases of up to 12 months and will pay market rents, which in most cases are lower than the cost of mortgage payments.
Fannie Mae wouldn’t say how many homeowners it expects will take advantage of the program. The company acquired 57,000 properties through foreclosure during the first half of the year, bringing its total real-estate owned inventory to 63,000 properties valued at $6 billion. The rental program will allow Fannie to hold inventory off of already saturated housing markets and makes a bet that the housing market will be stronger one year from now.
Borrowers who haven’t missed any mortgage payments aren’t eligible for the program, and the borrower’s mortgage servicer would have to show that a borrower isn’t eligible for a loan modification before the homeowner could apply for the Deed for Lease program.
The following program eligibility criteria must be met:
1. The mortgage loan is a first lien mortgage loan secured by a one- to four-unit property. All property types are eligible. Second lien mortgage loans are not eligible.
2. The mortgage loan is not guaranteed or insured by a federal agency (FHA, HUD, VA, or Rural Development).
3. The borrower resides in the property as a primary residence or has leased the property to a tenant who uses the property as a primary residence. Second homes or vacation homes are not eligible.
4. At least three payments have been made since origination or since the last modification.
5. At the time of the referral to Fannie Mae for the D4L, the borrower is not 12 or more payments past due on the mortgage loan.
6. The borrower is not involved in an active bankruptcy proceeding and is not a party to litigation involving the subject property or the mortgage loan.
7. Marketable title is able to be conveyed (a title insurance policy is required).
8. If there are subordinate liens secured against the subject, lien releases can be obtained.
9. The occupant of the property (i.e., the borrower or the borrower’s tenant) has verifiable income. Occupants with no source of income are not eligible.
“I’m sure Fannie is hoping that when they sell the properties, the values will be higher,” says David Berson, chief economist for PMI Group Inc., a private-mortgage insurer. “A year from now, we should be a year further into the economic recovery, and housing demand will be stronger…That will allow you to release homes that have been foreclosed upon but not put on the market.”
The program could also help Fannie preserve the value of its nonperforming assets because occupied homes are more likely to hold up better that vacant homes. The rental programs also provide some rental income to the government-backed mortgage finance giants.
The move by Fannie follows a program by Freddie Mac that began offering month-to-month leases to owner-occupants who had lost their homes to foreclosure. But Freddie continues to market those homes for sale. The Fannie Mae program differs in one important respect: foreclosed homes won’t be listed for sale. In February, both companies began allowing tenants whose landlords had lost their properties to foreclosure to sign month-to-month leases.
Borrowers will have to show that the monthly rent is less than 31% of their gross income. The program, which will use a professional management company to handle maintenance, will allow borrowers to renew their leases on a term or monthly basis and properties that are sold during the lease period will include an assignment of that lease to the new owner.
So far, around two-thirds of owner-occupants who have been offered monthly leases by Freddie Mac have taken them, and the break down of owner-occupants to tenants who have rented under the program is roughly two-to-one.
Freddie Mac says it is considering whether to extend longer-term leases to some troubled homeowners. “We’re looking into our options because there are certain markets where there’s just so much inventory on the market,” said Ingrid Beckles, senior vice president of default asset management at Freddie Mac.
In recent months, some industry analysts have been puzzled over why more homes haven’t been put up for sale as the rate of borrowers who default climbs higher. Well-intentioned efforts to keep families in their homes have led to delays that some analysts believe is prolonging the mortgage crisis by creating a “shadow” inventory of pent-up supply that will ultimately hit the market.
That has prompted some to question the logic of keeping homes off of the market at a time when demand for bank-owned properties has been soaring. The number of foreclosed properties for sale in Las Vegas, for example, has fallen to a less than three months’ supply, according to SalesTraq, a local real-estate research firm. But housing demand typically falls in the winter, and the number of foreclosures continues to grow. “We’re past the peak of when you would want to sell,” says Mr. Lawler.
Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.
“This is probably the last extension,” said Sen. Johnny Isakson, D-Ga., a former real estate executive who championed the credits.
The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that the Senate included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.
“We are still in a world of economic hurt, and Congress must continue to act boldly and creatively,” said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. “With the right mix of tax breaks and investments we will get through this recession and get folks working again.”
Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. While the measure passed the Senate by a 98-0 vote, Sen. Kit Bond, R-Mo., questioned its efficiency in stimulating home sales.
“For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home,” Bond said. “And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place.”
The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
A great discussion with Robert Shiller this morning – there’s an ad that plays first:
Investigators found that more than 500 claimants of the tax credit nationwide were minors as young as 4, so the new measure will require applicants to be at least 18. Homes cannot be acquired from relatives, and taxpayers must submit a settlement statement as proof of purchase, though officials acknowledge that could be a problem for those who file tax returns electronically.
While real estate groups and some economists say the credit has helped stabilize the housing market, critics say it is too costly a subsidy when low interest rates and home prices are incentives enough for most.
Of the 1.4 million claimants of the credit, fewer than a third — about 350,000 to 400,000 — are believed to have bought their homes because of the credit, according to independent and industry-affiliated economists.
Under the new legislation, individuals with income up to $125,000 a year and couples earning up to $225,000 would be eligible. The current income limits are $75,000 for individuals and $150,000 for couples. Under both the House and Senate versions, smaller amounts are available to people of slightly higher incomes until the credit phases out.
From CR, here is the summary of what’s on the table:
Income eligibility for first-time home buyers stays at $75,000 for individuals, and $150,000 for couples.
For move-up buyers, income eligibility is $125,000 for individuals and $250,000 for couples.
There is a minimum 5 year residency requirement – in their current home – for move-up home buyers.
The tax credit is the lesser of $7,290 or 10% of the purchase price.
The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)
Expect bill to be signed by Friday, packaged with the unemployment benefit extension.
My prediction?
1. Buyers and sellers will take the holidays off, and gear up for the mother of all Spring Kicks.
Then the sellers, full of optimism but on their last gasp, goose their list price an extra 5% to 10% so they can move up, but the buyers don’t go for it.
We’ll end up with more over-priced inventory, and a few extra sales.
A nothing-burger…..or
2. The REO tsunami finally hits, with new listings priced at 5% under comps dominating the market, crushing the hopes of regular selling getting their extra goose.
Either way, the flood of sellers should temper sales prices.
WASHINGTON (Reuters) – Government programs to fight the U.S. home foreclosure crisis look increasingly inadequate and should be reworked, expanded and supplemented with new ideas, a congressional watchdog said in a report on Friday.
With a foreclosure filing occurring every 13 seconds, the United States is mired in a housing slump that is destroying billions of dollars in property values and threatening to choke off the economy’s recovery from a stubborn recession.
The foreclosure crisis has moved beyond subprime mortgages into the prime mortgage market, said the Congressional Oversight Panel for the Troubled Asset Relief Program, the $700 billion bailout launched under the Bush administration.
“Rising unemployment, generally flat or even falling home prices, and impending mortgage rate resets threaten to cast millions more out of their homes,” according to the report, which focused on the Treasury Department’s efforts to curb foreclosures.
“The panel urges Treasury to reconsider the scope, scalability and permanence of the programs designed to minimize the economic impact of foreclosures, and consider whether new programs or program enhancements could be adopted,” it said.
The government’s other effort to stem foreclosures, the Home Affordable Refinance Program, or HARP, helps homeowners who are current on their mortgages but owe more than their homes are worth, get more affordable loans.
As of September 1, the watchdog report said, HAMP had helped arrange 1,711 permanent mortgage modifications, with an additional 362,348 borrowers in a three-month trial stage. HARP has closed 95,729 mortgage refinancings, it said.
Hat tip to Pigpen sent along this clip from abcnews, via zerohedge; go to -9:50 mark where the senators are discussing the housing tax credit. If this is any indication, it’s looks like an extension of the credit is going to happen:
There was a love fest on ABC’s This Week. The odd couple was Senators Schumer (D.NY) and Cornyn (R.TX).
When Schumer says, ”We have to extend the housing tax credit” Cornyn says, “Chuck and I agree”.
Cornyn went on to make a plug for Senator Isakson’s (R.GA.) bill. This would expand the $8,000 tax credit to $15,000. It would also make it available to all comers. The existing bill is only for first time buyers.
While Cornyn is talking, Chuck is shaking his head, Yes, yes, yes.
* Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.
* Two-thirds of strategic defaulters have only one mortgage — the one they’re walking away from on their primary homes. Individuals who have mortgages on multiple houses also have a higher likelihood of strategic default, but researchers believe that many of these walkaways are from investment properties or second homes.
* Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore — a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion — are far more likely to default strategically than people in lower score categories.
* People who default strategically and lose their houses appear to understand the consequences of what they’re doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters “are clearly sophisticated,” based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.
Strategic defaulters may know that their credit scores will be severely depressed by their mortgage abandonment, Tantia said, but they appear to look at it as a business decision: “Well, I’m $200,000 in the hole on my house, and yes, I’ll damage my credit,” he said of defaulters. But they see it as the most practical solution under the circumstances.
Here’s an example where the high foreclosure rate is feeding on itself, leaving many more possible defaulters behind with high mortgage balances and little hope.
I’m not picking on San Elijo Hills, just trying to help – because if there isn’t a pot of gold at the end of this rainbow, there’s more trouble ahead:
Fron the WSJ:
Strategic default is most likely when home values have fallen by more than 15%, according to the study by authors of the Financial Trust Index, a joint project of the University of Chicago’s Booth School of Business and Northwestern University’s Kellogg School of Management.
The researchers found that homeowners start to default once their negative equity passes 10% of the home’s value. After that, they “walk away massively” after decreases of 15%.
“Our research showed there is a multiplication effect, where the social pressure not to default is weakened when homeowners live in areas of high frequency of foreclosures or know others who defaulted strategically,” Zingales said. “The predisposition to default increases with the number of foreclosures in the same ZIP code.”
For those who want to take advantage of the $8,000 tax credit, time is running out – unless of course, it gets extended…….which doesn’t appear to be a slam dunk, because of that pesky little problem of having to pay for it too.
Should the tax credit not get extended, don’t be surprised if the market loses some of its current luster, as frustrated buyers pack it in for the holidays. Heck, just the bidding wars and tsunami threats have to be making buyers think about taking a break anyway.
It now appears likely that there will be an $8,000 tax credit available a year from now — at least for some purchasers. Which raises the question: Why not leave it in place for all first-time buyers?
There’s growing support for that on both sides of the Capitol, but there are also some complicating issues. In the Senate, the most outspoken advocate for months has been a Republican, Sen. Johnny Isakson of Georgia, a former real estate broker. He wants not only to extend the credit to Dec. 1, 2010, but to raise the maximum to $15,000, and make it available to all home buyers next year.
But recently, key Senate Democrats produced their own version of an extension, limited to six months, retaining the ceiling at $8,000 and targeting only first-time purchasers. The bill’s primary sponsor is Sen. Benjamin Cardin, D-Md. Democratic co-sponsors include Majority Leader Harry Reid of Nevada and Debbie Stabenow of Michigan. Republicans John Ensign of Nevada and Isakson have signed on as well.
In a statement, Cardin raised what may prove to be the crucial issue affecting the scope and duration of any credit extension: Cost. “A six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective home buyers off the sidelines,” he said.
Estimates of the revenue costs of the current credit vary widely, from $3 billion to $8 billion and up. How do you pay for any extension without worsening the budget deficit?
The new Rangel bill includes the answer: You raise taxes somewhere else — you “pay as you go.” The Rangel bill pays for most of the servicemen’s credit extension by increasing IRS penalties on taxpayers who fail to file partnership or “S” corporation returns.
This would raise an estimated $327 million over the next 10 years. Where and how to raise taxes to cover the far larger cost of a six-month or 12-month extension of the current tax credit could prove much more controversial.
The poll results ran about 3 to 1 in favor of trickle, but I think we can agree that a flood is certainly possible. All it would take is:
1. Citizens revolt, resulting in a political uprising that turns off the backstop, or
2. One of the servicers who also owns a lot of paper breaks rank, and unloads. They decide that being the first one out wins. But it would take a real renegade.
NEW YORK (AP) — A year after the financial system nearly collapsed, the nation’s biggest banks are bigger and regaining their appetite for risk. Goldman Sachs, JPMorgan Chase and others — which have received tens of billions of dollars in federal aid — are once more betting big on bonds, commodities and exotic financial products, trading that nearly stopped during the financial crisis.
There have been no significant changes to the federal rules governing their behavior. Proposals that have been made to better monitor the financial system and to police the products banks sell to consumers have been held up by lobbyists, lawmakers and turf-protecting regulators.
Five of the biggest banks — Goldman, JPMorgan, Wells Fargo, Citigroup and Bank of America — posted second-quarter profits totaling $13 billion. That’s more than double what they made in the second quarter of 2008 and nearly two-thirds as much as the $20.7 billion they earned in the second quarter of 2007 — when the economy was strong.
Meanwhile, Bank of America and Wells Fargo today originate 41 percent of all home loans that are backed by Fannie Mae and Freddie Mac, according to Inside Mortgage Finance. The banks made $284 billion in such loans in the first half of this year, up from $124 billion during the same period last year.
“The big banks now are more powerful than before,” said Johnson, now a professor at the Massachusetts Institute of Technology’s Sloan School of Management. “Their market share has grown and they have a lot of clout in Washington.”
One investment gaining popularity is a direct descendant of the mortgage-backed securities that devastated many banks last year. To get some lesser performing assets off their books, banks are taking slices of bonds made up of high-risk mortgage securities and pooling them with slices of bonds comprised of low-risk mortgage securities. With the blessing of debt ratings agencies, banks are then selling this class of bonds as a low-risk investment. The market for these products has hit $30 billion, according to Morgan Stanley.
“It may be unpleasant to hear that the traders are riding high,” said Walter Bailey, chief executive of boutique merchant banking firm EpiGroup. “But, hey, it’s a pay-for-performance thing, and they’re performing like mad.”
And that means the return of another Wall Street mainstay: Lavish compensation.
After 10 of the largest banks received a $250 billion lifeline from the government last fall, some lawmakers were outraged that employees were being paid seven-figure salaries even though their companies nearly collapsed. A handful of top executives, including Citigroup CEO Vikram Pandit, have agreed to accept pay of just $1 this year. But the compensation of most high-performing traders hasn’t changed.
Goldman spent $6.6 billion in the second quarter on pay and benefits, 34 percent more than two years ago. And Citigroup, now one-third owned by the government after taking $45 billion in federal money, owes a star energy trader $100 million.
Bank of America’s statement about their foreclosures/REOs:
Foreclosure sales have been abnormally low since we learned of the pending implementation of the administration’s Making Home Affordable program. From that point, we delayed the initiation of foreclosure proceedings and sales for customers that may eligible for a loan modification under MHA. As a result of this policy, our foreclosure sales in recent months have been as little as half the normal pace we experienced before.
Until a foreclosure is completed, Bank of America continues to exhaust every possible option to qualify customers for modification or other solutions.
Now that Making Home Affordable programs are operational, we do project an increase in foreclosures as we exhaust every available option to qualify customers for modifications and other solutions.
While we have very strong loan modification programs now available, unfortunately, these foreclosure projections reflect the increasing number of customers who will not qualify for loan modification because they have suffered major life events servicers can’t solve…primarily unemployment and underemployment.
We do not hold foreclosed properties off the market. The vast majority of mortgages serviced by Bank of America are owned by third-party investors. We have an obligation to them to prepare foreclosed properties for market and sell them as efficiently as possible.
People still talk about the banks are holding properties off the market for accounting purposes, let’s please note the last paragraph. The banks don’t own that much of the paper.
