Last month I wrote about a new policy implemented by Fannie Mae that would “lock-out” borrowers from getting a Fannie-Mae insured loan for 7 years if they did a “strategic default” or otherwise did not act in good faith and were foreclosed upon. In a nut shell, the borrower that Fannie Mae is targeting here is the borrower that has the financial ability to make their payments, accept a loan modification or other “work-out” from Fannie Mae but instead chooses just to walk away from their home and letting the lender foreclose.
In addition to locking out borrowers from a new loan for 7 years Fannie Mae has also made it clear in a recent announcement that they will “take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans“. Obviously, they can only do this in those States that allow a lender to sue a borrower for a deficiency but if you live in one of those states are are thinking of doing a strategic default on a Fannie Mae insured loan, you may want to think twice. Or at least be sure you get appropriate legal advice first and explore other options that are available to you.
Fannie Mae said that this month (July) they will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.
For way too long I’ve been writing about record, or near- record, levels of foreclosures and mortgage delinquencies. My ongoing concern about this, in terms of the housing market, is that I just don’t see how we are going to have a sustainable recovery of the housing market while we have 1 in 8 homeowners with a mortgage in the U.S. currently either delinquent on their mortgage or in some stage of the foreclosure process.
Lately there has appeared to be some leveling off of mortgage delinquencies and foreclosure growth is at a slowing rate, both of which are good things. Earlier this week I wrote about a report that came out from LPS Applied Analytics, one of the largest mortgage servicers in the U.S., that discussed the mortgage delinquency rate for May. This morning I was giving more thought to something in the report that I saw the other day but it didn’t hit me at the time but now I realize it is potentially the 800 lb gorilla in the room.
According to the report, the average number of days for a loan to move from 30 days delinquent to foreclosure sale has been steadily increasing and is now at an all-time high of 449 days. So, if you add the initial delinquency, that means on average 479 days lapse from the time a borrower misses a payment until they are foreclosed on. While I love the amount of time the struggling homeowner has to stay in their home before losing it, it concerns me greatly that it is taking about 16 months for the lender to complete a foreclosure, and that this is a record high amount of time. What that tells me is, for one reason or another, lenders are stalling and slowing the foreclosure process so any encouragement we have seen of late in this area may be “artificially created” as the result of lenders reluctance to foreclose rather than a result of the housing market and economy actually improving.
The problem is the lenders can’t put off the inevitable forever…at some point they are going to have to pick up the pace and start foreclosing on loans rather than stalling and that I’m afraid is going to keep the foreclosure rates at levels that will negatively impact the housing market.
After a close brush with a deadline that could have impacted tens of thousands of home buyers, Congress passed an extension of the Home buyer Tax Credit closing deadline.
The extension is included in the Home Buyer Assistance and Improvement Act and will prevent as many as 180,000 home buyers from losing their eligibility for the tax credit. These borrowers had home purchase contracts pending as of April 30 and had until June 30 to close on their purchases to claim the federal tax credit; with this extension, these households now have until September 30 to close and still claim the tax credit.
Separately, the U.S. Senate also passed the National Flood Insurance Program Extension Act of 2010, extending the National Flood Insurance Program until September 30. This will allow home purchases in the 100-year floodplain to move forward. The House passed the bill last week.
St. Louis Mortgage Interest Rates – July 7, 2010 *
30-year fixed-rate mortgage 4.375% no points
15-year fixed-rate mortgage 4.125% no points
5/1 adjustable rate mortgage 3.50% no points
FHA/VA 30-year fixed rate mortgage 4.75%
Jumbo 5/1 ARM 4.125% no points
Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
Homeowners’ mortgage delinquency rates increased in May 2.3 percent from April rising to 9.2 percent of all mortgages being delinquent. This information comes from a report issued by LPS Applied Analytics, one of the largest mortgage servicers in the U.S.
According to the report there are, as of May 31, 2010, 7.3 million home mortgages currently in some stage of delinquency. After seeing a couple of months of improvement there was a turn for the worse in May of the “deterioration ratio”, the reltionship between the number of loans going to a “worse” status for every one that has improved. In May this deterioration ratio increased to 2.5 loans getting worse for every 1 getting better.
Other highlights from the report:
Total U.S. Mortgage delinquency rate 9.20 percent
Total U.S. Foreclosure Inventory Rate 3.18 percent
States with the most delinquent loans and foreclosures:
Florida, Nevada, Mississippi, Georgia, Arizona, California, Illinois, New Jersey
States with the fewest delinquent loans and foreclosures:
North Dakota, South Dakota, Wyoming, Alaska, Montana, Nebraska, Vermont, Colorado, Iowa and Minnesota
When you really give some thought to these statistics I think you’ll find them disturbing, making even sickening, to think that almost 1 out of every 10 homeowners with a mortgage in the U.S. are delinquent on their mortgage (and ultimately at risk of losing their home) and that about 1 in every 8 borrowers are either delinquent on their mortgage or in some stage of foreclosure. So if sometimes while reading my posts you wonder why I seem somewhat negative, or even cynical, toward some of the reports about a “recovery” of the housing market, now you know why. I’m no economist but I just don’t see how we can have a housing recovery while 1 in 8 of us are either losing or at risk of losing our homes.
Mortgage Delinquency and Foreclosure Rates by State:
While there has been much discussion about the causes and effects of the Housing Boom as well as the Bust (including by yours truly in prior posts) I don’t think we need to refrain from continuing to examine this part of history that is affecting millions of people across the country. Perhaps we can learn some lessons from this that will help us avoid another such collapse of the housing market in the future.
My topic today actually has a silver lining of sorts. The topic is debt and how so many homeowners across the country leveraged themselves into a mountain of debt during the housing boom only to later have that mountain collapse on them. My attention was drawn to this subject by a presentation done by Karen Dynan of the Brookings Institution entitled “Household Leveraging and Deleveraging“.
American’s Debt Grew At a Much Faster Pace Than Income
As you can see from the chart below the percentage of American’s disposable personal income that is needed to pay debt payments on mortgage and consumer debt peaked in the mid to late ’80s just over the 12 percent range but then dropped back down to just below 11 percent by the early 90’s. By the height of the real estate boom this percentage had grown significantly and peaked at just under 14 percent in 2007. Clearly the cost of home ownership during the boom was increasing at a faster pace than homeowners income.
Chart by Information St. Louis, Inc. - Data Source Board of Governors of the Federal Reserve
Dynans’ report attributes the rise in debt to having probably been “the combination of increasing house prices and financial innovation.” I think “financial innovation” is a nice way to describe sub-prime, interest only and other such creative ways to finance homes that became prevalent during the boom.
As the chart below depicts, consumers mortgage debt grew dramatically during the housing boom even though “other debt” remained fairly constant.
Source: Household Leveraging and Deleveraging - Karen Dynan
“Everyone” Was Borrowing – Not Just Sub-Prime Borrowers
Contrary to what is sometimes portrayed, it wasn’t just sub-prime borrowers that were racking up debt during the housing boom. The chart below shows a fairly consistent increase in household debt across several demographics.
Source: Household Leveraging and Deleveraging - Karen Dynan
Obviously this rather rapid and intense increase in household debt, particularly mortgage debt, is a major factor behind the record number of mortgage delinquencies and foreclosures we are currently seeing. Rising home prices (at astonishing rates in some markets) during the boom forced many homeowners to take on more mortgage debt than they should. Many even admit buying homes with initial “teaser” interest rates realizing they would not be able to afford the payment in two years when the teaser is gone, but simply planned to sell the home (at a profit) beforehand and move on. This, like musical chairs, works until the music stops as it did in 2007.
The Importance of Defaults
If you have defaulted on your mortgage or lost a home in foreclosure, you are helping out our economy! Well, sort of. According to Dynan’s report, the record rates of charge-offs by lenders of mortgages as a result of defaults and foreclosures that have occurred in the past year has resulted in mortgage debt in 2009 declining 2 percent rather than staying flat.
Source: Household Leveraging and Deleveraging - Karen Dynan
Now for the Silver Lining-
I promised you a silver lining and here it is. American’s now have less household debt! Beginning with the 2nd quarter of 2008 consumers home mortgage debt, after increasing over a trillion dollars just two years before, actually decreased and has continued decreasing every quarter since. Consumer started decreasing as well in the 4th quarter of 2008 but has grown slightly again in the 1st quarter of this year.
Source: Household Leveraging and Deleveraging - Karen Dynan
In addition, as the debt-service chart at the beginning of this post shows, the portion of income that is necessary to pay debts for the American consumer has fallen over 1 percent from it’s peak and is still headed downward.
Is This Self-Control Or Is There No Choice?
Ah, critics could argue that the consumer has not really learned anything from the housing bust and the only reason debt has dropped is that banks and other lenders aren’t lending. Well, it is certainly true that lending standards have tightened significantly and bankers are acting like, uh, well, bankers again (the pre-boom ones) as shown by the chart below. However, Dynan’s report indicates that 20 percent of senior loan officers reported in May 2010 that demand for consumer loans had fallen relative to 3 months earlier. Probably better proof that consumers are exercising self-control is the MBA mortgage application survey which, in recent weeks, have shown a decrease in mortgage applications from both home-buyers as well as home owners seeking to refinance.
Source: Household Leveraging and Deleveraging - Karen Dynan
What Does The Future Hold In Store?
Karen Dynan suggests that we are going to see consumers continue the trend of reducing debt. She bases this on the high ratio of average household debt to assets which, as the chart below illustrates, peaked in the past year at a level that was 50 percent higher than in 2000.
Source: Household Leveraging and Deveraging - Karen Dynan
Dynans’ report goes on to say the following about the future:
Mortgage charge-offs are likely to remain high
Foreclosures will be on the rise again after being delayed by HAMP and other factors
Even when lender’s ease up, new borrowing is going to be dampened due to borrowers lacking home equity
The state of Missouri funded a $15 million tax credit incentive program in January of this year to help spur home sales, but few have taken advantage of the program.
Now, Missouri home buyers must complete the purchase of their home by August 31, 2010 to take advantage of the program. The Missouri Housing Development Commission (MHDC) must receive their HOPE application by September 30, 2010.
HOPE stands for Home Ownership Purchase Enhancement. Homes purchased after August 31, 2010 will not be eligible for the HOPE program.
The HOPE program was expected to pay the property taxes for 9,000 to 11,000 Missouri families.
As of last week less than 1,500 home purchasers are participating. There is approximately $12 million still available for income-qualified home buyers.
You do not have to be a first-time buyer to participate. All tax credit funds are available on a first-come, first-served basis.
In the face of a more austere budget for 2011, Governor Jay Nixon is “slowing down” MHDC’s process of awarding tax credits. His goal is to cut the state’s 2011 budget $350 million and gain legislative approval by the end of this fiscal year on June 30.
Under the HOPE program MHDC provides incentives up to $1,750. Up to $1250 is available to pay the first year property taxes for income-eligible Missourians who buy a new or existing Missouri home after Jan. 1, 2010.
An additional $500 is available for “green” homes or energy-efficient improvements. Homeowners who bought a qualified newly constructed energy efficient home or bought an existing home and remodeled or purchased items, such as Energy Star® appliances, to make the home more energy efficient can apply for the additional money.
In the St. Louis metro the one- to two-person maximum gross household income qualification for the St. Louis MSA counties of Franklin, Jefferson, Lincoln, St. Charles, St. Louis City, St. Louis County, and Warren is $67,900. For a 3+ person household the maximum gross income is $78,085. In MHDC’s designated targeted areas the maximums are $81,480 and $95,060 respectively. For further information, go to the MHDC website: www.mhdc.com
St. Louis Mortgage Interest Rates – June 30, 2010 *
30-year fixed-rate mortgage 4.50% no points
15-year fixed-rate mortgage 4.125% no points
5/1 adjustable rate mortgage 3.625% no points
FHA/VA 30-year fixed rate mortgage 4.75%
Jumbo 5/1 ARM 4.125% no points
Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
According to a report issued by Radar Logic Incorporated government-sponsored enterprises (GSEs) and Federal agencies involved in housing finance currently have an inventory of over 200,000 repossessed homes. Being the largest owner of foreclosed homes in the U.S. gives the government a lot of power and influence over the housing market for years to come as they will generate significant pressure on home prices as they sell off foreclosed homes in the coming years.
Foreclosed homes currently sell at significant discounts to the unpaid balances of the mortgages they back, generating a loss for the seller (i.e., the lender, mortgage investor or government agency) at every sale. As Fannie Mae, Freddie Mac, the Department of Housing and Urban Development (HUD) and the Department of Veterans Affairs (VA) sell their REO (“real estate owned”) inventories for less than the book value on their loans, they generate billions in losses for taxpayers. When the huge numbers of government-insured mortgages in the intermediate stages of default or foreclosure are taken into account, losses from future government REO sales could reach hundreds of billions of dollars.
“For over a year now we have been saying that the GSEs and other Federal agencies will play a critical role in the success or failure of the housing recovery due to their huge holdings of foreclosed homes,” said Michael Feder, President and CEO of Radar Logic. “Now their role is more critical than ever before. The potential cost to taxpayers resulting from the government’s current policies is enormous. We can’t help but wonder if there isn’t a better approach.”
Highlights from the report:
The Federal Government’s REO inventory, including homes owned by Fannie Mae, Freddie Mac, HUD and the VA, has increased steadily for over 24 months and now accounts for approximately 46% of the total REO inventory. This is the government’s largest share of total REO since the beginning of the housing bust.
The Federal Government’s share of total motivated sales (i.e., sales of foreclosed homes by financial institutions) has also increased steadily for over 20 months, and this trend shows little sign of slowing. As the largest owner and seller of foreclosed properties, the Federal Government has unprecedented control over the nation’s housing supply and, therefore, home prices.
Recent reports have shown that mortgage delinquencies may be leveling off, albeit at almost record levels, but this is the first step to the foreclosure rate declining which will help the housing market stabilize. Unfortunately with the number of current foreclosures as well as the gloomy projections for future foreclosures, it will be a while before this happens.
I spent this morning reading a sobering and, quite frankly depressing, report issued by the Center for Responsible Lending that focused on the demographics of people losing their homes as a result of foreclosure. The report is done well and looks at the impact of foreclosures on different races and ethnicity’s and then addresses what they believe to be the cause of this crisis.
While the reports main subject was eye opening, what really got my attention as I went through the report were some of the facts and figures being quoted. This caused me to dig through the reports extensive four-pages of references and citations and then follow those back to the source. A couple of hours, and about 300 pages of paper (there goes my Sierra-Club membership) later I overwhelmed with the sobering statistics I had found concerning foreclosures.
This is a topic that is obviously on-going and affecting many people’s lives and deserves more space than I will give the topic here, but I’ll be talking more about it in the future as well.
Here are some of the facts and figures from the report from the Center for Responsible Lending as well as from some of the various sources their references lead me to:
During the first three years of the foreclosure crisis, from January 2007 through the end of 2009, they (CRL) estimates there have been 2.5 Million foreclosures completed.
83% of these foreclosures were on loans that originated between 2005 and 2008.
82% of the foreclosures were on owner-occupied homes.
According to the Mortgage Bankers Association 4.63 percent of mortgages in the U.S. are in the foreclosure process. This is not only a historic high but is five times higher than the average of all quarterly rates reported by the MBA from 1979 to 2007.
The CRL estimates that, when combining borrowers that are two or more payments behind on their mortgage with borrowers already in the foreclosure process, there are 5.7 million borrowers at imminent risk of losing their homes to foreclosure.
The CRL estimates that 17% of Latino homeowners, 11% of African-American homeowners and 7% of non-Hispanic White homeowners have already lost or are at imminent risk of losing their home.
The CRL estimates that subprime loans account for 64% of the foreclosures during this crisis period, but only account for 22% of the loans originated during the period.
The foreclosure rate on subprime loans is 16.5%, Jumbo Loans 4.4%, Government Insured Loans 3.8% and conventional loans 2.3%.
Credit Suisse, in their December 2008 Foreclosure Update, forecast that 8.1 million mortgages would be in foreclosure over the next four years (this represents 16% of all mortgages in the U.S.- almost 1 out of ever 6 mortgages).
The Credit Suisse estimate for foreclosures, under a recession (which we had) was increased to 9.0 to 10.2 million foreclosures through the end of 2012.
Goldman Sachs, in their Global Economics Paper, Jan 13, 2009) projected 13 million foreclosures by 2014.
A report by Urban Institute estimated the financial cost to local governments of a single foreclosure at $19,229.
CRL estimates that $1.86 trillion will be lost in home equity between 2009 and 2012 due to depreciated home values associated with nearby foreclosures.
When you see these facts and figures I think it is easy to understand why I have a rather conservative outlook on when the housing market will recover. Until the foreclosure crisis begins to show signs of coming to an end, which by the facts above appears to be at least 2 if not 3 or 4 years away, the housing market, and home prices, are going to continue to be impacted negatively by the foreclosures.
So, you have the money to pay on your ‘underwater’ mortgage, or to afford the reduced payment amount offered to you under the HAMP program, but think, rather than throw good money after bad you’ll just do like so many borrowers are doing and ‘walk-away‘? Well, if you have any plans to buy a house again in, say the next seven years, particularly with a Fannie Mae loan, think again.
Today Fannie Mae announced policy changes to “encourage borrowers to work with their servicers”. These policy changes include, a seven-year “lock-out” period for borrowers that default that had the capacity to pay, or did not complete a workout alternative offered to them in good faith. Those borrowers will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers that in fact do have extenuating circumstances may be eligible for a new home loan in a shorter period.
“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”
Thinking about a “Strategic Default”?
There has been a lot of talk lately about borrower’s that “strategically default”; for example, borrowers that have the ability to pay their mortgage payments but stop doing so in the hopes they can get out from under their home in an easier method than selling it in a down market, particularly if they are underwater on their mortgage.
Troubled borrowers who work with their servicers, and provide information to help the servicer assess their situation, can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure. A borrower with extenuating circumstances who works out one of these options with their servicer could be eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances. These policy changes were announced in April, in Fannie Mae’s Selling Guide Announcement SEL-2010-05.
Fannie Mae and Freddie Mac have become two of the nation’s largest landlords. Both institutions took over a foreclosed home roughly every 90 seconds during the first three months of the year. As of the end of March, they owned over 160,000 houses.
The inventory of Fannie and Freddie continue to increase, but their inventory is only a portion of the total foreclosures. The worst loans were made outside of Fannie and Freddie by banks, thrifts or other private label institutions. Most foreclosures are heavily concentrated in a few key states: Florida, Arizona, Nevada, California and Michigan.
With unemployment hovering near 10%, the economic recovery so far is too fragile to expect mortgage rates to rise in the near future.
St. Louis Mortgage Interest Rates – June 23, 2010 *
30-year fixed-rate mortgage 4.65% no points
15-year fixed-rate mortgage 4.25% no points
5/1 adjustable rate mortgage 3.875% no points
FHA/VA 30-year fixed rate mortgage 4.75%
Jumbo 5/1 ARM 4.125% no points
Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
May and June Sales Expected to Remain Elevated as Buyers Rush to Close By June 30th Deadline for Tax Credits.
The deadline to buy a home and qualify for the home-buyer tax credit was April 30th so it’s not surprising we saw pending home-sales increase dramatically in March and April as buyers rushed to get “under-contract” before the April 30th deadline. For those home-buyers that were lucky enough to qualify for the home-buyer tax credit they have, unless Congress extends the deadline, until June 30, 2010 to close on the purchase of their home. Therefore, as I have said before, I fully expect to see “existing home sales” (a report that counts actual “closed” sales) elevated for May and June as these deals close.
Today’s existing home salesreport from theNational Association of REALTORS(R), as expected, shows strong sales for the month of May. Existing home sales in May were at at a seasonally adjusted-annual rate of 5.66 million units which is actually a decline of 2.2 percent from April but is still 19.2 percent higher than a year ago.
Prices on the rise for third consecutive month –
The median home price in the U.S. in May was $179,600 an increase of 4.2 percent from April and an increase of 2.7 percent from a year ago when the median price was $174,800.
Inventory levels rescind-
After increasing for four consecutive months, the number of existing homes for sale in May finally decreased to 3,892,000, a decrease of 3.4 percent from April and an increase of 1.1 percent from a year ago. The number of months “supply” this inventory represented in May, based upon current sales levels, decreased slightly to 8.3 months from 8.4 months in April and a 14.4 percent decrease from a year ago when there was a 9.7 month supply.
Portland, Oregon for the third consecutive month, saw the largest year-over-year increase in existing home sales in May with an increase of 40.6 percent in sales from a year ago.
Boston, Massachusetts went from number three last month to number two for May with a 36.2 percent increase in existing home sales from a year ago.
Philadelphia, Pennsylvania was number three with a 35.7 percent increase in existing home sales from a year ago.
Philadelphia, Pennsylvania led the way in price increases from a year ago, with May’s median home price of $265,700 representing a 28.5 percent increase from a year ago when the median price was $206,800.
San Diego, CA came in second with a median price of $391,400, a 18.2 percent increase from a year ago when it was $331,200.
Phoenix, Arizona came in third with a median price of $144,800, a 10.8 percent increases from a year ago when it was $130,700.
St. Louis saw an increase of 25.5 percent in existing home sales in May from a year ago and an increase of 6.5 percent in median home prices for the same period.
Lawrence Yun, NAR chief economist, said he expects one more month of elevated home sales. “We are witnessing the ongoing effects of the home buyer tax credit, which we’ll also see in June real estate closings,” he said. “However, approximately 180,000 home buyers who signed a contract in good faith to receive the tax credit may not be able to finalize by the end of June due to delays in the mortgage process, particularly for short sales.”
I don’t like “seasonally adjusted rates of sales”:
If you have been reading my posts for a while you know by now I don’t like “seasonally adjusted” numbers (nor does Standard & Poors now either as I wrote about), particularly when artificial stimuli, such as homebuyer tax-credits, can cause an unseasonal spike in sales activity. I much prefer to see the actual numbers and try to garner from them what is going on in the housing market.
The following are the ACTUAL Existing Home sales reported by NAR without any adjustment or fluff:
There were 526,000 existing homes sold in May which is a 0.8 percent increase from April and a 17.7 percent increase from a year ago.
Below are highlights from each region:
Northeast – 79,000 homes sold in May, a decrease of 16.0 percent from April and an increase of 11.3 percent from the year before.
Midwest – 130,000 homes sold in May, an increase of 8.3 percent from April and an increase of 21.5 percent from the year before
South – 195,000 homes sold in May, an increase of 2.1 percent from April and an increase of 21.9 percent from the year before.
West – 122,000 homes sold in May, an increase of 4.3 percent from April and a increase of 11.9 percent from the year before.
Other highlights of the NAR Report:
Distressed sales accounted for 31 percent of all home sales in May, down from 33 percent in April.
First-Time homebuyers accounted for 46 percent of the home sales in May, down from 49 percent in April.
Investors were the buyers of 14 percent of the homes in May, down from 15 percent in April.
Repeat home buyers were responsible for approximately 40 percent of May’s sales up from April’s 36 percent..
My Take On the Numbers:
Last month I said I expected “Pending Home Sales” to drop significantly from April and I still do, and I expected to see an increased level of “Existing Home Sales”, “although not at as high of level as April” and that is exactly what we see here. That was the “low-hanging fruit” though, the easy one to call. The harder thing to predict is just how much will the pending home sales numbers for May be and how much will existing home sales drop after the tax-credit deals are all done in June? Unfortunately my guess for both is “rather significantly”.
UPDATE June 21, 2010- I said I would update this post after the proposed rules were published on the Federal Register with info on how to submit a comment -If you would like to comment, see the comment instructions in the Federal Register (I highlighted them) by clicking here -end of update.
June 4, 2010
Are they really going to repeat the same mistakes that helped cause this housing recession?
I say this because of a release I received from the Federal Housing Finance Agency (FHFA) last week announcing that the FHFA “has sent to the Federal Register a proposed rule implementing provisions of the Housing and Economic Recovery Act of 2008 (HERA) that establish a duty for Fannie Mae and Freddie Mac (the Enterprises) to serve very low-, low- and moderate-income families in three specified underserved markets — manufactured housing, affordable housing preservation, and rural markets.” While the statement is a little ambiguous on the surface it sounds like a nice thought, “serve the underserved.”
However, as I read on I couldn’t believe my eyes as I read other aspects of the proposed rule. The “Enterprises” (Fannie and Freddie) would be required to take actions to “improve the distribution of investment capital available for mortgage financing for underserved markets” and are expected to continue their support for affordable housing (again, something that sounds great, just depends how you plan to go about supporting “affordable housing”). The rule would establish a method to evaluate the Enterprises performance in these underserved markets for 2010 and subsequent years. Of the four criteria the enterprises are to be evaluated under, one really got my attention; “the development of loan products, more flexible underwriting guidelines, and other innovative approaches to providing financing“. WHAT?? More FLEXIBLE underwriting, INNOVATIVE approaches to provide financing? Isn’t this the stuff that got Fannie Mae and Freddie Mac (not to mention thousands of homeowners) in trouble to start with? Now, I don’t claim to be an economist or even that smart for that matter, but this sure appears to me to be the Federal Government putting pressure on Fannie Mae and Freddie Mac to make loans they shouldn’t be making….again.
I’m not saying that the pressure on Fannie Mae and Freddie Mac to make loans to borrowers that weren’t really qualified is the only cause of the housing bust as there were many contributors to it, but this was certainly one of them and definitely a large part of what led to their financial demise and need for a tax-payer bailout.
A book I’ve read that I think has the most complete and thorough analysis of what caused the housing market to have it’s longest positive run only to be followed by a collapse is Thomas Sowells’ “The Housing Boom and Bust“. In his book Mr. Sowell says this about the housing bust and the demise of Fannie Mae and Freddie Mac; “in reality, government agencies not only approved the more lax standards for mortgage loan applicants, government officials were in fact the driving force behind the loosening of mortgage loan requirements.” So is this deja vu or what?
Mr. Sowell goes on to say “the development of lax lending standards, both by banks and by Fannie Mae and Freddie Mac standing behind the banks, came not from a lack of government regulation and oversight, but precisely as a result of government regulation and oversight, directed toward the politically popular goal of more ‘home ownership’ through “affordable housing,” especially for low-income home buyers. These lax lending standards were the foundation for a house of cards that was ready to collapse with a relatively small nudge.”
Correct me if I’m wrong, but it appears to me the government has opened the deck of cards and begun construction again.
There will be a 45 day period for public comments once the proposed rule is published in the Federal Register. I just tried to access the website site and it is down so I don’t know if it’s published yet but will check again and update this post with info on how to comment on the rule if you like.
According to a press release issued by the FBI, nearly 500 people have been arrested in a nationwide mortgage fraud take-down as part of “Operation Stolen Dreams.” This operation was launched on March 1, 2010 and, according to the FBI, has lead to a total of 485 arrests, 330 convictions and the recovery of nearly $11 million. The FBI estimates that losses from a variety of fraud schemes are estimated to exceed $2 billion.
Operation Stolen Dreams is the government’s largest mortgage fraud take-down to date. But FBI Director Robert S. Mueller cautioned that there is still much work to be done. The Bureau is currently pursuing more than 3,000 mortgage fraud cases, he said, which is almost double the number from the last fiscal year.
“The staggering totals from this sweep highlight the mortgage fraud trends we are seeing around the country,” Attorney General Holder said. “We have seen mortgage fraud take on all shapes and sizes—from schemes that ensnared the elderly to fraudsters who targeted immigrant communities.”
A few examples:
In Miami, on Wednesday two people were arrested for targeting the Haitian-American community, claiming they would assist them with immigration and housing issues. Instead, they used victims’ personal information to produce false documents to obtain mortgage loans.
In California, a prominent home builder used straw buyers to sell his houses at inflated prices. The scheme inflated prices on other homes in the area, creating artificially high comparable sales and affecting the overall new-home market.
And in Detroit yesterday, FBI agents arrested several individuals in a $130 million scheme orchestrated by the local chapter of a motorcycle gang. The conspirators posed as mortgage brokers, appraisers, real estate agents, and title agents and used straw buyers to obtain around 500 mortgages on only 180 properties.
The FBI says to combat the problem, their National Mortgage Fraud Task Force helps identify mortgage frauds such as loan origination schemes, short sales, property flipping, and equity skimming. In addition, they have 23 mortgage fraud task forces in “hot spots” around the country, from California and Texas to Florida and New York.
Unlike previous mortgage fraud sweeps, Operation Stolen Dreams focused not only on federal criminal cases, but also on civil enforcement and restitution for victims. Federal agencies participating included the Department of Housing and Urban Development, the Treasury Department, the Federal Trade Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, and the U.S. Secret Service. Many state and local agencies were also involved in the operation.
The FBI has produced a video for consumers to help make you aware of the scams that are out there and show you how to avoid them. To watch the video click the link below:
Fannie Mae and Freddie Mac notified the New York Stock Exchange (NYSE) of its intent to delist its common and preferred stock. The Federal Housing Finance Agency (FHFA), the conservator for Fannie and Freddie, has directed the companies to delist their common stock and their preferred stock from the NYSE. “FHFA’s determination to direct each company to delist does not constitute any reflection on either Enterprise’s current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator,” FHFA Acting Director Edward J. DeMarco said in a press release.
The mortgage market has benefited from the “flight to quality” mentality since the news of the uncertainty of debt defaults in Europe over the last few weeks. As the perception of these uncertainties diminish, mortgage rates should hold steady if not rise.
St. Louis Mortgage Interest Rates – June 16, 2010 *
30-year fixed-rate mortgage 4.75% no points
15-year fixed-rate mortgage 4.25% no points
5/1 adjustable rate mortgage 3.85% no points
FHA/VA 30-year fixed rate mortgage 4.75%
Jumbo 5/1 ARM 4.125% no points
Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
The U.S. Census Bureau and US Department of Housing and Urban Development (HUD) issued a their report on New Residential Construction for May 2010 showing a decrease in building permits and a decrease in new home starts from April.
The report shows the following:
Building permits issued for single-family residences in May were at an annual rate of 438,000 which is 9.9 percent below the revised April rate of 486,000 and an increase of 3.1 percent from a year ago when the rate was 425,000.
Housing starts for single-family residences in May were at an annual rate of 468,000 which is a decrease of 17.2 percent from April’s revised rate of 565,000 and an increase of 15.3 percent from a year ago.
Homes completed in May were at a rate of 507,000 homes, down 7.8 percent from April’s rate of 550,000 homes and an increase of 2.4 percent from a year ago.
As I say every month, we need to remember that all the numbers above are “seasonally adjusted” annual rates and the year over year comparisons are just comparing the numbers for May 2010 versus May 2009. Another way I like to look at where things stand is to simply look at the year to date data; actual numbers, not seasonally adjusted, compared to last years ytd numbers at this same time. I think this may give a little better comparison so those numbers are below:
Through May 2010 there have been 202,600 permits issued for new homes compared with 156.900 this time last year for an increase of 29.1 percent.
In May there were 50,600 permits issued, an increase from April’s 35,000 permits.
Through May 2010 there have been 211,700 new homes started compared with 152,900 this time last year for an increase of 38.5 percent.
In May there were 45,100 new homes started, a decrease from April’s 52,300 new starts.
There have been 183,700 new homes completed through May 2010, compared with 199,200 this time last year for a decline of 7.8.
In May there were 42,400 new homes completed, a slight decrease from April’s 43,000 completions.
Let’s do one of my favorite things and look at the raw numbers and not seasonally-adjusted numbers to compare construction activity to sales:
Through the end of April, 2010 (the most recent period sales data is available for) there have been 137,000 new homes sold and there have been 141,300 new homes completed, outpacing sales by a modest 3.1 percent.
Through the end of April there have been 166,600 new homes started outpacing the new ytd home sales activity through April by 21.6 percent.
I think most people fully expected building permits and starts to drop in May after the spike in the prior couple of months as a result of the home-buyer tax credit deadline to purchase of April 30th. Since starts and permits are still outpacing home sales I still have concern that there is too much optimism out there and an expectation that demand for new homes is going to increase soon which I don’t think is in the cards. I think until the foreclosure and mortgage delinquency rates start subsiding, and the inventory of foreclosures and REO’s on the market (and on the banks books) has bled off, we won’t be seeing much of an increase in demand for new homes.
As the real estate market is beginning to show signs that we are “bottoming out” and that the down-slide is leveling off the discussion has become what the rest of 2010 holds in store. Some say we are entering a Bull market and expect prices to increase from the depressed levels they have reached citing the greatly increased affordability of homes and record low interest rates; others say we are entering a Bear market and that over-supply in the market, largely a result of record foreclosures, will continue to beat prices down.
Here’s what the “Bulls” say:
Home prices are at levels significantly lower than their peak levels during the “boom” and affordability is at the lowest level in years.
Interest rates are at record lows and, while obtaining financing is currently somewhat of a challenge, lenders are expected to ease up on their lending policies and make financing more readily available. The government is already pushing a rule change for Fannie Mae and Freddie Mac to have them loosen their underwriting guidelines.
Richard DeKaser, Contributing Economist to The Kiplinger Letter, in a recent article cited three reasons why he felt supported being optimistic, or “Bullish”, on the housing market:
Affordability – it now takes 18 percent of the typical household income to afford a home, compared with a long-term average of 26 percent.
Consumer confidence – says that consumers are beginning to take on expensive, long-term commitments.
Credit conditions will ease up – The Fed Reserve’s April survey of senior loan officers show banks were reporting “essentially no change” in their underwriting standards on mortgages over the past three months. (so I guess since it didn’t get worse that is good)
Here’s what the “Bears” say:
The recent upward spike in home sales is, for the most part, nothing more than the temporary and artificial market that was created by the government’s home-buyer tax credit program.
While recent reports have shown that the rate of increase of mortgage delinquencies and foreclosures has decreased over the past couple of months, we are still at record levels of both which will continue to flood the market with foreclosures and REO’s.
Even during the recent uptick in home sales brought on by the expiring tax credits, home prices still dropped in many markets. This shows there is still some uncertainty about home values in the market place, which, coupled with the downward price pressure caused by foreclosures, will continue to put heavy negative pressure on home prices.
The rate of unemployment is still high and our economy still has many challenges: off the charts spending and debt by the Federal govt, States and Cities struggling to balance budgets not to mention the international issues brought on by lagging economies in Europe and China, Greece’s financial issues and so on.
So what it is, a Bull or a Bear coming our way?
Remember, I’m in the real estate business, I WANT it to be a bull. But….here’s what I see coming…
The good news is, foreclosure activity for the U.S. in May decreased by 3 percent according to a report released by RealtyTrac. The bad news is, May marked the 15 th consecutive month where the overall foreclosure activity has surpassed 300,000 actions; that’s about 4 million foreclosures in the past 15 months.
For May there were foreclosure filings reported on 322,920 properties in the U.S., a 3 percent decrease from April but a 1 percent increase from May 2009. One in every 400 U.S. housing units received a foreclosure filing during the month of May.
“The numbers in May continued and confirmed the trends we noticed in April: overall foreclosure activity leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months,” said James J. Saccacio, chief executive officer of RealtyTrac. “Defaults and scheduled auctions combined increased by 28 percent from 2007 to 2008 and another 32 percent from 2008 to 2009 — creating a build-up of delayed bank repossessions. Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed.”
Bank Repo’s Hit Record in May–
The number of properties actually taken back (foreclosed upon) in May was 93,777 breaking the prior month’s record high and setting a new record.
States with Highest Foreclosure Rates in May-
Nevada – One in ever 79 housing units
Arizona – One in every 169 housing units
Florida – One in every 174 housing units
California – One in every 186 housing units
Michigan – One in every 223 housing units
The CEO of RealtyTrac stated above that he thinks the foreclosure rate is “leveling off”, which I would certainly hope is true….I don’t know how we can possibly sustain it continuing to increase. I think it is important to note though, we are talking about the rate leveling off at record-high levels and there is no indication the rate is going to drop anytime soon, therefore it is going to be a while before the aftershock of this wears off. Mortgage defaults, the “fuel” for the foreclosure rate, are starting to show signs of leveling off as well but until we see the default rate drop and continue to trend downward we will not see a significant or meaningful downward trend in the foreclosure rate.
Bank of America has agreed to pay $108 million to about 200,000 homeowners who paid improper and inflated charges to the defunct subprime mortgage lender that became the poster child of the housing apocalypse, Countrywide Financial. The Federal Trade Commission said two mortgage-servicing units of Countrywide, which BofA acquired in 2008, “deceived homeowners who were behind on their mortgage payments into paying inflated fees — fees that could add up to hundreds or even thousands of dollars.”
With continuing worries about about Europe’s debt crisis and the stock market, “flight to quality” should keep dollar denominated assets in favor and keep rates at these low levels…once the market determines an end to the current crisis of confidence, one would expect to see rates on the rise.
St. Louis Mortgage Interest Rates – Jun 9, 2010 *
30-year fixed-rate mortgage 4.75% no points
15-year fixed-rate mortgage 4.25% no points
5/1 adjustable rate mortgage 3.75% no points
FHA/VA 30-year fixed rate mortgage 4.875%
Jumbo 5/1 ARM 4.125% no points
Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
According to data from NeighborWorks America, a national nonprofit organization created by Congress to provide community-based revitalization efforts, every 13 seconds in America, there is another foreclosure filing. This means there are more than 6,600 home foreclosure filings per day and currently, more than 4.5 million households are at risk of foreclosure. Unfortunately there is no end in site as industry experts are predicting 1.5 – 2.0 million new foreclosures in 2010 and as many as a total of 8.1 million by 2012.
This many people in financial distress provides great opportunity for loan modification scam artists, who prey on unsuspecting homeowners with unethical and sometimes unlawful tactics to scam them out of money and often times their homes according to the report. Many of these homeowners have turned to loan modification or foreclosure “rescue” companies for help — only to realize they’ve been scammed. Loan modification scams are proliferating at a rapid pace.
To combat these scam artists and try to protect and educate consumers, NeighborWorks America has launched a “Loan Modification Scam Alert” campaign. Their scam alert website has many resources available to help consumers protect themselves and I would suggest that consumers that are facing falling behind on their mortgages, facing foreclosure or with other housing-related financial issues, check out the site.
The scam alert identifies the following as the most common loan modification scams :
Phony Counseling or Foreclosure Rescue Scams
The scam artist poses as a counselor and tells you he can negotiate a deal with your lender to save your house—if you pay him a fee first. He may even tell you not to contact your lender, lawyer or housing counselor—that he’ll handle all details. He may even insist that you make all mortgage payments directly to him while he negotiates with the lender. Once you pay the fee, or a few mortgage payments, the scammer disappears with your money.
Fake “Government” Modification Programs
Some scammers may claim to be affiliated with, or approved by, the government, or they may ask you to pay high, up-front fees to qualify for government mortgage modification programs. The scammer’s company name and Web site may sound like a real government agency. You may also see terms like “federal,” “TARP” or other words related to official U.S. government programs.
Your lender will be able to tell you if you qualify for any government programs to prevent foreclosure. And you do not have to pay to benefit from these programs.
Bait-and-Switch
The scam artist convinces you to sign documents for a “new loan modification” that will make your existing mortgage current. This is a trick. You actually just signed documents that surrender the title of your house to the scam artist in exchange for a “rescue” loan.
Rent-to-Own or Leaseback Scheme
A scammer urges you to surrender the title of your home as part of a deal that will let you stay in your home as a renter and then buy it back in a few years. He may tell you that surrendering the title will permit a borrower with a better credit rating to get new financing—and keep you from losing your home. However, the scammer may have no intention of ever selling the home back to you.
But the terms of these deals usually make buying back your home impossible. Worse yet, when the new borrower defaults on the loan, you’re evicted.
Variations:
The scammer raises your rent over time to the point that you can’t afford it. After missing several rent payments, you are evicted, leaving the “rescuer” free to sell your house.
The scammer offers to find a buyer for your home, but only if you sign over the deed and move out. The scammer promises to pay you some of the profit when the home sells. But the scammer simply rents out your home and keeps the profits while your lender proceeds with the foreclosure. You lose your home and are still responsible for the unpaid mortgage, because transferring the deed does not affect your mortgage obligation.
Bankruptcy to Avoid Foreclosure
The scammer may promise to negotiate with your lender or get refinancing on your behalf if you pay a fee up front. Instead of contacting your lender or refinancing your loan, he pockets the fee and files a bankruptcy case in your name—sometimes without your knowledge.
A bankruptcy filing often stops a home foreclosure, but only temporarily. Filing bankruptcy stops any collection and foreclosure while the bankruptcy court administers the case. But, eventually you must start paying your mortgage, or the lender will be able to foreclose.
You could lose the money you paid to the scammer and your home. Worse yet, a bankruptcy stays on your credit report for 10 years, which makes it difficult to obtain credit, buy a home, get life insurance or even get a job.
In addition to visiting the Loan Modification Scam Alert website, one of the best things you can do to protect yourself is to educate yourself about programs such as HAMP (the Home Affordable Modification Program) for loan modifications as well as HAFA (The Home Affordable Foreclosure Alternatives program) so that you understand how the programs actually operate and see that you don’t need to necessarily pay someone for assistance.
I’ve written many articles on both the HAMP as well as HAFA program with complete information on the programs as well as links to information on the programs. To access these articles easily, simply click on the links below:
A report released by CoreLogic showed the St. Louis metro area to have a foreclosure rate in April of 1.49 percent up slightly from March’s revised rate of 1.45 percent and an increase of 34.2 percent from the year prior when the rate was 1.11 percent.
The national foreclosure rate for April remains over twice the rate of St. Louis at 3.20 percent and was an increase of 30.1 percent from a year ago when the national foreclosure rate was 2.46 percent. For the State of Missouri the April foreclosure rate was 1.33 percent, a 30.4 percent increase from a year ago when Missouri’s rate was 1.02 percent.
Looks like more foreclosures to come…
Unfortunately, as I have been saying for a while now, I don’t think we are going to see much, if any, improvement in the foreclosure rate anytime soon. The rate of serious mortgage delinquencies continues to increase. For April 2010, 6.17 percent of the home loans in St. Louis were 90 days or more delinquent on their mortgage payments, an increase of 51.2 percent from a year ago when the delinquency rate in St. Louis was 4.1 percent.
Nationally, the rate of serious delinquency on home mortgages in April 2010 hit 8.90 percent, an increase of 47.6 percent from a year ago when the national rate was 6.03 percent.
Foreclosures will put downward pressure on the Market…
Over the past couple of months the housing market has had some reason to celebrate as home sales increased at fairly significant rates. Unfortunately this little bit of Utopia is probably going to be short-lived as it was nothing more than a “false-market” created by the home-buyer tax credits. Now that the April 30th deadline for the tax credits has passed we are going to no doubt see the sales numbers drop as the underlying problems are still there…unemployment and uncertainty about our country’s financial future, to name a couple. Even during these recent “good times” we have seen pricing pressures resulting in home prices continuing to decline in many markets. So, couple the drop in sales we no doubt have coming, along with the still-increasing foreclosure and mortgage delinquency rate, and, in my opinion, we have a recipe to continue to beat on home prices for some time to come.
To end on a positive note though…If you are one of the fortunate people out there that are comfortable in your financial position and are looking to make a move, you have an abundance of homes available out there, with record-low interest rates and prices that we haven’t seen, in many cases, in years!
Today the National Association of REALTORS released it’s Pending Home Sales Index for April showing an increase of 6.0 percent in the index from March (seasonally adjusted) and a whopping 22.4 percent increase from April 2009. This comes on the heels of a 5.3 percent increase in March and an 8.3 percent increase in February. If these were pure “market-driven” sales this would be extremely exciting news and point toward a recovery in the real estate market. Unfortunately, everything I see points to this being driven primarily, if not purely, by the April 30th deadline to enter into a contract to purchase a home to receive the home-buyer tax credit.
Here are highlights from the report:
April”s pending home sales index (seasonally adjusted) was 110.9 (the index is based upon 100.0 being equal to the average level of sales activity in 2001 which we could call the last “normal” year) which was a 6.0 percent increase in the index from March and an increase of 22.4 percent from the year before.
April’s not-seasonally adjusted index index was 133.5 a 11.0 percent increase from March and a 24.6 percent increase from a year ago.
The only region that saw a month-over-month decline in pending home sales (seasonally adjusted) was the South region, after having the largest month-over-month increase last month, it saw a decrease of 0.6 percent from March, but was still up 31.3 percent from a year ago.
The Northeast had the largest month-over-month increase in pending home sales (seasonally adjusted) with a 29.5 percent increase from March.
Lawrence Yun, NAR chief economist, said this second round of surging sales from the tax credit extension looks as strong as the original tax credit. “There were concerns that only a small pool of buyers were left to take advantage of the tax credit extension. But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales,” he said. “The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.” NAR expects a net of 1 million additional jobs in the second half of this year and about 2 million in 2011.
After the problems we have seen over the past couple of years in the real estate, mortgage and banking industries it is not surprising we have seen massive legislative changes brought about which make it more challenging for a home-buyer to obtain a mortgage. Some of the changes borrowers will see when they attempt to obtain a mortgage to buy a home or refinance their existing mortgage include:
Documentation – Did you like that “no-doc” loan you did last time around? Forget it! This time around you may be asked to provide, in addition to items that have been standard for years such as paycheck stubs and bank statements, additional documents to prove residency, income, financial soundness or even identity. Your employer will be impacted somewhat as well as in the past frequently a lender could get by with just a phone call to your employer to verify your employment and income. Today however, many more verifications have to be in writing and the lender must also do a much more in-depth inquiry about your employment including asking your employer questions about your job stability and detailed income information.
“Fresh” Documentation – If it takes longer than 30 days to close your loan then your Lender will likely ask you to provide updated bank statements on a monthly basis, as well as update other documentation as necessary so that all documentation is up to date and current at the time of closing. The lender will also contact your employer a few days before closing to make sure your employment situation and compensation have not changed since the verification was complete.
Whoa, Slow Down – Don’t wait until the last minute to apply for financing as the new legislation is slowing the process. For example, it is now mandatory that no less than eight days must lapse between the time of your loan application and the closing of the loan. Normally, this is not a problem as most loans take considerably longer, but it could be an issue if you are in a time crunch and waited too long to start the process. In addition, even minor changes to the terms of your home purchase and/or loan could delay closings by at least three days due to requirements of the lender to update disclosures and give you a mandatory period of time to review them prior to closing.
Tax Returns Don’t Lie – In the past lenders typically did not request a copy of your tax return unless you were self employed or had “other” income outside of employment that was necessary to count to qualify for the loan. Today, for most loans, lenders are required not only to obtain a copy of your tax return for the past two years, but to get them directly from the IRS. If your income and expenses on your tax return don’t match up with the information you provided on your loan application this will either delay your loan closing or get you a denial.
Appraisal Issues – New regulations prevent your loan officer from speaking with appraisers directly in order to assure that there is no influence put on the appraiser with respect to his or her opinion of value of the home. This has caused many lenders to turn to using national appraisal management companies (AMC’s) which sometimes hire non-local appraisers which may affect the accuracy of the appraisal.
The silver lining – Sure, there are new regulations and it is more challenging, but interest rates are at near historic lows, so the extra effort you have to put forth will be handsomely rewarded for years to come!
If you are looking to buy a home or take advantage of the great rates and refinance you existing mortgage, you should not let the new rules scare you off. Instead I would just suggest you be careful and prudent about selecting your lender, selecting one that has the experience, knowledge and resources to get you through the process as painlessly as possible…. I happen to know one such lender…Me :)
St. Louis Mortgage Interest Rates – May 26, 2010 *
30-year fixed-rate mortgage 4.85% no points
15-year fixed-rate mortgage 4.25% no points
5/1 adjustable rate mortgage 3.75% no points
FHA/VA 30-year fixed rate mortgage 5.75%
Jumbo 5/1 ARM 4.125% no points
Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
UPDATE- June 2, 2010: The National Association of REALTORS obtained answers from the Treasury Department on 3 common questions about HAFA:
agents are not permitted to rebate a portion of their commission to the buyer,
sellers who are real estate agents must list their home for sale with another broker, not their own broker, and
the incentive allowed for subordinate lien holders (6% of any one subordinate lien, up to a total of $6,000 for all subordinate liens) is a hard cap and may not be supplemented from any source.
Dennis Norman
In March I did an update on the Home Affordable Foreclosures Alternative (HAFA) Program which was scheduled to go into effect April 5, 2010. Today, Fannie Mae issued guidelines to their servicers outlining the policies and produres Fannie Mae had adopted as a result of HAFA.
What is HAFA? In a nutshell it gives qualifying homeowners the opportunity to do a short-sale or deed-in-lieu rather than face foreclosure:
The Home Affordable Foreclosure Alternatives Program provides financial incentives to loan servicers as well as borrowers who do a short-sale or a deed-in-lieu to avoid foreclosure on an eligible loan under HAMP. Both of these foreclosure alternatives help the lender out by avoiding the potentially lengthy and expensive foreclosure proceedings and also by protecting the property by minimizing the time it is vacant and subject to vandalism and deterioration. These options help out the borrower by avoiding the foreclosure process and the uncertainty that comes with it and allows the borrower to negotiate when they will give up possession of their home as well as, under the HAFA program be released from any further liability from the loan including short-fall and deficiencies.
Highlights of the guidelines given to mortgage servicers by Fannie-Mae:
Servicers are “encouraged to adapt their processes to implement these Fannie Mae HAFA policies and procedures immediately;” however, they have until August 1, 2010 to implement them.
The HAFA Short-Sale and HAFA DIL (deed-in-lieu) program will be offered to borrowers through December 31, 2012
Borrower Eligibility for HAFA Consideration:
A borrower cannot be considered for HAFA until the borrower has been evaluated for a HAMP modification (including, but not limited to, providing all required income documentation).
Once a borrower has met all of the eligibility criteria for HAMP, the borrower must be considered for a HAFA short sale or DIL (after all home retention options have been considered) if the borrower:
was not offered a trial modification due to inability to meet the HAMP qualifications (for example, did not pass the net present value (NPV) evaluation or meet the target monthly mortgage payment ratio based on verified income);
failed to complete the trial period successfully;
became two consecutive payments (31 or more days) delinquent on the modified mortgage loan; or
requests a short sale or DIL.
Lender’s are not allowed to consider a borrower for a Fannie Mae HAFA short sale or DIL (without consent from Fannie Mae) if:
a foreclosure sale is scheduled to be held within 60 days of the borrower’s request for a Fannie Mae HAFA short sale or DIL, ordetermination that a borrower is ineligible for HAMP, or;
a foreclosure proceeding could be initiated and reasonably be expected to result in a foreclosure sale being held within 60 days of the borrower’s request for a Fannie Mae HAFA short sale or DIL or determination that a borrower is ineligible for HAMP; or;
the mortgage loan is secured by a property in Florida on which foreclosure proceedings are pending, judgment has been obtained, or a hearing on summary judgment or trial is scheduled within 60 days.
Financial Requirements of Borrower for HAFA:
The lender, prior to deciding if the borrower is eligible for HAFA, must determine if the borrower has:
the ability to continue making the mortgage payments but chooses not to do so; or
substantial unencumbered assets or significant cash reserves equal to or exceeding three times the borrower’s total monthly mortgage payment (including tax and insurance payments) or $5,000, whichever is greater; or
high surplus income.
So the bottom line here is, if you have a bunch of assets, money in the bank or high income relative to you debt, Fannie Mae is not going to be interested in letting you walk away from your deficiency after a short-sale, or DIL.
On question that has come up on other posts I’ve written about this, is the effect of bankruptcy on eligibility for HAFA….Here’s the answer from Fannie Mae:
A borrower in an active Chapter 7 or Chapter 13 bankruptcy case must be considered for a Fannie Mae HAFA short sale or DIL if the borrower, borrower’s counsel, or bankruptcy trustee submits a request to the servicer. However, the servicer is not required to solicit borrowers in active bankruptcy cases for shorts sales or DILs. With the borrower’s permission, a bankruptcy trustee may contact the servicer to request a short sale or DIL. The servicer and its counsel must work with the borrower or borrower’s counsel to obtain any court and/or trustee approvals required in accordance with local court rules and procedures. The servicer must extend the required time frames outlined in this Announcement as necessary to accommodate delays in obtaining bankruptcy court approvals or receiving any periodic payment when made to a bankruptcy trustee.
Lenders must, upon determination of eligibility for a HAFA Short-Sale or DIL, determine the fair market value of the property:
As soon as a borrower is determined to be eligible for a Fannie Mae HAFA short sale or DIL and has demonstrated a willingness to participate, the servicer must take the necessary steps to determine the market value of the mortgaged property. Fannie Mae will require a broker price opinion (BPO) based on an interior and exterior inspection of the property or, if licensing requirements in the state dictate use of an appraisal for these purposes, an appraisal
The BPO (or appraisal, if required) must be dated within 90 calendar days of the date the relevant HAFA Agreement is executed by the servicer.
Allowable Fees on Short-Sale:
Fannie-Mae will allow:
real estate sales commission customary for the market. The servicer may not require that the commission be reduced to less than 6 percent of the sales price of the property;
real estate taxes and other assessments prorated to the date of closing;
local and state transfer taxes and stamps;
title and settlement charges typically paid by the seller;
seller’s attorney fees for settlement services typically provided by a title or escrow company;wood-destroying pest inspections and treatment, when required by local law or custom;
homeowners’ or condominium association fees that are past due, if applicable.
Fees paid to a third party to negotiate a short sale with the servicer (commonly referred to as “short sale negotiation fees” or “short sale processing fees”) must NOT be deducted from the sales proceeds or charged to the borrower.
Additionally, the Servicer, its agents, or any outsourcing firm it employs must not charge (either directly or indirectly) any outsourcing fee, short sale negotiation fee, or similar fee in connection with any Fannie Mae loan.
In addition, Fannie Mae will allow;
The Lessor of 6% of the balance of a junior lien, or $6,000, to settle the second lien.
$3,000 to the Seller, to be paid out of sale proceeds, to help defray the costs of relocation.
Short-Sale Approval Should be Faster:
One of the major hindrances to short-sales has been the amount of time it takes for a lender or servicer to respond to an offer to purchaser, many times taking several months. Under these new guidelines that should not be a problem because, provided the Seller’s Agent has submitted all the required document to Fannie Mae (they only have 3 business days to submit) then the servicer must respond to the offer within 10 business days indicating acceptance or rejection of the offer. This is huge and should really help facilitate short-sales.
Deed-in-Lieu Eligibility:
Generally, for a borrower to be eligible for a Fannie Mae HAFA DIL, the mortgaged property must have been listed for sale at market value for 120 days or more. A servicer may waive the requirement that the property securing the mortgage loan previously be listed for sale in cases involving:
a serious illness or disability,
a deceased borrower or co-borrower,
a borrower or co-borrower who has been relocated or who has been deployed by the military,
a determination that local market conditions would impede a sale of the property,
a borrower who demonstrates an unwillingness or inability to maintain or market the property during the listing period, or
a borrower who has expressed an interest in doing a Deed for Lease
This is simply an overview of the Fannie-Mae guidelines and the HAFA program…there is much more, but this gives you the idea. For starters, this is nothing that a homeowner would want to take on alone in my opinion. I think you need a qualified real estate broker or agent, that has in-depth knowledge about HAMP and HAFA and the short-sale process.
To get more information I suggest your read my post from March, you can access that by clicking here, or if you really want to have some fun, you can read the complete Fannie-Mae guidelines by clicking here.
Earlier this month I did a post about important legislation in Missouri, specifically HB 2058, which would make badly needed changes to the Missouri Mechanic’s Lien Statute, because if it didn’t pass purchasers of new homes would face hurdles obtaining long-term fixed-rate mortgages as title companies have threatened to stop providing mechanic’s lien coverage.
On May 17th I was happy to update the post with the news that the bill had passed the House and Senate and was just awaiting the signature of Governor Nixon to become effective.
Herein the problem lies…
Word is Governor Nixon may be considering vetoing the legislation. Why you ask? Why would he veto this legislation that overwhelmingly passed the General Assembly, has the support of dozens of stakeholders including the Home Builders Association, Missouri Land Title Association, Title Insurance Underwriters, Missouri Bankers Association, The Mortgage Bankers Association of Realtors, National Electric Contractors Assocation- St. Louis Chapter, the Carpenters District Council of Greater St. Louis, The Eastern District Labor council and more….. From the information I have, it appears there is an organized group that is opposed to this bill; attorneys that enjoy the income they make off the currently law which is cumbersome and flawed….hmm, what would happen if the law was fixed and there were fewer legal battles?
What to do to help..
If you want to make sure that the flaws in the current mechanic’s lien law are corrected, thereby enabling title companies to continue to provide mechanic’s lien coverage to lenders, so they will continue to make loans, and all along still giving protection to contractors and suppliers to make sure they get paid, then contact Governor Nixon’s office and let his staff know you want him to sign HB 2058 into law.
The phone number for the Governor’s Office is (573)-751-3222. If you prefer you can fax him a letter at: (573) 751-1495.
The National Flood Insurance Program, known as the NFIP, lapsed March 28 this year and left many pending home sales in limbo.
Congress and President Barack Obama temporarily reinstated the program 18 days later on April 16 as part of a bill that also extended unemployment benefits and Medicare reimbursement for doctors. However, the temporary extension of the NFIP legislation will expire again on May 31.
The stage has now been set for another lapse in funding for the program just weeks before the mandatory June 30 closing deadline for buyers attempting to satisfy the requirements of the federal $8,000 first-time and $6,500 repeat homebuyer tax credits. The recent 18-day lapse in the NFIP is the third since December, with each one growing in duration. The December interruption lasted nine hours, the February pause lasted two days.
Without another legislative extension of the NFIP by the end of the month, some home buyers may not be able to close on their properties.
The National Association of Realtors estimates a one-day lapse adversely affects 1,400 closings nationwide.
St. Louis Mortgage Interest Rates – May 26, 2010 *
30-year fixed-rate mortgage 4.75% no points
15-year fixed-rate mortgage 4.250% no points
5/1 adjustable rate mortgage 3.500% no points
FHA/VA 30-year fixed rate mortgage 4.8750%
Jumbo 5/1 ARM 4.000% no points
Jumbo 15 year fixed rate mortgage 4.625%
For more information or if you have questions on mortgage rates in St. Louis you may contact me by phone at my direct line, (314) 372-4319, email at rfishel@paramountmortgage.com or you can visit our company website at http://www.paramountmortgage.com.
*Note- The above rates are based upon a typical sale price of $187,500 with a 20% percent down payment leaving a loan amount of $150,000 to a borrower with a 720 credit score for a loan with no discount points charged. Rates and terms will vary depending upon loan amount, home value, credit and income of borrower.
This information is provided by this author and this site for informative purposes only and is not warranted or guarteed in any way.
The U.S. Department of Commerce released a report showing the sale of New Homes in April were at a seasonally adjusted annual rate of 504,000, a 14.8percent increase from the revised March rate of 439,000 and is 47.8percent above a year ago.
The inventory of new homes (seasonally adjusted) at the end of April is just 5.0 months a huge decline from just two months ago when it was 9.2 months.
My Mantra
As has been my long-running mantra, I don’t like “seasonally adjusted” numbers and “rate” of sales (nor does Standard & Poors, publisher of the Case/Shiller Index, now either as I wrote about). Why, for one I can’t figure out how in the world they compute the numbers. Second, I just don’t think discussing the “rate” of new home sales paints a realistic picture of the market. I think this holds especially true when we have artificial forces affecting the housing market such as tax credits and other incentives. This can create unseasonal bursts or declines in sales that don’t really have anything to do with the underlying fundamentals of the housing market.
Here is the raw data, the ACTUAL new homes sold- no fluff, no “adjusting”
48,000 new homes sold in April, an increase of 23.1 percent from March’s 39,000 new homes sold and also a whopping 50.0 percent increase from April 2009 when there were 32,000 new homes sold.
54.1 percent (26,000) of the new homes sold were in the South region- an increase of 23.8 percent from March.
the west region had 11,000 new homes sold, an increase of 22.2 percent from March
the Midwest had 7,000 new homes sold, an increase of 40.0 percent from March.
The Northeast had 4,000 new homes sold, an increase of 33.3 percent from March.
YTD – In the first four months of 2010 there have been 137,000 new homes sold, an increase of 18.1 percent from the same time last year.
Median sale price of new homes in the US in April was $198,400, a 9.7 percent decrease from March’s median new home price of $219,600 and a 9.5 percent decrease from a year ago when the median new home price was $219,200.
New Homes in the US in April have been for sale for a median time of 14.3 months since the homes were completed, slightly less than March’s revised figure of 14.5 months.
My prediction for 2010
I’m very encouraged by home sales in March and April, both in new homes and existing home sales and, if it wasn’t for the fact the homebuyer tax-credit incentive expired April 30th, no doubt a factor that caused buyers to rush to buy, I would feel the market was turning. However, I have strong concerns that this recent “housing recovery” is the result of an artificial market created by incentives, leading to sort of a “sugar-rush” among homebuyers, and now that the sugar is wearing off, buyers will slow down.
Additionally, the report yesterday about home prices dropping in first quarter (not to mention this months new home sales report showing falling prices) and today’s report about the lowest rate of home-purchase mortgage applications since 1997 tells me we are going to see lower new and existing home sales numbers in the coming months.
As far as my prediction for new home sales this year I’m going to stick with my estimate of 336,600 – 355,000 new home sales in 2010.
With the home-buyer tax credits ending April 30th, it’s not surprising that we saw an increase of home sales in March, and now in April, as buyers rushed to buy before the deadline to have a congract of April 30, 2010. According to the latest report from the National Association of REALTORS(R), existing home sales in the US in April increased 7.6 percent to a seasonally adjusted-annual rate of 5.77 million units in April from a revised level of 5.36 million units in March, and increased 22.8 percent from a year ago when the rate was 4.70 million units (seasonally adjusted).
Prices on the rise for second consecutive month –
The median home price in the U.S. in April was $173,100 an increase of 2.1 percent from March’s $169,600 and an increase of 4.0 percent from a year ago when the median price was $166,500.
Inventories on the rise-
For the fourth consecutive month, the number of existing homes for sale in April increased bringing the total to 4,044,000, an increase of 11.5 percent from March and an increase of 2.7 percent from a year ago. The number of months “supply” this inventory represented in April, based upon current sales levels, increased to 8.4 months, up from 8.1 months in March but a 16.8 percent decrease from a year ago when there was a 10.1 month supply.
Portland, Oregon for the second consecutive month, saw the largest annual increase in existing home sales in April with an increase of 49.2 percent in sales from a year ago.
Pittsburgh, Pennsylvania was number two with a 42.2 percent increase in existing home sales from a year ago.
Boston, Massachusetts was number three with a 41.8 percent increase in existing home sales from a year ago.
Indianapolis, Indiana led the way in price increases from a year ago, with April’s median home price of $124,600 representing a 17.1 percent increase from a year ago when the median price was $106,400.
Phoenix, Arizona came in second with a median price of $144,700, a 16.2 percent increase from a year ago when it was $124,500.
San Diego and Miami/Ft Lauderdale fell in behind Phoenix with annual median price increases of 15.4 percent, and 14.8 percent respectively.
Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”
I don’t like “seasonally adjusted rates of sales”:
If you have been reading my posts for a while you know by now I don’t like “seasonally adjusted” numbers (nor does Standard & Poors now either as I wrote about), particularly when artificial stimuli, such as homebuyer tax-credits, can cause an unseasonal spike in sales activity. I much prefer to see the actual numbers and try to garner from them what is going on in the housing market.
The following are the ACTUAL Existing Home sales reported by NAR without any adjustment or fluff:
There were 521,000 existing homes sold in April which is a 21.4 percent increase from March and a 26.2 percent increase from a year ago.
Below are highlights from each region:
Northeast – 94,000 homes sold in April, an increase of 40.3 percent from March and an increase of 42.4 percent from the year before.
Midwest – 120,000 homes sold in April, an increase of 21.2 percent from March and an increase of 33.3 percent from the year before
South – 191,000 homes sold in April, an increase of 19.4 percent from March and an increase of 26.5 percent from the year before.
West – 116,000 homes sold in April, an increase of 12.6 percent from March and a increase of 9.4 percent from the year before.
Other highlights of the NAR Report:
Distressed sales accounted for 33 percent of all home sales in April, down from 35 percent in March.
First-Time homebuyers accounted for 49 percent of the home sales in April, up from 44 percent in March.
Investors were the buyers of 15 percent of the homes in April, down from 19 percent in March.
Repeat home buyers were responsible for approximately 36 percent of April’s sales down from March’s 37 pecent..
My Take On the Numbers:
For the past two months I have said that I am encouraged by the sales numbers as I am again this month. However I continue to echo my caution that I’m confident this boost is artificial and has been brought on by the homebuyer tax credit program coming to an end. The spring season has brought more homes on the market thereby increasing inventory, but the months supply doesn’t look bad at 8.4 months….but remember, that is based on a “seasonally adjusted” sales rate of 5.77 million homes; a rate that cannot and will not be sustainable in my opinion.
I think in May we will see “Pending Home Sales” drop significantly from April but we will still see an increased level of “Existing Home Sales” (although not at as high of level as April) as NAR counts “closed home sales” in this data, and since people that went under contract to buy before the April 30th deadline have until July 31st to close the sale, we won’t see the full effect of no tax credits on existing home sales until August.
A 10-count indictment has been unsealed charging six individuals with conspiracy to commit wire fraud and wire fraud, announced U.S. Attorney Karen P. Hewitt. The defendants are charged with submitting false and fraudulent mortgage loan applications and related documents to banks and other lending institutions, thereby inducing the institutions to make approximately 36 loans totaling approximately $20,800,000.
The defendants charged with participating in the conspiracy are: Brian Andrew La Porte; Daniel John Schuetz; Michael Wayne Wickware; Roxanne Yvette Hempstead; Darryl Anthony Wallace, aka Darryl Anthony White; and Terrence Smith, aka Terry Lee Smith. The indictment alleges that the defendants devised a scheme to defraud mortgage lenders and to obtain money and property by false and fraudulent means and diverted the proceeds for their personal use and benefit.
According to the indictment, from May 2008, the defendants agreed to submit false loan applications to mortgage lenders to obtain financing to purchase residential properties. The defendants recruited “straw buyers” who had sound credit histories but who otherwise would not have qualified to purchase the residential properties selected by the defendants. The indictment further alleges that, as part of the conspiracy, Brian Andrew La Porte and Daniel John Schuetz prepared fraudulent loan applications on behalf of the straw purchasers, falsely stating the employment and monthly salaries of the straw purchasers.
The indictment further alleges that the defendants submitted fraudulent loan applications on behalf of the straw purchasers to mortgage lenders, including OwnIt Mortgage Solutions Inc., WMC Mortgage Corp., Argent Mortgage Company, Countrywide Home Loans, First Franklin, Finance America LLC, and other mortgage lenders. The defendants then caused escrow agents to disburse the funds to the defendants and others so that the defendants could divert to themselves and others the proceeds of the fraud.
President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who working together to launch a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. The Special Inspector General for the Troubled Asset Relief Program co-chairs the task force’s Rescue Fraud Working Group.
The case is the product of an investigation by agents of the FBI and is being prosecuted in San Diego federal court by Assistant U.S. Attorney Jonathan I. Shapiro.
An indictment itself is not evidence that the defendants committed the crimes charged. The defendants are presumed innocent until the government meets its burden in court of proving guilt beyond a reasonable doubt.
The founder and head of Chicago Development and Planning was sentenced yesterday to 15 years and eight months in prison, and ordered to pay more than $9 million in restitution for wire fraud, mail fraud, and money laundering, U.S. Attorney Joseph P. Russoniello announced.
Patricia Morgen pleaded guilty on Dec. 16, 2009. According to the plea agreement, she admitted creating a scheme to solicit investors for a company called Chicago Development and Planning, with the promise of substantial guaranteed return profit payments. Morgen falsely promised investors that their funds would be used to purchase real property to be rented or resold for profit, and that their guaranteed returns would come from profits earned on the real estate investments. In fact, Morgen paid investors largely with money obtained from new investors, rather than from real estate-related profits. Morgen admitted that there were more than 400 victims of this Ponzi scheme.
“Patricia Morgen intentionally preyed on unsuspecting victims in order to obtain money she wasn’t entitled to,” said U.S. Attorney Russoniello. “This sentence demonstrates the legal consequences perpetrators of these schemes will face when they are caught—and they will be caught.”
In another scheme, Morgen and a co-defendant submitted fraudulent loan applications to acquire more than 20 properties, most of which were occupied, rent-free, by Chicago Development and Planning employees, including Morgen herself. The fraudulent loan applications included lies as to the borrowers’ employment and income. Morgen’s co-defendant in the mortgage fraud scheme pleaded guilty in January 2010.
Morgen, 63, most recently of Chicago, was indicted by a federal grand jury on Nov. 20, 2008. She fled to Mexico when she learned that federal authorities were investigating Chicago Development and Planning. After spending several months in Mexico, Morgen returned to the United States, but made continued efforts to avoid law enforcement: she did not have a valid driver’s license in her name, did not have a phone in her name, and she cut off contact with family members whose whereabouts were known to federal investigators. Morgen was apprehended in Chicago in June 2009, while threatening to jump from the top of a multi-story building. Morgen’s son, Shalom Gibson, has been indicted in Reno, Nev., in connection with his efforts to shred and burn documents relating to Chicago Development and Planning; his whereabouts remain unknown.
In sentencing Morgen, U.S. District Judge Charles R. Breyer commented on the devastation suffered by the unsophisticated victims, noting that Morgen victimized “people who by and large could least afford it,” and that she “ruined people’s lives.” Judge Breyer further stated his belief that a “severe punishment” was warranted because Morgen was “still a very dangerous person” who posed a substantial risk to society.
“We are pleased by the resolution of this matter,” said FBI Special Agent in Charge Stephanie Douglas. “Ms. Morgen betrayed the trust of hundreds of investors, injected bad debt into the economy, and fled the country when faced with the prospect of being held accountable for her actions. The sentence she received today underscores the severity and impact of this sort of crime on our entire community.”
“Today’s sentence sends a clear message to those committing investment fraud: Your greed will not go undetected and unpunished,” said Scott O’Briant, Special Agent in Charge, IRS-Criminal Investigation. “IRS-CI will continue to use all the tools at its disposal to investigate these types of schemes.”
The sentence was handed down by U.S. District Court Judge Breyer following a guilty plea to two counts of mail fraud, two counts of wire fraud in violation, and one count of money laundering in violation. Judge Breyer also sentenced the defendant to a five-year period of supervised release. The defendant has been in custody since June 2009.
Tracie L. Brown and Jeffrey R. Finigan are the Assistant U.S. Attorneys who are prosecuting the case with the assistance of Rayneisha Booth. The prosecution is the result of an investigation by the Securities and Exchange Commission, the Internal Revenue Service – Criminal Investigation, and the Federal Bureau of Investigation.
I know it looks like I’m doing my second post today on the same topic, but I’m really not……my post earlier today was about the rate of mortgage delinquency, which can be defined as homeowners that are late, to varying degrees, on their house payments. This post is about mortgage default rates, which is homeowners that are over 90 days late on mortgage payments, have filed bankruptcy, are in foreclosure or on whom the lender has written off part or all of the balance of the loan. In other words these are the borrowers that, unlike the “delinquent ones” that may get current again, for the most part, are not going to recover and are likely to lose their homes. Also, now I have some data for April as well.
According to the Standard & Poor’s and Experian Consumer Credit Default Indices, we may be seeing some easing of the pain. Their report for showed that default rates for first and second mortgages declined in April which I think is significant. The other thing that is significant is the S&P/Experian Indices are notseasonally-adjusted. In my earlier post today it was pointed out that the first quarter data from the MBA that showed an increase in the mortgage delinquency rate was “seasonally adjusted”, but when they looked at non-seasonally-adjusted numbers there was a decrease in delinquency rates.
So in real-time, unadjusted numbers, we have mortgage delinquencies improving in the first-quarter of this year, followed by a decrease in the mortgage default rate in April. Maybe, just maybe, this run-away train is finally losing some steam! Another thing worth noting in the S&P/Experian report is that, while the home mortgage default rate is decreasing the credit card default rate is on the rise. This is in sharp contrast to recent months when the opposite was true…I think this shows a changing sentiment among the homeowners out there that are now focusing more on paying house payments, and keeping their homes, in advance of making credit card payments.
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“The staggering totals from this sweep highlight the mortgage fraud trends we are seeing around the country,” Attorney General Holder said. “We have seen mortgage fraud take on all shapes and sizes—from schemes that ensnared the elderly to fraudsters who targeted immigrant communities.”
the “rate” of new home sales paints a realistic picture of the market. I think this holds especially true when we have artificial forces affecting the housing market such as tax credits and other incentives. This can create unseasonal bursts or declines in sales that don’t really have anything to do with the underlying fundamentals of the housing market.
