Flooring in Florida: Is This the Start of Something Good for the Housing Market?

by Alex Villacorta, Contributor for Forbes.com Lifestyle 1/31/2012 @ 4:13PM

Have we turned the corner? Without a doubt, that is the most popular question I get about the housing market. No one can be 100% positive at this point, but a good start for any recovery is when markets build a “floor,”or foundation for which the fundamentals of price appreciation can be built. Given the positive signs we’ve seen recently, I started looking for patterns in various markets to determine if a recovery is starting, and if flooring is being laid anywhere.

After publishing our 2011 Year End Market Report and 2012 Forecast, some interesting trends were discovered in Florida. In 2011, all four Florida metros (Jacksonville, Orlando, Miami and Tampa) ranked in the highest 15 of all 50 metros for price growth over the year. In addition, our November 2011 market report showed three out of four of Florida’s metro markets in the highest performing markets on a quarterly basis. Finally, the 2012 forecast showed each of the areas continuing the trend of improving home values, while leading the country in gains.

It is important to note these markets received more than their fair share of price depreciation after the market peaked in 2006. Orlando had a 63% decline from the peak to the bottom of the market in 2009, and Miami’s prices slid 65% over the same period, so there is a lot of ground to make up.

So with that, it was time to dig deeper and see if flooring was being laid, and more importantly, if a clear pattern could be identified for what an early stage of a recovery looks like.

The first step was finding the fundamental drivers for what pushes prices up. Are there clear variables or consistencies across these markets, and would these variables drive similar market behaviors outside the sunshine state?

Both Orlando and Miami’s growth is being built on a foundation of increases in low tier and distressed home sales. Both these markets show:

• Substantial improvement in values in their lower priced segments – below $70,000
• Modest improvement in distressed home sale prices across all price tiers
• Declining levels of distressed sales as a percentage of total sales

In Orlando, the lower priced segment experienced a whopping 19.8% increase in prices in 2011, while on a price per square foot basis their distressed only sales increased by 4.4%. These growth rates are significantly above the U.S. average.

Low tier home values in Miami jumped 15.28% in 2011, as compared to the top segment of that market which only returned a 1.8% yearly gain. And again, on a price per square foot basis, the distressed only segment across all price tiers saw healthy price increases of 4.9% through the year.

Now while the gains in the distressed segment were not as strong as that of the low price tiers in both markets, just the fact that REO sale values were increasing at all is important. A recovery in the distressed segment, regardless of the magnitude, creates a resistance to future losses across all price tiers as it is this segment that has created much of the pressure on prices over the past several years.

Along with the upward movement in price for the distressed market, the overall saturation of REO sales decreased in both Miami and Orlando. In Miami distressed sales as a percentage of all sales went down to 31% from 44% at the start of the year, well off the high point of over 50% seen in mid-2009. Orlando experienced a similar trend with current distressed sales representing 25% of total sales, a substantial improvement over the rate of 49% at the start of the year, and below the high of over 54% seen in mid-2009. These markets are coming off extreme highs in the percentage of REO sales down to levels closer to the US average of 25.3%. As these numbers are at, or even above the U.S. average, it is the movement of REO saturation that is extremely important, more so than the actual figure. The substantial decrease in REO saturation, especially in Orlando, is certainly helping prices to recover.

Another factor we analyzed was the type of transaction, and it appears that Miami in particular, has found a strong appetite for investing along with their appetite for spicy food. About 59% of Miami’s transactions were conducted with cash, followed by Orlando’s 48%. This is a significant increase from the national rate holding right around 30% over the last year as reported by the National Association of Realtors.

For 2012, we forecast anticipated growth of 8.7% and 5.6%, for Orland and Miami, respectively and expect to see each of these markets among the best performers for the year.

So, could the presence of low tier price increases, distressed home sale price increases, smaller percentages of distressed sale levels, and high levels of investor activity be what a floor looks like? Is it a blueprint for what a broader market recovery looks like as well? It seems very likely.

If it is, keep your eyes on Phoenix. Currently this market is showing strong growth in the low tier segment, notable gains in distressed sale prices and lower levels of distressed sales overall. We’ll continue reporting on other markets that reflect this same pattern in our monthly Market Reports.

I can’t ever remember a time when installing new flooring sounded this interesting.

Original Post: http://www.forbes.com/sites/alexvillacorta/2012/01/31/flooring-in-florida-is-this-the-start-of-something-good-for-the-housing-market/

Economists See Ways to Aid Housing Market

By NICK TIMIRAOS  for wsj.com

The underpinnings of a housing recovery are hiding in plain sight: sharp price declines, low mortgage rates and rising rents have made owning more affordable than renting in a growing number of markets.

Yet housing largely remains in a funk. The prospect of continued price declines—led by the oversupply of foreclosed homes—has deterred some potential buyers, while others can't qualify for loans.

Many economists, including some at the Federal Reserve, are urging President Barack Obama to do more, and the president will be "aggressive on housing" in his State of the Union address on Tuesday, his housing secretary said last week. The administration is already rebooting a refinancing initiative and putting finishing touches on programs to convert some foreclosed properties into rentals.

View Interactive

What more can be done? Economists cite three broad ideas that could advance a housing recovery.

First, local investors could play a greater role in spurring a recovery in their own communities. Some mom-and-pop investors have begun to buy up excess housing stock and rent it out.

These buyers are important to clear the large "shadow supply" of foreclosures. Banks owned around 440,000 homes at the end of October, but an additional 1.9 million loans were in some stage of foreclosure, according to Barclays Capital.

While there's no shortage of investor demand in many markets, financing remains an obstacle. In 2008, Fannie Mae and Freddie Mac, the main funders of mortgages, faced soaring losses from speculators and reduced to four from 10 the number of loans they would guarantee to any one owner. Fannie now backs as many as 10 loans, but some banks have kept lower limits.

"If that number were raised...to 25, you would very quickly start whittling down this very big backlog," said Lewis Ranieri, the mortgage-bond pioneer, in a speech last fall. He said loans should be made on conservative terms that include 30% or 35% down payments.

Today's investors differ from the speculators who earlier bought on the prospect of ever-rising values that inflated the real-estate bubble. In contrast, today's mostly all-cash buyers estimate values based on market rents. But economists say because they are underfunded and often the sole buyers, they are driving hard bargains that have homes selling below their replacement costs.

The mortgage-finance companies and their regulator "are ignoring the market fundamentals of who the buyers are and where the money is," said Tim Rood, a partner at the Collingwood Group, a housing-finance consultancy. "Right now, investors are treated like pariahs. You want to clear some inventory? Finance them."

For the past four years, prices of foreclosed and traditional homes fell in tandem, but in recent months, a new pattern has emerged. U.S. home prices were down 4.3% from one year ago in November. But after stripping out foreclosures and other "distressed" sales, prices were down just 0.6%, according to data firmCoreLogic.

Lawmakers also could consider eliminating capital-gains taxes on properties bought as a longer-term investment and converted to rentals as well as allowing them to accelerate the depreciation of those properties, said William Wheaton, a professor of economics and real estate at the Massachusetts Institute of Technology.

"We need to re-establish equilibrium. I don't want to see another spike in house prices, but the homeownership rate is dropping and we also don't want to see rental spikes," Prof. Wheaton said.

Second, policy makers could restore clarity to lending by finalizing a clutch of pending regulations. The government's extraordinary steps to rescue Fannie and Freddie helped prevent a cataclysmic shock but it has made no real movement to overhaul the companies and the nation's broader housing-finance machinery.

While prospects are dim for a revamp before the election, smaller steps to establish certainty around the rules for lending as well as handling soured mortgage loans could make banks less stingy with credit.

For example, Fannie and Freddie are pushing banks to repurchase any defaulted loans that they can prove ran afoul of underwriting standards, even if the loan went bad for another reason, such as job loss. The "blanket repurchase regime" has led banks "to focus only on the lowest-risk customers," said William Dudley, president of the New York Federal Reserve, in a speech this month.

Third, a growing number of economists are warning that the overhang of debt in some of the most distressed housing markets will linger for years, particularly if more borrowers default. They say mortgage investors and banks should consider reducing debt for more troubled homeowners.

Principal write-downs remain controversial and have high upfront costs. But the problem of negative equity looks unlikely to cure itself: In markets such as Las Vegas, more than six in 10 borrowers owe more than their homes are worth.

Banks are rightly worried that widespread debt forgiveness could encourage more borrowers to default, but several proposals seek to limit that moral hazard. Prof. Wheaton said investors in the loans should be given equity stakes in homes in order to deter all but the most desperate borrowers from seeking relief, and that relief should be limited to borrowers who are deeply underwater.

"This needs to be a shared responsibility," he said. "For borrowers silly enough to borrow enough at the top of the market, there was a lender stupid enough to lend."

Principal write-downs could also be done on an "earned" basis, where borrowers receive relief only if they stay current on their loans, said Daniel Alpert, managing partner at Westwood Capital, which has employed the technique when buying distressed mortgages.

Even then, write-downs will remain under-used until regulators or lawmakers simultaneously deal with the second mortgages, which are primarily held by banks, sitting behind many underwater first mortgages.

Mustering the political will to take any of these three steps wouldn't be easy. Given the state of the market, "there isn't a solution which will make everyone love you and cost no money," Mr. Ranieri says.

Indeed, no single idea will fix all of housing's problems. Many involve taking on more risk or rewarding bad behavior.

Write to Nick Timiraos at nick.timiraos@wsj.com

Original Post: http://online.wsj.com/article/SB10001424052970204301404577173001251941984.html?mod=WSJ_RealEstate_LeftTopNews

Dimon on Housing: ‘No One Is in Charge’

By Nick Timiraos

Bloomberg News

Jamie Dimon, chief executive of J.P. Morgan Chase & Co.

The government and the banking industry needs to get serious about fixing the housing market’s problems, but there’s no one leading the charge, said Jamie Dimon, the chief executive of J.P. Morgan Chase & Co., during the bank’s quarterly conference call on Friday.

“I would convene all the people involved in the business. I would close the door. I would stay there until we resolved a bunch of these issues so we could have a more healthy mortgage market,” he said. “You could fix all this if someone was in charge.”

Mr. Dimon ticked off a list of unresolved issues, including foreclosure delays, the fate of Fannie Mae and Freddie Mac, conflicts of interest between owners and servicers of first mortgages and second mortgages, and pending rules from the Dodd-Frank Act that will establish new rules of the road for mortgages that are pooled into bonds.

“There is no one really in charge of all of this. It is just kind of sitting there,” he said. A “holistic” approach to tackle those issues could lead to a faster recovery in housing, he said, endorsing the sentiment behind the Federal Reserve’s call to action on housing last week with its release of a 26-page white paper.

Mr. Dimon also elaborated on his view that housing markets have neared bottom. “In half the markets in America it is now cheaper to … buy than to rent. Housing is at all-time affordability,” he said. “What you need to see is employment.”

An stronger surge in job growth would boost household formation, which coupled with positive demographics, means that “you’re going to have a turn at one point,” he said. “I don’t know if it’s three months, six months, nine months, but it’s getting closer.”

Mr. Dimon said his bank had made mistakes in handling mortgage foreclosures, and said the bank “should pay for the mistakes we made.” But he added that banks have also offered millions of mortgage modifications, and that banks “are doing it as aggressively as we can.”

He also brushed aside calls for widespread principal reductions, saying that he didn’t agree “that somehow principal forgiveness would be the end-all, the be-all.”

Follow Nick @NickTimiraos

• J.P. Morgan Chase & Co.

Six Questions on Foreclosure-to-Rental Programs

By Nick Timiraos for WSJ.com

Wednesday’s Journal looked at how one private-equity firm is making a bet on renting out single-family homes acquired through foreclosure. In the coming weeks, federal policy makers could roll out pilot programs to further test the concept. Here’s a look at what’s involved:

What is the government considering?

Government officials solicited more than 4,000 comments from the public last year on potential initiatives that would take foreclosed properties off the market and rent them out. The initiatives are likely to focus only on loans backed by federal entities Fannie Mae, Freddie Mac, and the Federal Housing Administration.

There are two different types of programs that officials are likely to consider. Under the first, the FHA could sell properties in bulk to investors who agree to rent them out. Bulk sales have been rare largely because investors tend to demand deep discounts that sellers haven’t been willing to accept.

A more likely option for Fannie and Freddie, if they move forward with any pilot programs, would be to set up pools of properties in which third-party investors would take a stake. Investors could be responsible for handling maintenance and day-to-day operation of the rental pool, with the mortgage-finance giants sharing in some of the returns.

How many homes are we talking about?

Fannie and Freddie held around 180,000 homes at the end of September, down from around 235,000 one year earlier. The FHA held around 35,000 homes at the end of November, down from 55,000 one year earlier.

The drop figures to be temporary because many loans backed by the FHA have fallen into foreclosure, but banks have been slow in taking back homes after they were caught fabricating documents in order to quickly repossess homes.

Why does the idea of renting out homes have appeal?

Officials like the idea for three reasons. The first is that a backlog of foreclosures estimated in the millions could roll onto housing markets in the coming years. The New York Fed estimates that banks and mortgage companies could take back 1.8 million properties in each of the next two years, up from 1.1 million in 2011 and 600,000 in 2010.

Second, there are signs that home prices of traditional homes are stabilizing in some parts of the country, even as distressed sales drag down property values. The gap between prices of traditional home sales and distressed home sales has widened in recent months. For the year ending in November, home prices were down by 4.3% as measured by real-estate firm CoreLogic. But prices were down by 0.6% when distressed sales are excluded.

Third, this is attractive because rents in many parts of the country are beginning to rise.

What parts of the country could see these types of programs?

In a white paper released by the Federal Reserve last week, officials identified 60 metro areas where federal entities have at least 250 foreclosed properties for sale — a scale that could be large enough to justify a rental program. The largest concentrations of foreclosures held by these entities were in Atlanta, with 5,000 units, followed by Chicago, Detroit, Phoenix, Los Angeles, and Riverside, Calif., which each have between 2,000 and 3,000 units.

While not all of these properties are good candidates for conversion to rental, preliminary estimates from the Fed suggest that around two-fifths of Fannie’s foreclosed properties could generate yields of 8%, which could be enough to warrant renting rather than selling the property.

Why can’t the private sector do this on its own?

Certainly, private investors have been building up operations in the rent-and-hold arena, and it’s possible that these types of rental transactions could happen anyway without any government involvement.

But there are two main obstacles facing investors: financing and scale. Most foreclosure investing has been done by local investors. But these outfits have faced challenges getting financing to buy enough homes to scale up a viable rental model. Institutional investors, meanwhile, have deeper pockets but banks have largely resisted big bulk sales of homes, making it harder for them to assemble big pools of homes.

Will this program have any impact on home prices?

To do so, the program would need to be quite large, and that isn’t likely to happen for some time. Michelle Meyer, an economist at Bank of America, says the proposed programs run the risk of being too small to have much impact.

Economists at Goldman Sachs estimate that moving all foreclosed properties from the for-sale market to the rental market would increase home prices nationally by around 0.5% in the first year and 1% in the second year. Of course, no one is talking here about moving all properties from the for-sale market to the rental market, so this shows the maximum effect of such initiatives. The real effect figures to be far more modest.

Original Post: http://blogs.wsj.com/developments/2012/01/12/six-questions-on-foreclosure-to-rental-programs/

Projection: Rents, Incomes to Grow Together

By Matthew Strozier

These are heady days for apartment owners: Demand is growing and supply of new rentals continues to lag. But are landlords getting ahead of themselves? Will a recovery take hold that allows people to afford heftier rents?

It turns out that the outlook isn’t so bad. Research from the real-estate forecasting firm Property & Portfolio Research, which is owned by CoStar Group, says median household income and average rent over the next five years will grow at similar rates. Nationally, PPR projects growth of 16.1% for median incomes between now and 2016, versus 15.6% for rents. (The data are from 54 major markets tracked by PPR.)

But conditions differ from market to market, depending on level of household formation and the pace of income growth. Conditions in places such as Raleigh, N.C., could spur landlords to raise rents at a higher rate in coming years. By contrast, new supply and prior rent growth in Washington, D.C. will likely moderate rental growth there, according to PPR.

Rent-to-income ratios nationally should remain basically steady, and below the prior peak reached in 2001. (Falling home prices and low mortgage rates could make buying a home newly attractive for some renters in coming years, although affordability has done little too boost the housing market so far.)

To be sure, renters won’t be happy to hear that their monthly rent is projected to jump to a national average of $1,436 in 2016, up from $1,242 in 2011, according to PPR. Higher rents and declines in home ownership are helping to fuel investors’ interest in the apartment market, even from developers that usually focus on malls and offices. Construction starts in multifamily in November jumped 25.3% from the prior month, according to the Commerce Department, although construction of new multifamily units remains low on a historical basis.

Readers, what do you think: Where is the rental market headed this year and after?

• CoStar Group,
• Property & Portfolio Research

Original Post: http://blogs.wsj.com/developments/2012/01/04/projection-rents-incomes-to-grow-together/

PEOPLE ARE AWESOME 2011!

Wishing you and your loved ones Happy Holidays!

From Coldwell Banker Action Realty to you: Happy Holidays!

Mortgage Rates Keep Hitting Record Lows

December 22, 2011, 12:32 PM ET
By Mia Lamar and Nathalie Tadena

Bloomberg News

Freddie Mac says the 30-year fixed-rate mortgage was at a new record low.

 

Mortgage rates in the U.S. again touched record lows over the past week, according to Freddie Mac’s weekly survey of mortgage rates.

“Rates on 30-year fixed mortgages have been at or below 4% for the last eight weeks and now are almost 0.9 percentage point below where they were at the beginning of the year, which means that today’s home buyers are paying over $1,200 less per year on a $200,000 loan,” Freddie Mac Chief Economist Frank Nothaft said.

The 30-year fixed-rate mortgage averaged a new record low at 3.91% for the week ended Thursday, down from 3.94% the previous week and 4.81% a year ago. Rates on 15-year fixed-rate mortgages matched the prior week’s record low at 3.21%. A year ago, the 15-year fixed-rate mortgage rate averaged 4.15%.

Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARM, averaged 2.85%, down from 2.86% last week and 3.75% a year ago. One-year Treasury-indexed ARM rates averaged 2.77%, down from 2.81% in the prior week and 3.4% last year.

To obtain the rates, 30-year and 15-year fixed-rate mortgages required an 0.7-point and 0.8-point payment, respectively. Five-year and one-year adjustable rate mortgages required an average 0.6-point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

The low rates could be helping to boost sales of existing homes, although falling prices are also pulling in buyers. Home sales in November hit the second-highest level of the year, rising 4% from October.

Original Post: http://blogs.wsj.com/developments/2011/12/22/mortgage-rates-keep-hitting-record-lows/

Why Home Prices Are (and Aren’t) Stabilizing

By Nick Timiraos

December 6, 2011, 1:19 PM ET

Getty Images

Home prices are falling again, but some analysts see a silver lining because the prices of homes that aren’t selling out of foreclosure have been holding steady.

CoreLogic reported that home prices in October declined by 1.3% from September and by 3.9% from one year ago. A separate index released Monday by LPS Applied Analytics showed that home prices in September had dropped by 1.2% from August.

“Many housing statistics are basically moving sideways,” said Mark Fleming, chief economist at CoreLogic.

Still, the CoreLogic index shows an important emerging trend where home prices are stabilizing after excluding distressed sales.

What’s the difference between distressed sales and non-distressed sales?

Unlike traditional owners, banks are often faster to cut prices in order to unload properties quickly—or what are called “distressed” sales. The upshot is that, the more homes being sold by lenders in any given month the faster prices tend to fall.

This was clear throughout the initial years of the housing bust. Prices declined most sharply in 2008 as banks dumped foreclosed properties at fire-sale prices. Owner-occupants are less likely to list their homes for sale in the winter months, too, which means that each winter there are also drops in prices because distressed sales account for a growing share of sales.

Are prices of distressed homes falling at the same rate as non-distressed homes?

That’s been the case up until recently. While total home prices were down by 3.9% from one year ago, prices were down by just 0.5% from one year ago when excluding distressed sales. In September, total prices were down by 3.8% from one year ago, but non-distressed prices were down by 2.1%.

This shows that while price declines are resuming, they are not yet falling from one-year ago for non-distressed homes. In fact, during the first nine months of 2011, prices of non-distressed homes remained relatively stable, with year-over-year declines between 2% and 3%.

Analysts at Barclays Capital called this “the most important trend in the housing industry right now,” in a report published on Monday.

Why would any stabilization of non-distressed prices matter?

If it’s true that prices of non-distressed homes are stabilizing, even as distressed homes continue to fall in price, it would mean that a distressed home is “increasingly being seen as a poor substitute for a non-distressed home,” writes Stephen Kim, the Barclays housing analyst. He says it’s possible that the “bifurcation between distressed and non-distressed homes will only widen with the passage of time.”

Won’t the overhang of foreclosures put pressure on non-distressed prices anyway?

That’s all too possible. There are more than two million loans in some stage of foreclosure, and it may be too early to argue that those won’t in some way impact the sales prices of non-distressed homes. For one, homes that sell out of foreclosure at significantly lower prices could be used by appraisers as “comparable” sales that may make banks less willing to lend at an agreed sales price for a non-distressed home.

In certain markets where many homes are selling out of foreclosure, it’s hard to simply set aside distressed homes. “You can’t deny the fact that if half of homes that sold in San Diego in a given year were distressed, that is the trend,” said Kyle Lundstedt, managing director at LPS.

What could happen if this trend holds up, with distressed prices falling and non-distressed prices staying flat?

It could stabilize something else: home-buyer confidence. “There is nothing that strikes fear in a homeowner’s heart than to hear that his home value has declined,” writes Mr. Kim of Barclays. “But if it was home price trends that got us into this funk, it stands to reason that a recovery in sentiment will be similarly ushered in once price declines have abated—which is precisely what the CoreLogic price data shows us.”

Original Post: http://blogs.wsj.com/developments/2011/12/06/why-home-prices-are-and-arent-stabilizing/

Q&A: Step-by-step guide to foreclosure

Q&A: Step-by-step guide to foreclosure

WEST PALM BEACH, Fla. – Nov. 29, 2011 – Question: I read in the paper that the banks are starting the foreclosures again. I just got served with a foreclosure lawsuit. Can you explain the process in layman’s terms?

Tony

Answer: Each state has different versions of the foreclosure process. In Florida and some other states, a lender must get permission from a judge before it can repossess your home.

When you are served with a foreclosure lawsuit, your lender files a “complaint” against you, laying out the facts as it sees it. It’s basically telling a story as to why it thinks that it should get your house as payment toward the debt that you owe.

Along with the complaint, it serves several other documents, such as the “summons,” which gives the court power over you, and the “lis pendens,” which is a document filed in the public records to let everyone know that the property is the subject of a lawsuit.

When you are served with a lawsuit, you typically have 20 days to respond or you will be in “default,” which means that you have waived all of your defenses to the lawsuit, allowing the bank to proceed with the foreclosure. This is not a good idea. At this point, your attorney will respond to the suit with a “motion to dismiss” or an “answer.” If your attorney feels that the bank has no chance to win based on everything that it alleged in the complaint, he or she will file a motion to dismiss the suit.

If, however, the suit is not defective as filed, your attorney will file an answer, in which he or she admits or denies each of the bank’s statements from the complaint. The answer also will also set forth your “affirmative defenses.”

An affirmative defense explains why the bank should not get your home even though you may not be making your mortgage payments.

At this point in the lawsuit, several months or more will have gone by and the attorneys will begin “discovery.” That’s the process of getting to the truth by asking each other questions and getting documents from the other side for review.

During the discovery phase, you and your lender will probably go to a “mediation.” In a mediation, both you and your lender will lay out your side of the story before an unbiased third party, the mediator, who will encourage you both to voluntarily settle the case. At a mediation, no one is forced to settle the case. Both sides need to agree.

The discovery process can take six months or more. Once it is complete, you or your lender may make a “motion for summary judgment,” which is basically saying to the court that your side of the case is so strong that there is no possible way for you to lose. Most foreclosure cases end at the summary judgment hearing because the judge rules for the lender. But if the judge thinks there are still some questions to be answered, there will be a trial. At trial, the judge (or jury) will determine the truth and decide who wins the case.

If you win, the lender has failed and you keep your house. If the lender wins, which is much more likely, the judge will set a date for your home to be sold, with the proceeds from the sale going toward paying your lender back for the money that you borrowed.

If the fair market value of your home is not enough to pay your loan back in full, your lender may ask for a “deficiency judgment.” That gives the lender the right to come after you for the difference between the market value of your home and the amount that you owe your lender.

If the sale brings more money than you owe your bank, you get back what’s left over. (Check with an attorney about the process for receiving any refund.)

If you hire an attorney, the entire process typically will take about two years, during which time you can be working with your lender toward a loan modification, short sale or deed in lieu of foreclosure. Of course, if all else fails, there is always bankruptcy, but that’s a different topic for another column.

About the writer: Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program. Send him questions online at http://sunsent.nl/mR20t7 or follow him on Twitter @GarySingerLaw.

The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.

© 2011 the Sun Sentinel (Fort Lauderdale, Fla.), Gary M. Singer. Distributed by McClatchy-Tribune News Service.

Original Post: http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=267984

How to Figure the Fuzzy Math of Internet Home Values

Original Post: http://online.wsj.com/article/SB10001424052970204554204577026131448329006.html?mod=WSJ_RealEstate_RIGHTTopCarousel

By ALYSSA ABKOWITZ

Jason Gonsalves worked hard to turn his 6,500-square-foot stucco-and-stone home in the suburbs of Sacramento into the ultimate grown-up party pad, complete with game room, custom wine cellar and an infinity-edge pool overlooking Folsom Lake. When interest rates fell recently, Mr. Gonsalves, who runs a lobbying firm, looked into refinancing his $750,000 mortgage. That's when he got startling news—the home had dropped more than $200,000 in value while he was renovating.

Scott Pollack

Or at least, that's what one real-estate website told him. Another valued the house at only $640,500. And these online estimates left him all the more confused when a real-life appraiser, assessing the house for the refinancing loan, pinned its value at $1.5 million. "I have no idea how those numbers could be so different," Mr. Gonsalves says.

Right or wrong, they're the numbers millions of consumers are clamoring for. After years of real-estate pros holding all the informational cards in the home-sale game, Web-driven companies like Zillow, Homes.com and Realtor.com are reshuffling the deck, giving home shoppers and owners estimates of what almost any home is worth. People have flocked to the data in startling numbers: Together, four of the biggest sites that offer home-value estimates get 100 million visits a month, with web surfers using them to determine what to ask or bid for a home, or whether to refinance.

Zillow, Trulia and other websites post estimates of home values. But as Alyssa Abkowitz explains on Lunch Break, these popular sites can be -- by their own admission -- wildly inaccurate.

But for figures that can carry such weight, critics say, the estimates can be far rougher than most people realize. Valuations that are 20% or even 50% higher or lower than a property's eventual sale price are not uncommon, as the sites themselves acknowledge. The estimates frequently change, too—sometimes by hundreds of thousands of dollars—as sites plug new data into their algorithms.

More

• What the Sites Get Right and Wrong

All of the competitors make it clear their numbers are guesstimates, not gospel. "A Trulia estimate is just that—an estimate," says a disclaimer on that site's new home-value tool. Zillow goes a step further, publishing precise numbers about how imprecise its estimates can be. And every major site urges home-price hunters to consult appraisers or real-estate agents to refine their results.

But despite the disclaimers, homeowners and real-estate agents say, many Web surfers put enough faith in the estimates to sway the way they shop and sell.

After Frank and Sue Parks put their manor-style house in Louisville, Ky., on the market, they watched as Zillow put a $331,000 value on the dwelling in May; by July it had climbed to $1.5 million. (Zillow says the lower estimate reflected errors in its statistical model.) The couple got potential buyer referrals from the site, but they fended off a stream of lowball offers before they sold this fall. Mrs. Parks says the estimate roller coaster "really affected our ability to move the place."

Determining a home's value has traditionally been the job of an appraiser, who gathers data on recently sold homes and compares them with the "subject property" to arrive at an estimate.

In the late 1980s, economists started developing automated valuation models, or AVMs, computer models that could analyze data about comparable sales, square footage, number of bedrooms and the like, in a matter of seconds. For years, these tools were mostly reserved for in-house analysts at lending banks.

It wasn't until 2006 that Zillow took them to the masses, with its Zestimates, which now offer values for more than 100 million homes based on the company's own algorithms. "Humans don't make these decisions," says Stan Humphries, chief economist at Zillow.

Numbers like these have become weapons in the arsenal of consumers like Simms Jenkins, an Atlanta marketing executive, who has recently relied on online estimates to help him both buy and sell homes. "I can't imagine 25 years ago, when people would just go out and spend their entire Saturday looking at homes," he says. "You don't have to do that now."

But appraisers and real-estate consultants say the online models can veer off target with alarming frequency. Most data for the models come from two sources: records from tax assessors and listing data for recent sales. Collection is a challenge, however, because not every county tracks properties the same way—some calculate home size by number of bedrooms, others by overall square footage. And automated models aren't designed to account for the unique construction details that often make or break a deal, or for intangible factors like a neighborhood's gentrification. "You cannot use a computer model in certain areas and expect the value to come out right," says John May, the former assessor of Jefferson County, Ky., which includes the state's largest city, Louisville.

For all these reasons, models that banks use often add a "confidence score" to their estimates. Consumer-oriented sites, meanwhile, rely on disclaimers, some of which are eye-opening. Zillow surfers who read the "About Zestimates" page find out that the site's overall error rate—the amount its estimates vary from a homes' actual value—is 8.5%, and that about one-fourth of the estimates are at least 20% off the eventual sale price. In some places, the numbers are far more dramatic: In Hamilton County, Ohio, which includes Cincinnati, it's 82%.

The sites argue that, over time, edits and corrections will help them perfect their numbers—with many fixes coming from their customers.

On Homes.com, anyone who knows a homeowner's surname and the year the home was last purchased, can edit the details of a property listing in ways that can eventually change the estimated value.

Zillow has accepted revisions on 25 million homes—perhaps the strongest testament to how seriously consumers take its estimates. Today, the site says its figures are accurate enough to give consumers a good sense of any home's value. In the meantime, says Mr. Humphries, its economist, "We're always tweaking the algorithm or building a new one."
—Email: editors@smartmoney.com

Windows Over Broadway

Homeowners Richard and Harriet Fields have learned to live their lives on display. The floor-to-ceiling windows in their loft in Manhattan offer great views and a lack of privacy.

Beverly Hills Selling Spree

Jennifer Aniston nabs $36 million; high-end homes are moving in the wealthy enclave

By JULIET CHUNG OCTOBER 28, 2011 for WSJ.com

In August, fashion designer Vera Wang bought a midcentury modern-style home in Beverly Hills for $9 million from real-estate investor and designer Steven Hermann. He'd bought it for $5 million in 2008, then spent more than $3 million on a gut renovation.

In nearby Holmby Hills, Lions Gate Entertainment Chief Executive Jon Feltheimer and his wife, Laurie, recently sold a five-bedroom home that they had bought in 2009 for $9.8 million. A family spokesman said the Feltheimers intended to build a new home but sold after deciding the process would be too time-consuming. They got $14.4 million, from Russian soccer player Gurgen Khachatryan.

At a time when luxury homes are making up an increasingly large share of foreclosures, an unexpected number of high-end owners in and near Beverly Hills are demanding—and in some cases getting—millions more for properties they've recently bought.

Brokers say the appetite has remained remarkably healthy for prime property in this area, particularly for renovated homes. For the year to date ended Thursday, 25 homes in the greater Beverly Hills, Bel Air and Holmby Hills area had sold for $10 million or more, according to Jeff Hyland of Hilton & Hyland, a Christie's International Real Estate affiliate. That's more than the 16 and 21 sold over the same period in the hot years of 2006 and 2007.

Last summer, Jennifer Aniston sold her nearly 10,000-square-foot Beverly Hills home, which she bought in 2006 for $13.5 million, for $36 million. The actress set a local price-per-square-foot record—$3,600—with the sale. Designed by late architect Harold W. Levitt, the home recalled Bali and featured five bedrooms, extensive stonework and a bridge over a koi pond. A spokesman for Ms. Aniston didn't respond to requests for comment.

Not far from Ms. Aniston's former home is another house designed by Mr. Levitt that's been heavily renovated to include Asian influences. The house went on the market in June asking $14.9 million; it's now asking $10.9 million. Owner Tim Mulcahy says he bought the house speculatively, paying $4.6 million for it last year and spending a further $3.5 million on the renovation. Mr. Mulcahy says he's aware there's a housing downturn but calls Beverly Hills a unique market. "I don't feel I've lost money; I feel that I will have some gain," he adds.

In Beverly Hills' gated enclave of Beverly Park, a European businessman bought a 20,000-square-foot contemporary, sight unseen, for $16.5 million last fall. Now, he is asking $25 million for the house—without having done any work on it.

"We thought, 'Let's throw it up on the market and see what happens,' " says the broker, Josh Altman of Hilton & Hyland, of the home, which sits on nearly seven acres and has a dining room with a grotto and waterfall. The attempted sale makes sense, Mr. Altman says, because he was able to get his client a good price on the home and because similar super-size homes in the area are scarce.

Also testing the waters: Paramount Chairman Brad Grey, who, after buying a home in Holmby Hills in the winter for $18.5 million, put it back on the market in September for $23.5 million. Mr. Grey never intended to sell the property, says his broker, Stephen Shapiro of the Westside Estate Agency. He adds that Mr. Grey decided to sell after renovating another property he owns nearby.

Write to Juliet Chung at juliet.chung@wsj.com

It's Time to Buy That House

By JACK HOUGH
U.S. house prices have plunged by nearly a third since 2006, and homeownership rates are falling at the fastest pace since the Great Depression.

The good news? Two key measures now suggest it's an excellent time to buy a house, either to live in for the long term or for investment income (but not for a quick flip). First, the nation's ratio of house prices to yearly rents is nearly restored to its prebubble average. Second, when mortgage rates are taken into consideration, houses are the most affordable they have been in decades.

Two of the silliest mantras during the real-estate bubble were that a house is the best investment you will ever make and that a renter "throws money down the drain." Whether buying is a better deal than renting isn't a stagnant fact but a changing condition that depends on the relationship between prices and rents, the cost of financing and other factors.

But the math is turning in buyers' favor. Stock-oriented folks can think of a house's price/rent ratio as akin to a stock's price/earnings ratio, in that it compares the cost of an asset with the money the asset is capable of generating. For investors, a lower ratio suggests more income for the price. For prospective homeowners, a lower ratio makes owning more attractive than renting, all else equal.

Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody's Analytics. The average from 1989 to 2003 was about 10, so valuations aren't quite back to normal.

But for most home buyers, mortgage rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains, even if price/rent ratios aren't hitting new lows. The 30-year mortgage rate rose to 4.12% this week from a record low of 3.94% last week, Freddie Mac said Thursday. (The rates assume 0.8% in prepaid interest, or "points.") The latest rate is still less than half the average since 1971.

As a result, house payments are more affordable than they have been in decades. The National Association of Realtors Housing Affordability Index hit 183.7 in August, near its record high in data going back to 1970. The index's historic average is roughly 120. A reading of 100 would mean that a median-income family with a 20% down payment can afford a mortgage on a median-price home. So today's buyers can afford handsome houses—but prudent ones might opt for moderate houses with skimpy payments.

For example, the median home in the greater Phoenix market, including houses, condos and co-ops, costs $121,700, according to Zillow.com. With a 20% down payment and a 4.12% mortgage rate, a buyer's monthly payment would be about $470. Rent for a comparable house would be more than $1,100 a month, according to data provided by Zillow.com.

Of course, all of this assumes mortgages are available—no given now that lending standards have tightened. But long-term data on down payments and credit scores suggest conditions are more normal than many buyers think, according to Stan Humphries, chief economist at Zillow. "If you have good credit, a job and a down payment, you can get a mortgage," Mr. Humphries says. "There's more paperwork and scrutiny than five years ago, but things are pretty much like they were in the '80s and '90s."

Not all housing markets are bargains. Mr. Humphries says Zillow has developed a new price/rent ratio that uses estimates for each individual property rather than city medians, to better reflect the choices facing typical buyers. A fresh look at the numbers suggests Detroit and Miami are plenty cheap for buyers, with price/rent ratios of 5.6 and 7.7, respectively. New York and San Francisco are more expensive, with ratios of 17.6 and 17.2, respectively. The median ratio for 169 markets is 10.7.

For investors seeking income, one back-of-the-envelope way of seeing how these numbers stack up against yields for other assets is to divide 1 by the price/rent ratio, resulting in a rent "yield." The median market's rent yield is 9.3% and Detroit's is 17.9%.

Investors would then subtract for taxes, insurance, upkeep and other expenses—costs that vary widely. But suppose total costs were 4% of the purchase price. That would still leave a 5.3% rent yield in the typical market. With the 10-year Treasury yield at 2.2% and the Standard & Poor's 500-stock index carrying a dividend yield of 2.1%, rents for residential housing in many markets look attractive.

A few caveats are in order. First, not all transactions are average ones. Even in low-priced markets, buyers should shop carefully. Second, prices could fall further. Celia Chen, a senior director at Moody's Analytics, expects prices to drop 3% before bottoming early next year and rising slowly thereafter. "If the economy slips back into recession, however, we could easily see a 10% drop," Ms. Chen says.

And property "flipping" can be dangerous even when prices are rising. That is because, absent a real-estate boom, house price gains simply aren't that exciting. Research by Yale economist Robert Shiller suggests houses more or less track the rate of inflation over long time periods.

Houses aren't the magic wealth creators they were made out to be during the bubble. But when prices are low, loans are cheap and plump investment yields are scarce, buyers should jump.
—Jack Hough is a columnist at SmartMoney.com. Email: jack.hough@dowjones.com

Coldwell Banker: Inside Malibu's Famous $75 Million Mansion

Coldwell Banker's Chris Cortazzo presents a tour of the home where 'True Blood' and 'Funny People' were filmed.

Report: Fannie Mae, Regulator Missed Foreclosure Abuses

Original Post: http://blogs.wsj.com/developments/2011/10/03/report-fannie-mae-regulator-missed-foreclosure-abuses/

By Alan Zibel and Nick Timiraos

Mortgage titan Fannie Mae and its federal regulator failed to pay enough attention to mounting evidence of abuses at foreclosure-processing law firms until the issue gained broad public attention last year, a federal watchdog says.

The inspector general of the Federal Housing Finance Agency, in a report being released Tuesday, questioned Fannie Mae’s oversight of law firms that conduct foreclosures on its behalf.

Fannie uses a network of law firms to handle foreclosures for the banks and other mortgage servicing companies that collect payments on loans backed by Fannie. The network arrangement allows Fannie to negotiate discounted rates with approved firms, which in turn can lock in business from the nation’s largest mortgage investor.

The inspector general’s report indicated that the FHFA had a growing awareness of potential foreclosure-processing problems in June 2010, when it conducted a two-day field visit to Florida. The FHFA, according to the inspector general, found that “documentation problems were evident and law firms…were not devoting the time necessary to their cases due to Fannie Mae’s flat fee structure and volume-based processing model.”

After that Florida trip, FHFA staff told Fannie officials that its attorneys were “increasingly unprepared when they enter the courtroom,” leading to a larger backlog of foreclosures.

But the warnings weren’t enough to head off widespread document problems that surfaced months later. In September 2010, banks suspended foreclosures after it emerged that they were using so-called robo-signers to process hundreds of documents without verifying their contents. Fannie and its smaller sibling, Freddie Mac, terminated one of their main Florida law firms last November after uncovering widespread abuses.

In a review completed by the FHFA this past January, the regulator concluded that Fannie Mae could have reacted to foreclosure deficiencies sooner. It also found that Fannie had “inadequate” controls and monitoring of its legal network.

Homeowners “shouldn’t have to worry whether they will be victims of foreclosure abuse,” said Steve Linick, the inspector general. The failures by FHFA and Fannie to provide proper oversight of foreclosure attorneys represent a “breach of the public trust and an assault on the integrity of our justice system,” said Rep. Elijah Cummings (D., Md.), who made the initial request for the inspector general to conduct the report.

An FHFA spokeswoman said that the FHFA is “concluding our supervisory work in this area and we will direct the enterprises to take whatever action is warranted once we are done.” Fannie Mae declined to comment on the report.

Fannie last year hired an outside law firm to do compliance for its legal network and to conduct a review of its largest Florida law firms. But the inspector general faulted those reviews for being too narrow in scope and said they “missed the opportunity to confirm and provide a better understanding of the allegations of foreclosure abuses.”

The report also said that the FHFA should have a formal process to share information about “problem law firms.” For example, the report said Freddie Mac last year terminated a law firm that processed over 43% of Fannie Mae’s foreclosures in Florida and voluntarily told Fannie it had terminated the firm, in part due to foreclosure processing abuses. Fannie decided to retain the firm, the report said, in part because it concluded that the cost of transferring its files to a new firm “would be substantial.”

The report also noted that Fannie had been aware of potential problems with legal filings in foreclosures since late 2003, when a Fannie Mae shareholder notified the company of potential abuses. An outside law firm, Baker & Hostetler LLP, conducted an independent review for Fannie in 2006 in response to the shareholder’s allegations. The report’s findings were first reported by The Wall Street Journal in March.

The 2006 review found no evidence that homeowners had been improperly placed in foreclosure, but it said that foreclosure attorneys working on Fannie’s behalf in Florida had “routinely made” false statements in court in an effort to more quickly process foreclosures, among other warnings.

Fannie officials also told investigators in 2006 that the company had opted against performing regular reviews of its foreclosure attorneys because the company’s lawyers felt the firm would be better insulated from responsibility for misconduct. The report said the approach was under review at the time, and Fannie in 2008 revamped its attorney network.

A Fannie spokeswoman said the company took a series of steps to address specific issues identified by the 2006 report.

• Fannie Mae,
• Federal Housing Finance Agency,
• Foreclosures

Why You Should Consider Buying a New Home

In this day of drop-dead prices on existing homes, why would anyone shell out for a new house? Amy Hoak on Lunch Break says there are a few good reasons why home buyers should not ignore new-home construction in their search.

Rate Drop Spurs Home Refinancing

By NICK TIMIRAOS SEPTEMBER 24, 2011 for WSJ.com

The 30-year fixed-rate mortgage dipped below 4%, possibly triggering a refinancing boom for many of the same borrowers who already have taken advantage of rock-bottom interest rates.

According to a survey by Credit Suisse on Thursday, lenders were offering an average rate of 3.91% on 30-year fixed-rate mortgages to borrowers who paid "points," or fees, worth 1% of the loan balance.

Wells Fargo & Co. advertised on its website Friday afternoon a 3.875% rate on a 30-year fixed-rate mortgage, with fees of 1% on the loan.

Lou Barnes, a mortgage banker in Boulder, Colo., refinanced four borrowers on Thursday into 30-year fixed-rate mortgages at 3.875%. "At this point, the only people being helped are those who need it the least," he said.

For the home-sales market, low rates will help make homes more affordable, but may not boost home buying if consumers are worried about the economy.

"Today, the buyers' concern is the falling value of homes," said Mr. Barnes. "I've had potential buyers say: 'I don't care if rates are zero if prices are going to fall again.' "

Mortgages rates fell this past week after the Federal Reserve announced Wednesday that it would begin plowing payments from its portfolio of $885 billion in government-backed mortgage bonds back into mortgages. That caused a rally in the mortgage market because the Fed's move eliminates the risk that the central bank would be forced to sell its mortgage holdings as refinancing increases.

Mortgages rarely have been this cheap. A 1961 study by the National Bureau of Economic Research shows that loans made to World War II veterans in the late 1940s were available with 4% rates.

More than 60% of borrowers with a 30-year fixed-rate mortgage could reduce their mortgage rate by one percentage point, up from 42% at the beginning of August, according to Credit Suisse.

But some borrowers haven't been able to refinance rates because they can't qualify under loan standards that are much tighter than at the time of their first loan. Other borrowers don't have enough equity in their home to refinance.

Before the housing crisis, refinancing tended to jump when borrowers were able to lower their rate by 0.5 percentage point. Since 2009, mortgage applications have taken longer to process, while riskier borrowers have faced higher refinancing costs. As a result, borrowers typically now refinance when rates are 1.5 percentage points below their current rate, according to Bank of America mortgage analysts.

Donald Fraser, a 56-year old pathology assistant who shaved a full percentage point off the 4.875% mortgage he got last year, said he plans to stash most of the $2,700 a year in savings into retirement. "I don't think we'll ever see these rates in my lifetime or yours," he said.

It isn't clear how much these lower rates will help the economy, in part because a weakening economy is fueling the decline.

"We felt lucky. At the same time, we're lucky at the expense of a suffering market," said Richard Klompus, who refinanced his Glastonbury, Conn., home with a 4%, 30-year fixed-rate mortgage.

Mr. Klompus, 49, had a hybrid adjustable-rate mortgage that carries a 4.5% rate for the first five years before moving to a variable rate. He paid tens of thousands of dollars to pay down his loan balance to $417,000, the maximum size for loans eligible for purchase by mortgage companies Fannie Mae and Freddie Mac.

To encourage refinancing, Obama administration officials and U.S. regulators are in talks with lenders about ways to revamp an existing White House refinancing initiative designed to help borrowers with little or no equity. The program is open to borrowers whose loans are backed by Fannie and Freddie, which guarantee about half of all outstanding home loans.

The Federal Housing Finance Agency, which oversees Fannie and Freddie, is weighing a series of changes to the program, which has been snarled by a series of technical hurdles. Just 838,000 borrowers have refinanced, short of the hoped-for four million to five million. Just 63,000 of those borrowers have loans worth more than 105% of their home value.

"It hasn't worked, to be honest," said James Parrott, a top White House housing adviser, in a speech to industry executives this week. He said the housing market is at a "critical juncture" and policy decisions over the next six months could determine whether the economic headwinds are "going to be a blip or a broader struggle."

A separate question is whether banks will be able to handle the volume of mortgage applications.

Banks recently have laid off mortgage employees in anticipation of lower loan volumes, while shifting others to the backlog of delinquent loans. The reduced ability to handle loan volumes means that banks have charged higher rates relative to their borrowing costs, muting the decline in rates.

Write to Nick Timiraos at nick.timiraos@wsj.com

Can Record Low Mortgage Rates Help You?

Interest rates for fixed-rate mortgages are at all-time lows. But does it make sense to refinance? MarketWatch's Andrea Coombes outlines the pros and cons, including costs, appraisals and risks.

Six Steps That Could Boost Refinancing

By Nick Timiraos

Associated Press

The Obama administration and the Federal Reserve are looking for ways to help more homeowners refinance.

Mortgage rates have dropped—again—to their lowest levels in the last 50 years. A Freddie Mac survey showed that 30-year fixed-rate mortgages averaged 4.12% this week, down from 4.22% last week.

But demand for new loans or refinancing remains muted, underscoring reasons why policy makers at the White House and Federal Reserve are thinking about new ways to help more homeowners refinance.

In Tuesday’s Outlook column, we looked at one of the great puzzles of the government’s initial response to the housing crisis: why few underwater borrowers have refinanced their loans through a White House program that was launched more than two years ago.

The Home Affordable Refinance Program allows underwater borrowers whose loans are backed by Fannie and Freddie to refinance. Under HARP, borrowers with loans worth 80% to 125% of the value of their house can refinance without putting down more cash or taking out mortgage insurance—those steps are often so costly that it no longer makes sense to refinance.

While 838,000 loans had refinanced under the program through June, fewer than 63,000 mortgages with loan-to-value ratios between 105% and 125% had refinanced. Fannie and Freddie guarantee millions of loans that are underwater.

The White House could take a number of steps to revamp the program, though many of these steps would require the blessing of Fannie and Freddie’s regulator, the Federal Housing Finance Agency. Here are six that policy makers would be likely to consider:

• Remove the eligibility date. Currently, loans that were originated after June 2009 aren’t eligible for HARP, and loans that have already refinanced once through HARP can’t be refinanced again.
• Eliminate the 125% loan-to-value cap. Nearly one in 13 loans backed by Fannie Mae can’t participate in the HARP program because they’re too far underwater. These loans weren’t eligible initially for HARP because they can’t be sold into standard pools of mortgage-backed securities issued by Fannie and Freddie. Some analysts have suggested that the Federal Reserve could buy these loans as one way to facilitate the program.
• Waive risk-based fees that Fannie and Freddie charge. The firms charge lenders extra fees for riskier borrowers, which effectively raises the rate and reduces the incentive for underwater borrowers to refinance. “It wouldn’t be just a refinance boom for the pristine credits. It would open it up for middle America as well,” says Bob Walters, chief economist at Quicken Loans.
• Streamline the application process to tamp down closing costs. Eliminating appraisals, waiving title insurance requirements, and simplifying the refinance process could reduce fees that may have discouraged underwater borrowers from refinancing. (There’s much more on this in a paper by mortgage-market consultant Alan Boyce and Columbia Business School economists Glenn Hubbard and Christopher Mayer.)
• Address second mortgages and mortgage insurance. Using the HARP program for borrowers who are underwater has proven “extraordinarily difficult,” says Mr. Walters, because many borrowers have second mortgages or mortgage insurance from companies that must sign off on the new loan. Coming up with a way to gain automatic pre-approval from participating second-lien holders and mortgage insurers could accelerate underwater refinancing.
• Indemnify lenders against the potential for “put-backs.” This is a big one. Many banks have been reluctant to refinance borrowers under HARP, or are charging hefty fees, because of the concern that they’ll have to buy back the loan from Fannie and Freddie if it defaults.

Of course, any uptick in refinancing would come at the expense of bondholders, muting some of the economic boost. A working paper from the Congressional Budget Office provided some estimates around the benefits and costs of refinancing more borrowers.

Fixing one or two of these steps would help at the margins. Dealing with all of them would provide a bigger boost to refinancing. And all of them stop short of the “blanket refinance” that some analysts have proposed, where Fannie and Freddie would automatically refinance borrowers with an above-market rate, whether they ask for it or not.

“Mass refinance” programs aren’t as likely to happen because they threaten to create significant uncertainty for mortgage-bond investors. Officials may be reluctant to take steps that reward yesterday’s borrowers at the expense of tomorrow’s.

Follow Nick on Twitter: @NickTimiraos

Original Post: http://blogs.wsj.com/developments/2011/09/08/six-steps-that-could-boost-refinancing/

What Did Fannie, Freddie Know?

By RUTH SIMON And NICK TIMIRAOS

The 17 lawsuits filed Friday by federal regulators against some of the world's biggest financial institutions hinge on a simple premise: The mortgage loans that banks packaged into securities often didn't meet the underwriting guidelines the banks outlined in their securities filings.


The lawsuits, filed by the Federal Housing Finance Agency, allege that the banks made untrue statements and omitted key facts when they sold mortgage investments to loan giants Fannie Mae and Freddie Mac.


The suits involve $196 billion in mortgage bonds packaged by some of the world's biggest banks. In addition to the banks, the suits name more than 100 executives who signed offering statements for the securities. Several of the named banks denied the allegations, didn't respond to requests for comment or declined to comment.


The FHFA didn't specify how much it is seeking in damages.


Fannie and Freddie don't make loans directly, but they support housing markets by buying mortgages from banks and then selling them to investors as securities, providing guarantees to investors.
During the housing boom, the two companies augmented their role in the housing market by purchasing privately issued mortgage securities as investments.


It is those investments at issue in the suits. Analysts said the cases could ultimately turn on whether the FHFA can show that Fannie and Freddie, given all their expertise in evaluating mortgage risks, were misled about the quality of the loans backing those investments.


Citing detailed loan information, the FHFA lawsuits allege that the banks repeatedly misrepresented or made untrue statements about basic characteristics of loans in the securities, such as the portion of borrowers who lived in their homes and the percentage of the property's value being financed.


Banks "routinely" packaged loans into securities even though they had been flagged by third-party due diligence firms as not meeting underwriting guidelines, according to the lawsuits.


"It's a great myth that you can't defraud sophisticated financial parties," said William K. Black, a former bank regulator involved with hundreds of successful savings-and-loan-era prosecutions. "Models cannot protect you against fraudulent loans" or inadequate disclosures.


The FHFA's review of a sample of loans in one Goldman Sachs Group Inc. bond deal cited in a lawsuit found that the portion of properties that appeared not to be owner-occupied was nearly double the amount stated in the prospectus supplement.


Goldman Sachs declined to comment.


The banks are likely to argue that Fannie and Freddie knew that the loans were risky and that losses were due to underlying economic conditions, not faulty underwriting. "It will become clear that the plaintiffs knew as much as the defendants about the quality of these loan portfolios," says Andrew Sandler, co-chairman of BuckleySandler LLP, a law firm representing banks in litigation and regulatory enforcement actions.


Roughly a dozen investors and government agencies, including at least five federal home loan banks, American International Group Inc. and the National Credit Union Administration, have filed similar lawsuits.


Both the FHFA and NCUA have an edge over some other plaintiffs because they have subpoena power that has provided them with access to loan files.


Given that evidence from the loan files, "it would be amazing if these complaints do not survive motions to dismiss," said David Grais, an attorney in New York who represents several Federal Home Loan Banks in similar legal actions. Many of the other lawsuits are still in their early stages; most have survived motions to dismiss.


Write to Ruth Simon at ruth.simon@wsj.com and Nick Timiraos at nick.timiraos@wsj.com

For Sale: Malibu's $49 Million Winery Estate

Carole King's Ranch at a 37% Discount

Carole King's ranch has gotten a major price cut to $11.9 million, from $19 million in 2006, a 37% discount. Candace Jackson has details on The News Hub.

Survey Finds Some Homes Underpriced

By NICK TIMIRAOS

Home prices in some of the nation's hardest-hit metro areas have fallen far below pre-bubble levels, stirring concerns that properties in those markets are undervalued.

In a recent analysis, real-estate firm Zillow Inc. studied the correlation between home prices and annual incomes over the 15-year period that ended in 2000, before home prices began to surge.

For decades, price-to-income levels have moved in tandem, with a specific housing market's prices rising or falling in line with local residents' incomes. Many economists say that makes the price-to-income ratio a good gauge for determining whether housing is undervalued or overvalued for a given market.

Zillow found property prices in one-third of nearly 130 housing markets across the nation were undervalued, when compared with residents' current income and the pre-bubble trend.

"At a broad level, it is helpful to understand that if people in certain markets paid three times their average income in housing before the bubble, those markets are probably going to get back to that level," said Stan Humphries, chief economist at Zillow.

The analysis underscores a broader point: While the nation's housing markets largely fell and rose together during the housing boom and bust, they aren't likely to hit bottom and begin recovery at the same time or pace. The Zillow analysis shows that many markets still appear to be overvalued.

For the U.S. as a whole, home prices were around 2.9 times incomes from 1985 to 2000. But during the housing boom, values increased at a much faster rate than incomes. The price-to-income ratio peaked at around 5.1 in 2005. Home prices have since fallen so that on average, nationally, prices are around 3.3 times incomes, or about 14% above the historical trend.

Of course, prices have fallen much faster in certain markets. In Las Vegas, home prices are now 25% below their historic price-to-income trend of 2.7. During the housing bubble, that ratio more than doubled to 5.6. Home prices have been falling for the past five years, and by March, prices were just 2.1 times household incomes.

Home prices are undervalued by 35% in Detroit; by 18% in Modesto, Calif.; and 13% in Fort Myers, Fla.

"Values dropped so far that there are just great bargains," said Dan Elsea, president of brokerage services for Real Estate One in the Detroit area. For years, layoffs in the automobile sector contributed to a "total freeze on activity," he said. But over the past six months, as the industry has recovered, "you have this dam burst of people saying, 'We're ready to buy.'"

Elsewhere, prices are so low that more investors are scooping up foreclosed properties and renting them out. Since March, Ron Leis, a real-estate agent in Sacramento, Calif., has spent about $500,000 to buy four foreclosed properties that have been converted to rentals. Investors can cover their monthly costs and make an 8% to 12% profit "pretty easily," he said. "We haven't seen that in 20 years."

Prices have fallen in some markets that didn't see a big runup in home prices, such as Rochester, N.Y., and Dallas, leaving them slightly below their historic price-to-income levels.

Housing also has grown more affordable thanks to mortgage rates,falling to near their lowest levels since the 1950s. Last week, the 30-year fixed-rate mortgage averaged 4.32%, according to a survey by Freddie Mac.

Aaron Holley hadn't even thought about buying a home until he looked into consolidating his student-loan debts and saw how interest rates and home prices had fallen. "I never actually thought there was going to be the possibility of me owning a home in the state of California," said Mr. Holley, 29, who last month bought a three-bedroom home in Santa Rosa, Calif., for $260,000. He locked in a 4.38% fixed rate on a 30-year mortgage.

Zillow's report shows that home prices in Santa Rosa are around 4.9 times area incomes, down from a peak of 9.4 in 2005 and back to levels not seen since 1999. Prices are still higher than the 1985-2000 average of 4.1 times incomes. The prospect that home prices will decline further "bothers me a little bit," says Mr. Holley, who works as a concept artist for a videogame company. "But at the same time, I feel like I got a good deal."

Some of the most overvalued housing markets, according to the Zillow analysis, include Virginia Beach, Va.; Honolulu; and Charleston, S.C. In Virginia Beach, Va., for example, prices would have to fall by 50% to hit their traditional relationship to incomes.

Other areas where price-to-income levels show that housing is still overvalued, such as Washington, D.C., may not see prices fall further due to structural changes in the economy. Second-home markets that have more out-of-market homebuyers also tend to have more volatile price-to-income levels.
 

Write to Nick Timiraos at nick.timiraos@wsj.com