Fannie Mae to Drop Down Payment Rules in Worst Areas

By Jody Shenn
Bloomberg.com

Fannie Mae, the largest U.S. mortgage-finance provider, will stop requiring bigger down payments in regions where home prices are dropping, responding to criticism from consumer and industry groups who said the company is exacerbating the housing slump.

The policy, adopted in December, will end June 1, Washington-based Fannie Mae said this week in a statement. Potential homeowners approved by the company's automated computer program will be able to borrow up to 97 percent of the value of the property, the company said. Other loans will be accepted with loan-to-value ratios of up to 95 percent.

"We've been working on ways to meet the market's need to recover,'' Marianne Sullivan, Fannie Mae's senior vice president for single-family credit policy and risk management, said in a telephone interview.

Fannie Mae and McLean, Virginia-based Freddie Mac, the biggest sources of money for U.S. mortgages, had been tightening lending standard to limit losses, also introducing new fees on riskier loans and raising required credit scores. More than 80 housing advocates, mostly small-community groups, sent letters to Fannie Mae Chief Executive Officer Daniel Mudd and Freddie Mac CEO Richard Syron last month asking for the policies to be withdrawn.

The government-chartered company said it can handle the changes, reported earlier by the Wall Street Journal, because it's changing the computer models it uses to assess whether it will accept specific loans.

Fannie Mae fell $1.21 to $29.02 at 10:17 a.m. in New York Stock Exchange composite trading, after dropping 24 percent this year. Freddie Mac declined 76 cents to $26.51. The stock is down 20 percent this year before today.

Borrow More

Fannie Mae reported a first-quarter loss of $2.19 billion May 6 amid rising homeowner defaults, and said that it will cut its dividend and raise $6 billion in capital as it grapples with the worst housing market since the Great Depression.

Home prices in 20 U.S. cities fell in February by the most on record, the Standard & Poor's/Case-Shiller home price index showed on April 29. The measure dropped 12.7 percent from the same month last year.

Fannie Mae tightened its policy on borrower equity in December as foreclosures soared to records. The adjustments required an additional 5 percent equity over the levels required on similar loans from borrowers with properties in areas such as parts of California, Nevada and Florida.

Discriminatory

The National Association of Home Builders and National Association of Realtors complained the companies' changes are deepening the housing crisis. Fannie Mae said May 6 that it would loosen some other guidelines, such as allowing refinancing of non-delinquent mortgages for as much as 120 percent of property values and agreeing to buy "jumbo'' mortgages for the same prices as smaller loans.

Housing advocates such as the Oak Park Regional Housing Center in suburban Chicago complained that by basing requirements for 5 percent larger down payments on the state of housing markets in certain zip codes, rather than broader metropolitan areas, Fannie Mae was in engaging a type of discrimination called redlining. The term refers to the illegal practice of banks denying loans and other services to certain areas, typically minority neighborhoods.

Need Insurance

Congress created Fannie Mae and Freddie Mac to increase mortgage financing and provide market stability. The companies, which own or guarantee more than 40 percent of the $12 trillion in U.S. residential mortgage debt, profit by holding mortgage assets that yield more than their debt costs, and from fees charged to guarantee bonds they create out of loans.

The U.S. Senate Banking Committee yesterday agreed on legislation that would overhaul regulation of Fannie Mae and Freddie Mac.

Borrowers will still need to find mortgage insurers that will accept the loans, said Brian Simon, senior vice president at Mount Laurel, New Jersey-based mortgage bank Freedom Mortgage Corp.

The companies are required by law to have borrowers who want to put less than 20 percent down obtain private mortgage insurance from companies such as MGIC Investment Corp. and PMI Group Inc., which have been tightening policies.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula

By Kenneth R. Harney
Realty Times

Don't break out the champagne glasses quite yet, but there are more economic signs this week that the worst is over for the three year real estate correction cycle.

One of the country's most prestigious groups of market forecasters, the National Association of Business Economists, says housing and consumer credit conditions will stabilize and begin improving as the year moves on. Equally important, said Ellen Hughes-Cromwick, chief economist at Ford Motor and president of the association: The entire U.S. economy will "slowly return to health" this year.

The housing market offered some immediate hints of that recovery with new home starts up by 8.2 percent last month and building permits up by 5 percent. Even in hard-hit southern California, home sales in April were up 22 percent compared to March, according to DataQuick Information Systems.

The mortgage sector continued to cooperate: Rates fell again for the third straight week. Thirty year fixed-rate conventional mortgages averaged 5.8 percent, down from 5.8 percent the week before, according to the Mortgage Bankers Association of America. Fifteen year rates also dropped, averaging 5.5 percent.

Any time we're quoting mortgage rates in the fives, that's GOT to be positive news for home buyers with reasonably good credit.

Why the continuing decline in rates? One reason is that inflation is not a major worry for capital
markets investors at the moment -- even if gas and food prices are over the top for most of us. The latest Consumer Price Index report -- that's the federal government's measure of inflation -- came in at just zero point two percent (0.2%) for April, which is very low. Year over year, inflation is still only around 2.3 percent.

Despite these positive signs, the fact is that consumers are still worried about the overall direction of the U.S. economy. The University of Michigan's bellwether Consumer Sentiment Index registered a 3.1 percent decline last month, continuing a steady downward trend.

That's not helpful for home sales for sure -- and that negative mindset will certainly keep some buyers on the sidelines in the months ahead.

Which is a shame if you look at conditions in most markets objectively. Most of the current numbers add up to an excellent buying opportunity.

Prices are more affordable they've been in several years. There's a bumper crop of houses to choose from. And mortgage money is cheap and getting cheaper. Maybe the message is just taking a little time to get out there.

With an award winning staff of writers providing up to the minute real estate news and advice, thousands of REALTORS® in North America reporting daily market conditions, and a nationally broadcast television news program, Realty Times is the one-stop shop for real estate information. That's why over 10,000 real estate professionals have turned to us for their publicity needs.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula

09:13 PM PDT on Monday, May 19, 2008

By LESLIE BERKMAN
The Press-Enterprise

Riverside County last month saw the first year-over-year sales increase since 2006, as bargain hunters streamed into a market rife with foreclosures.

While Riverside County was the only county in Southern California to log an April-to-April gain, sales surged throughout the region to the highest level since August.

Mark LePage, an analyst at DataQuick Information Systems, which on Monday released the monthly housing report, said the April numbers could signal that home sales in Southern California are close to hitting bottom, even though prices continue to slide steeply. "But we won't know for another three to four months," he added.
Sales are still historically low and LePage cautioned that the housing market could further weaken because of rising foreclosure activity, the possibility of recession-related job losses and a credit crunch that is hindering home financing.

"I call this a false dawn," said Chris Thornberg, an economist with Beacon Economics in Los Angeles. "Foreclosures are not a sign of a stable market. Prices are getting closer to affordability, but they still have some ways to go."

The report shows that prices make a difference, said Leslie Appleton Young, chief economist for the California Association of Realtors.

"It is just a little bit too early to call a bottom," she added.

The median price of homes sold in Riverside County last month dropped almost 31 percent to $283,500 from April 2007, and 33 percent in San Bernardino County to $248,000.

Real estate agents throughout Inland Southern California say since early this year they have seen a growth in home purchases, particularly by first-time buyers who now can nab a house cheap enough so their monthly mortgage payments are no more than what they have been paying in rent.

Cheaper Than Rent

Norm Reynolds, 38, is one of those buyers who decided not to wait for home prices to drop any further. The promotions manager at the KFRG radio station, said he is in escrow to buy a three-bedroom, two-bath house in the Canyon Crest neighborhood of Riverside for $260,000. That would make his mortgage payments $1,300, or $300 a month less than what he is paying in monthly rent on a nearby apartment.

"Right now it is definitely a buyer's paradise. You can have a low budget and find what you are looking for," said Reynolds, who is divorced and is eager to have a house with enough bedrooms and a backyard for his children when they stay with him.

Reynolds, like many others who are home shopping today, discovered that homes priced below $300,000 frequently attract multiple offers. With that knowledge, he said, he offered $4,000 above the list price for the bank-owned house that he bought.

Riverside and San Bernardino counties lead the region in foreclosures as a percentage of resale activity. Homes that had gone into foreclosure in the previous 12 months represented almost 53 percent of April resales in Riverside County and nearly 52 percent in San Bernardino County.

Meli Van Natta, a real estate broker with Prudential California Realty in Moreno Valley, said about 90 percent of the sales in her office are homes repossessed by lenders. She said in the price range up to $250,000, she sees fierce competition and multiple offers. She said in the last three weeks she has written seven offers for one of her clients, none of which were accepted. In one instance, she said, there were 20 competing buyers.

Pete Nyiri, owner of Top Producers Realty in Corona, said his closings have dramatically increased since December. He said buyers seem to be coming from "all over," including Los Angeles and Orange counties, with the vast majority looking for their first houses.

Sales have been spurred by legislation that raised the limit on mortgages insured by the Federal Housing Administration, Nyiri said. He noted that FHA mortgages require proof of income and good credit but are specially designed to accommodate first-time buyers.

Mortgage Availability

Delores Conway, director of USC's Casden Forecast, said although home financing opportunities have improved since the credit crunch began in August, most of the benefit has been for buyers of lower priced homes.

She said it is more difficult for prospective buyers to qualify for so-called "jumbo" mortgages, which are above $500,000 in Riverside and San Bernardino counties.

Bruce Norris, a Riverside-based real estate investor and consultant, said investors would also be buying more foreclosures if it weren't for increasingly restrictive lending qualifications.

Riverside County posted 3,186 homes sales in April, up 6.7 percent from a year earlier and showing the first year-over-year gain since March 2006.

San Bernardino County had 1,667 home sales last month, down about 19 percent from a year earlier but showing a nearly 9 percent increase from March.

San Bernardino County's housing could be trailing Riverside County in sales recovery because it is later in the cycle, having taken longer to see gains as the market skyrocketed, Le-Page said.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula

10:00 PM PDT on Tuesday, May 20, 2008

By LESLIE BERKMAN
The Press-Enterprise

Housing affordability has soared in Riverside and San Bernardino counties and much of California as a result of discounted foreclosed properties, concluded two separate reports released Tuesday by home builders and Realtors.

The share of homes affordable to median-income families in the Riverside-San Bernardino-Ontario metropolitan area doubled to 26.9 percent in the first quarter of this year, up from 13.5 percent in the last quarter of 2007, according to a study for the California Building Industry Association.

Inland Southern California ranks as the 19th least affordable metro area now, compared to 14th after the last rankings.

Also the Inland region has become more favorable for first-time homebuyers, said the California Association of Realtors.

Its report showed the percentage of households able to afford an entry-level home in western Riverside and San Bernardino counties rose to 57 percent in the first quarter from 46 percent the previous quarter and 37 percent a year earlier.

The High Desert, which includes the Victor Valley, and Sacramento were the most affordable areas in California in the first quarter of 2008, while Monterey and the San Francisco Bay Area were the least affordable.

In Riverside County, 57 percent of households had at least a minimum income of $46,450 necessary to qualify to buy the $244,040 entry-level home, assuming a 10 percent down payment, an adjustable interest rate of 5.65 percent and that first-time buyers typically buy a home equal to 85 percent of the prevailing median price.

In the Coachella Valley, 42 percent of households had incomes of at least $52,100 required to afford an entry-level home of $273,710, while 64 percent of High Desert households annually earned $35,620 necessary to buy an entry-level home priced at $187,130.

Narrow Window?

How long this new opportunity for homebuyers will last is uncertain.

Robert Rivinius, the home building association's president and chief executive, said affordability in California remains low and home prices will rise after the current glut of foreclosed homes is sold.

He noted that most affordability gains were in communities most affected by defaults on high-risk subprime mortgages and bank repossessions.

"Affordability in most major metro areas remains at or below 25 percent, and we need our state and federal lawmakers to look at ways to streamline the homebuilding process, restore credit to the market and ease regulations to make housing more affordable when the market corrects itself," Rivinius said in a prepared statement.

Gopal Ahluwalia, vice president of research for the National Association of Home Builders, said he expects home prices to start moving up in 2009.

Nick Manfredi, a professional real estate investor in Corona, said he doesn't expect the steady influx of foreclosures or price declines to end soon.

"I can't even buy right now because prices are decreasing so fast," he said, explaining he can't turn over a property before it becomes less valuable than what he paid for it.

Less Now Buys More

"Affordability is improving no matter what measure you would look at," said Chapman University economist Esmael Adibi.

Adibi said since home prices peaked in the second quarter of 2007, the percent of gross household income needed to make monthly payments for the median-priced home in Riverside and San Bernardino counties has dropped from 40 percent to about 28 percent.

He said he expects the median home price in Riverside and San Bernardino counties could drop another 6 percent to 8 percent over the next 12 months.

Combined with rising incomes, which he estimates will increase an average 3 percent this year, he said the region's housing affordability will further improve.

Even when home prices begin to rise, which he said could happen in the second half of 2009, the rebound will be very gradual and the gains in affordability will last, he said.

"Within the next year is a good opportunity for people to consider buying," Adibi said. "But they should buy something they plan to stay in for seven to 10 years. . . . You should buy something you can afford and a house you'd love to live in and not make money off of."

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula

Here is an interesting article in the May 6 Wall Street Journal:

OPINION

The Housing Crisis Is Over

By CYRIL MOULLE-BERTEAUX

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

Labels: Corona, Foreclosure, Home Prices, Inland Empire, Loan Modification, Moreno Valley, Murrieta, Real Estate, Riverside, Short Sales, Statistics, Temecula