Looking for a reason why the middle class is disappearing in America?

This is a great article about how our country is becoming bought and paid for.

How many American would rather be couch potatoes and watch reality trash TV than get involved in our political process?

If you don’t use it, you lose it.

http://seekingalpha.com/article/223397-a-closer-look-at-the-banking-industry-s-lobbying-efforts?source=email

Trader Mark:

Long time readers will know that the best return on investment (ROI for you wonky types) in America is lobbying dollars. For a pittance you can purchase present your case to a Congressman or Congresswoman and generate multitudes of that same dollar spent in return.

It appears that Federal Reserve and Treasury officials are also on sale (aisles 7 and 10, respectively). So hurry on in, but only those with annual revenue of $500M+ are allowed in on the bidding! Our financial oligarchs are top dogs at playing the game but it’s across all major industries. Remember, competition in America is good on paper, as long as it does not effect my fortune 500 corporation. Then it must be stymied!

All the usual suspects in the financial oligarchy – no surprise, since they now control the vast majority of American assets. Oops, sorry, let me go by the company line… there are 8,000 financial institutions in Cramerica competing, blah, blah, blah, snore.

Assets:

1. Bank of America (BAC) $2.3 Trillion
2. JPMorgan (JPM) $2.0 Trillion
3. Citigroup (C) $1.8 Trillion
4. Wells Fargo (WFC) $1.3 Trillion

My favorite statistic in this piece was:

• Lobbyist dollars by top 10 Oligarchy (representing perhaps 300K Americans): $16.3M
• Lobbyist dollar by consumer protection groups (representing 300M+ Americans): $0.8M

That’s like bringing a Colt 45 to a gun fight, while the oligarchy has their AK47s in hand. You’ve been served!

Via AP: (My comments in parenthesis)

• The 10 banks that received the most bailout aid during the financial crisis spent over $16 million on lobbying efforts in the first half of 2010, as the debate over financial regulatory reform reached its height.
• Disclosure reports show that the banks that got the most government help in late 2008 and early 2009 also invested the most to influence members of Congress, the White House, the Federal Reserve, Treasury Department and a long list of federal agencies as new rules were enacted governing Wall Street and the nation’s financial system.
• The $16.32 million spent in the first half of 2010 was 26 percent higher than the combined $12.94 million they spent in the first half of 2009.
• “I’m not shocked that they spent that much money because I saw them every day,” said Ed Mierzwinski, consumer program director at U.S. Public Interest Research Group, who said more than 2,000 lobbyists worked on the financial reform bill. (Translation: for one bill there was roughly a 3.5:1 ratio of lobbyist to representative. Think about that. Then multiply that by every industry group – media, telecom, oil, retail, real estate, agriculture, states and cities, et al) “They did manage to make changes.”
• Leading the pack this year was JPMorgan Chase & Co., which spent $1.52 million on lobbying in the second quarter, on top of $1.51 million in the first quarter of 2010, for a total of $3.03 million. [Jul 21, 2009: NYT - In Washinton, JPMorgan's Dimon Increasing Sway] Citigroup Inc., the largest bank recipient of government funds during the crisis in late 2008 and early 2009, was second. The New York-based bank spend $1.47 million on lobbyists in the second quarter, after spending $1.31 million in the first quarter for a total of $2.78 million. And Wall Street titan Goldman Sachs Group Inc. (GS) was third, with $1.58 million spent in the second quarter, on top of $1.19 million in the first quarter of 2010. Bank of America Corp. and Wells Fargo & Co. both also spent more than $2 million in the first half of the year.
• Lobbying figures do not include any campaign contributions that banks or their employees might also have made.
• Consumer advocacy groups had their own lobbyists working the Capitol’s halls during the finance reform debate as well, but their spending was dwarfed by the banks — a total of $792,000 in the first half of the year for four of the top organizations. (Go get em tiger!)
• “We’re talking billions,” Sloan said. “So the lobbying money is the most effective money you’ll spend.” (Translation: once you reach a certain size as a corporation, your actual business becomes a sideshow and your main focus becomes blocking and tackling in Congress to make sure competition is neutered and favoritism in all aspects is bestowed. You could invest $1 in capital or people and potentially lose money, or instead spend $1 in D.C. and make back $50-100 almost guaranteed. There is no better business on the planet.)

The number of Americans, including those in Michigan, buying a new home and then bailing on the old one through foreclosure or short sale is growing.

So you’ve got a Michigan home that you owe more on than it’s worth and you’d like to move.  You look into selling it, but you’d have to bring too much money to the closing table to do so.  So, what are your options?

If you ask around or search the web you’re sure to find out about the concept of “Buy & Bail”.

The Buy & Bail strategy is relatively simple:  you buy a new home before defaulting on the mortgage on the existing home.

So what’s the problem?

It depends on who you ask.

There are moral and legal issues, so let’s look at both.

Guilty Morals

There are a large number of people that believe when you sign a contract, you have a moral responsiblity to fulfill that contract. 

When you take out a mortgage, you’re basically signing a contract called a Promissory Note, or promise to pay. 

The moral majority have a good point.  Contracts aren’t supposed to be broken.  Our whole civilization functions on various types of contracts – moral, ethical, religous, social, legal, etc. 

If we all reneged on these contracts chaos would result. 

Our politicians and regulators adamantly cite moral issues when they beseech homeowners not to “Buy & Bai”:

“We’re always looking for ways to discourage the practice of buy and bail, but it still seems to be going on,” said Brad German, a Freddie Mac spokesman. “It ultimately leads to higher costs for everyone as investors and others look for ways to price in the risk.”

“There were a number of policies put in place to squelch this type of activity, but people who are savvy can always find a way to circumvent policies,” said Burns of the Federal Housing Finance Agency, which regulates Fannie Mae, Freddie Mac and the 12 federal home loan banks.

“Making it possible to pursue people who do this particular kind of default would go a long way to addressing the buy-and-bail problem,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association in Washington.

On the other hand, many contracts do get broken. 

Marriage is a type of contract, but the divorce rate seems to keep going up.

Businesses sign a type of contract with a worker when they hire them, but jobs and pay both seem to be cut at will – even as managment pay seems to keep going up.

Politicians take an oath to uphold the Constitution, a very important contract.  Yet they seem to get caught embezzling, accepting bribes and spending taxpayer money on perks and pork.

Looking at “Buy & Bail” in this context makes one wonder…
Legal – He Who has the Most Gold, Makes the Rules

Is it illegal to “Buy & Bail”?

Not really. 

There are no specific laws against it in the U.S. or in any states.

If you walk away from a home mortgage, there are laws for lenders to foreclosure on the home and take it back.  There are also laws in many states that allow lenders to pursue a borrower for the amount they are owed.  But none of it lands you in jail or prison.

Now if you use a mortgage to finance the new home before bailing on the old one, you may be tempted to commit fraud to get the new mortgage.  But if you qualify for both mortgage payments and don’t misrepresent finances or assets, no fraud will be committed or laws broken.
Summary

We all have our own internal moral compasses to follow and should do what we believe best.

On the other hand, we shouldn’t be hasty to judge others. 

As the old saying goes, “people in glass houses shouldn’t throw stones”.

We all speed now and then and have told our share of “white lies”.

More importantly, we’ve all gotten lazy and not involved enough in our political process thereby allowing our politicians to get too cozy with Wall Street.

Has anyone on Wall Street had an issue with their moral compass or gone to jail for the billions scammed through toxic mortgages?

Instead of judging and chasting the “small fish”, wouldn’t it be more productive to go after the “big fish” that caused this mess?

There’s some relief for homebuyers, real estate agents and loan originators frustrated with appraisal issues negatively impacting transactions.  How much will FNMA’s announcement really rein in underwriting departments though?

On June 30th FNMA issued SEL 2010-09, “Selling Guide Updates and Additional Guidance on Appraisal-Related Policies”.

What a mouthful!

The updates are effective for all loans originated after September 1, 2010.

Here’s what FNMA had to say in this announcement:

In the past, Fannie Mae did not provide requirements concerning lenders making changes to the opinion of market value reflected in the appraisal report. During Fannie Mae’s post-purchase reviews, cases were identified where the lender had reduced the opinion of market value in the appraisal report based upon underwriter judgment, automated valuation models, or other methodology. Therefore, Fannie Mae has updated its appraisal policies to address the practice of lenders changing the appraiser’s opinion of market value and also to provide specific guidance when an appraisal is considered deficient.

So what updates did they make to their appraisal policies?

Well, we’ve got to go to FNMA’s Seller’s Guide for that answer, specifically page 571, which is titled,

“B4-1.4-21, Appraisal Report Review: Valuation Analysis and Final Reconciliation (06/30/2010)”.

Here FNMA finally gets to the issue:

The lender is responsible for ensuring that appraisal reports are complete and that any changes to the report are made by the appraiser who originally completed the report. If the lender has concerns with any aspect of the appraisal that result in questions about the reliability of the opinion of market value, the lender must attempt to resolve its concerns with the appraiser who originally prepared the report. If the lender is unable to resolve its concerns with the appraiser, the lender must obtain a replacement report prior to making a final underwriting decision on the loan. Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount.

All right, so what in the world does that all mean?  (No wonder the government owns forests – they need the trees for all this paper!).

For one, it means a lender’s underwriter can’t just over-ride an appraisers value.

If the underwriter doesn’t like the value, they have to address the issue with the appraiser.  If the appraiser holds their ground, then the underwriter must order a new appraisal.

There’s a whole lot more blah, blah, blah in the announcement, but that’s the gist of it.

Thoughts

Is this really going to make that much of a difference?

I don’t think so.

We’ll just see more review appraisals ordered which borrowers will have to pay for and everyone will have to wait on the delays.

It is a step in a positive direction, so maybe that’s cause for a little confetti toss.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

_______________________________________________________________

If you enjoyed my blog post,
I invite you to connect with me on the social networks below & subscribe to my blog!

“Referrals are Sending Someone You Care about, to Someone You Trust!”
So, forward this blog post to someone that’ll appreciate it!

_______________________________________________________________

Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest

Contact him for The Lending Edge
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com

At the end of the day, all we really have control over is communication.  So, why is it so difficult?

You’ve applied for your mortgage to buy a home or to refinance, signed the application and turned in all the requested documentation.  Now, you wait and wait wondering what’s going on.

When will you be approved so you can schedule the movers?  Are you going to get approved & closed before that low interest rate goes away?  What did the home appraise for?

Tired of waiting, you call, get voicemail so you leave a message.  Then you’re back to waiting, waiting, waiting.

Real estate agents go through this same thing, waiting to hear from lenders about the status of the deal they put together.  Will it get approved and close so they can collect their commission check and pay their bills?

Over and over again , the number one complaint in the process of getting a mortgage is lack of communication.

Borrowers buying a home or refinancing AND real estate agents are always complaining that they have to contact the mortgage lender and then wait for a call back – if it ever comes.

As a professional, the one thing I stress to my Team is that one of the few things we really have control over is communication.  We can’t control appraised values, interest rate movements, requireed repairs or the numerous other issues that pop up during the loan approval process.  We can pick up the phone or send an email at any time to alleviate apprehension and frustration.

There are two ways to communicate - proactively and reactively.

I’d estimate that around 80% of communication in a real estate and/or mortgage transaction is reactionary.  Someone calls or sends an email (even text messages these days) and it’s responded to.

Not a very effective way to exceed expectations!

It’s so much better to proactively communicate.  It’s difficult to do though without a system and discipline.  Try to do it otherwise and you’ll soon end up in reaction mode again.

It’s funny that I’ve never been asked by a client how often our Team will communicate with them throughout the application process.  Everyone wants that low rate in the beginning, only worrying about being kept in the loop once they’re well into the approval process.

Even if you do ask about the level of communication to expect, how likely do you think it is that you’ll get an honest answer?  Ask about a communication plan and watch the curious looks you’ll get – it’ll be as if you’re speaking a foreign language.

That’s because most mortgage lenders don’t have a formal communication process!

If this is a concern to you, maybe we should talk.  We do have a formal system of communication.

It all starts with our Weekly Status Reports.   We email these out religiously every week.  We also send them out whenever we get a conditional or full approval.

What’s more, they’re designed to keep everyone involved in the transaction on the same page.  If there are real estate agents involved in a purchase, they get added to the email distribution list.  Get us the email address of the seller or title company and we’ll add them to the distribution list.

Now you may think we’re making all this up just to try to get your business.  I encourage you to look below at our Weekly Status Report Template that we use.

Then I challenge you to find a competitor that has something similar.

A recent Fair Isaac Company news release shows that U.S. credit scores have dropped since 2008 in synch with the economy.

High unemployment, a sinking economy and a Housing Crisis, take your pick as to why credit scores are dropping.

Consumers have defaulted on mortgages in record numbers and mortgage late payments carry a lot of weight on credit scores.  They’ve done the same on credit cards, although recent statistics indicate that problem is slowing.

So, is anyone really surprised by the Fair Isaac news release that credit scores are dropping?

The chart below is right from Fair Isaac:

Notice that the percentage of consumers in almost every FICO score range in the above chart has worsened since 2008.  Not by a lot, but they are worsening.

Keep in mind, that most mortgage lenders won’t accept middle FICO scores below 620.  So, the increase in FICO scores below 600 is not good news.

There are a two interesting trends on the chart:

- the percentage of FICO scores between 750-799 have actually increased in 2010 after dropping in 2009.  While this may seem like good news at first, that increase probably came from those dropping from the higher tier, which is a negative.

- the other interesting development is the percentage of FICO scores in the tier from 300-499.  It increased in 2009, but saw a pretty substantial decrease in 2010.  So, the number of people with the worst credit is dropping, which is good news.  You would think it actually be getting worse in our economic recession.  But look closer and you’ll see that the tier has always had the smallest percentage of consumers.  It actually takes a lot of negative reporting to get a FICO score under 500.  This is probably more a sign that the number of consumers now using cash instead of credit is increasing.  I’d also like to see Fair Isaac’s numbers/percentages on those that don’t have enough credit to generate a FICO score.  I’d bet they’re going up.

Again, keep in mind when looking at this chart that consumers are shifting from one tier to the next.  So, the 650-699 tier staying relatively stable, probably doesn’t mean much.  There are probably as many consumers dropping into it as there are dropping out of it.

The good news to take away from all this is best represented with the bar graph below:

If you add up the percentages you’ll find that in 2010, even after all the recent economic hardships, over 53% of American consumers have a FICO score above 700.

FICO Scores & Mortgage Rates

Fair Isaac didn’t cover this in their news release, but since this is a mortgage blog, we’ll cover it.

In 2008 FNMA/FHLMC started charging more to mortgage borrowers with FICO scores under 720.  They use what’s called, Loan Level Price Adjustments (or LLPA) to determine how much more to charge.

You can reference the previous link for all the detailed charges, but here’s the basic matrix:

*NOTE – the above price adjustments are in discount points, not interest rate points.

As you can see from the chart, if your middle FICO score is under 720 you’re going to pay more to get the going mortgage rate (unless you borrow less than 60% of a property’s value).

I’d like to see Fair Isaac break their tiers down to correspond with FNMA’s matrix above.  That would give us better data to see how the trend in FICO scores is affecting borrower costs.

What we can glean from their existing data is that in 2008 45.7% of consumers had a FICO score below 700.  In 2010 that number increased to 46.9%.

That means that an additional 1.2% of consumers paid either a higher interest rate or had higher closing costs in 2010 because of their FICO scores.

Do you think that’s going to get worse of better in 2011?

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

HUD announced adjustments to its Making Home Affordable initiative to encourage more principal reductions on August 6th.  Soon after, rumors ran rampant on Wall Street and in the press that the Obama administration would be soon announcing that FNMA & FHLMC would be forgiving a portion of the principal owed on the trillions in mortgages they control. What’s going on?

Sometimes the best way to find out how a radical idea will be accepted, is to start your own rumor about it and see how everyone responds.

If someone in the Obama administration is playing this game, they got a lot of responses to digest.

Reuters, Barons & even Morgan Stanley weighed in on the rumor.  The rumor spread so fast the Treasury Department supposedly felt compelled to issue a statement of denial (not that I could find it).

With the economy still not recovering, Obama’s approval ratings in the trash and the Democrats expecting to get skewered in the coming elections – might they actually try it?

Who knows, but it would be extremely difficult to implement with any kind of fairness.

HUD’s FHA Short Refinance Announcement

What we can talk about is the latest attempt by HUD to get banks to use its principal reduction program.

HUD’s first two attempts to leverage the promise of FHA mortgages to get banks to grant principal reductions didn’t work, maybe the third time’s the charm?

Ah, to have the eternal optimism of our government officials.  They are so concerned about underwater homeowners that they keep searching for ways to get the banks to lower principal balances.  They keep trying & trying!

Oh wait, they’re just doing this to keep their jobs!

Even better, HUD couldn’t even come up with a new program this time around.  Instead they announced “adjustments” to their most recent failed program.

What’s it mean for homeowners?

Well if you’re upside down AND can convince your lender to forgive at least 10% of your loan balance, then you may qualify for this “FHA Short Refinance” option.

Has anyone at HUD taken the time to notice that banks can’t get up to speed on short sales or even foreclosures (shadow inventory)?

So, why does HUD think banks are going to embrace this program?
FHA Short Refinance Details

Even if you meet all the requirements below, I wouldn’t get your hopes up about getting your lender to approve you for this program.

This is pulled right from HUD:

Participation is voluntary and requires the consent of lien holders. In order for a loan to be eligible, the following conditions must be met:

1. The homeowner must be in a negative equity position;
2. The homeowner must be current on the existing mortgage to be refinanced;
3. The homeowner must occupy the subject property (1-4 units) as their primary residence;
4. The homeowner must qualify for the new loan under standard FHA underwriting requirements and possess a “FICO based” decision credit score greater than or equal to 500;
5. The existing loan to be refinanced must not be a FHA-insured loan;
6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance;
7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent;
8. Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent;
9. For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income and total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income;
10. FHA mortgagees are not permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan;
11. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance; and
12. The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification as described below.

Anyone that’s attempted to get a loan modification already knows the difficulties in getting lenders to assist when you’re already behind on your mortgage.  Imagine the challenge of getting assistance when you’re current on your mortgage?
Summary

I can only think of three reasons HUD officials would even bother announcing this new option:

1. They’re trying to save their jobs by making it look like their doing something.
2. This is just the first piece of a bigger strategy.
3. They are truly incompetent

For more information on the HUD announcement:

FHA Short Refinance Announcement

HUD Mortgagee Letter 2010-23

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

HUD announced adjustments to its Making Home Affordable initiative to encourage more principal reductions on August 6th.  Soon after, rumors ran rampant on Wall Street and in the press that the Obama administration would be soon announcing that FNMA & FHLMC would be forgiving a portion of the principal owed on the trillions in mortgages they control. What’s going on?

Sometimes the best way to find out how a radical idea will be accepted, is to start your own rumor about it and see how everyone responds.

If someone in the Obama administration is playing this game, they got a lot of responses to digest.

Reuters, Barons & even Morgan Stanley weighed in on the rumor.  The rumor spread so fast the Treasury Department supposedly felt compelled to issue a statement of denial (not that I could find it).

With the economy still not recovering, Obama’s approval ratings in the trash and the Democrats expecting to get skewered in the coming elections – might they actually try it?

Who knows, but it would be extremely difficult to implement with any kind of fairness.

HUD’s FHA Short Refinance Announcement

What we can talk about is the latest attempt by HUD to get banks to use its principal reduction program.

HUD’s first two attempts to leverage the promise of FHA mortgages to get banks to grant principal reductions didn’t work, maybe the third time’s the charm?

Ah, to have the eternal optimism of our government officials.  They are so concerned about underwater homeowners that they keep searching for ways to get the banks to lower principal balances.  They keep trying & trying!

Oh wait, they’re just doing this to keep their jobs!

Even better, HUD couldn’t even come up with a new program this time around.  Instead they announced “adjustments” to their most recent failed program.

What’s it mean for homeowners?

Well if you’re upside down AND can convince your lender to forgive at least 10% of your loan balance, then you may qualify for this “FHA Short Refinance” option.

Has anyone at HUD taken the time to notice that banks can’t get up to speed on short sales or even foreclosures (shadow inventory)?

So, why does HUD think banks are going to embrace this program?
FHA Short Refinance Details

Even if you meet all the requirements below, I wouldn’t get your hopes up about getting your lender to approve you for this program.

This is pulled right from HUD:

Participation is voluntary and requires the consent of lien holders. In order for a loan to be eligible, the following conditions must be met:

1. The homeowner must be in a negative equity position;
2. The homeowner must be current on the existing mortgage to be refinanced;
3. The homeowner must occupy the subject property (1-4 units) as their primary residence;
4. The homeowner must qualify for the new loan under standard FHA underwriting requirements and possess a “FICO based” decision credit score greater than or equal to 500;
5. The existing loan to be refinanced must not be a FHA-insured loan;
6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance;
7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent;
8. Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent;
9. For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income and total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income;
10. FHA mortgagees are not permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan;
11. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance; and
12. The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification as described below.

Anyone that’s attempted to get a loan modification already knows the difficulties in getting lenders to assist when you’re already behind on your mortgage.  Imagine the challenge of getting assistance when you’re current on your mortgage?
Summary

I can only think of three reasons HUD officials would even bother announcing this new option:

1. They’re trying to save their jobs by making it look like their doing something.
2. This is just the first piece of a bigger strategy.
3. They are truly incompetent

For more information on the HUD announcement:

FHA Short Refinance Announcement

HUD Mortgagee Letter 2010-23

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

With the world’s largest bond fund PIMCO stating there’s a 25% chance of deflation, the Federal Reserve announces new measures to spur the U.S. economy.

The Federal Reserve met yesterday and the markets held their collective breath to see what actions the Fed would take.

Citing continued concerns about the economy, the Fed left rates where they were as expected.

All the signs and statements point to the Fed being more & more concerned about deflation and the resulting contraction of the economy.  The Federal Reserve Press Release published after the meeting pointed out:

Bank lending has continued to contract.

and:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.¹ The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

That last part is very good news for the housing industry.

The Fed reinvesting into more bonds means they’ll still be effectively subsidizing interest rates.

Don’t celebrate too soon though.  The Fed also remarked:

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

These factors are all working against many potential buyers taking the plunge into home ownership along with the contracted lending policies of the banking system.

Deflation will also work against the housing market.  You’ve probably already witnessed a deflationary mindset and didn’t recognize it.  Many potential home buyers have waited to buy a home believing that prices will continue to fall.  Think about a significant portion of consumers taking that attitude with cars, electronics, etc.  The whole economy goes into a tailspin that’s not easy to get out of.

When can we expect to see a sustained recovery in the housing market?

Look to the employment numbers.

I don’t mean the unemployment numbers!  Those are now skewed by the numbers of people that have given up on looking for a job.

When people start going back to work and getting raises, they’ll start buying houses.

In the mean time, those that can afford to buy will realize the best deals.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

With the world’s largest bond fund PIMCO stating there’s a 25% chance of deflation, the Federal Reserve announces new measures to spur the U.S. economy.

The Federal Reserve met yesterday and the markets held their collective breath to see what actions the Fed would take.

Citing continued concerns about the economy, the Fed left rates where they were as expected.

All the signs and statements point to the Fed being more & more concerned about deflation and the resulting contraction of the economy.  The Federal Reserve Press Release published after the meeting pointed out:

Bank lending has continued to contract.

and:

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.¹ The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

That last part is very good news for the housing industry.

The Fed reinvesting into more bonds means they’ll still be effectively subsidizing interest rates.

Don’t celebrate too soon though.  The Fed also remarked:

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

These factors are all working against many potential buyers taking the plunge into home ownership along with the contracted lending policies of the banking system.

Deflation will also work against the housing market.  You’ve probably already witnessed a deflationary mindset and didn’t recognize it.  Many potential home buyers have waited to buy a home believing that prices will continue to fall.  Think about a significant portion of consumers taking that attitude with cars, electronics, etc.  The whole economy goes into a tailspin that’s not easy to get out of.

When can we expect to see a sustained recovery in the housing market?

Look to the employment numbers.

I don’t mean the unemployment numbers!  Those are now skewed by the numbers of people that have given up on looking for a job.

When people start going back to work and getting raises, they’ll start buying houses.

In the mean time, those that can afford to buy will realize the best deals.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

Finally!  Statistics on how long it takes various mortgage servicers to approve and close short sales.

Everyone involved in the short sale process, sellers, buyers, agents, title companies, etc, want to know how long it takes to do a short sale.

Up to now, it was pretty hard to really answer someone when they asked, “how long does “lender” usualy take to approve a short sale?”

Now, thanks to a Deutsche Bank Short Sale Report, we all have something to reference to.

Here’s a breakdown by loan type:

Prime (FNMA/FHLMC):
1. GMAC – 6 months, 53% of distressed sales were Short Sales.
2. Citigroup’s servicing arm CitiMortgage – about 7.5 months, 56% of distressed sales were Short Sales.
3. Wells Fargo – roughly 8 months, only 34% of distressed sales were Short Sales.

(Countrywide – now owned by Bank of America (BOA) – had the slowest short sales, averaging more than 13 months, 59% of distressed sales were Short Sales.)

Subprime:
1. Wells Fargo – more than 15 months, 14% of distressed sales were Short Sales.
2. HomEq Servicing – 16 months, 22% of distressed sales were Short Sales.
3. Morgan Stanley’s servicing arm Saxon Mortgage Services – at a little more than 17 months, 18% of distressed sales were Short Sales.

(Equicredit and Ocwen both came in last with an average of more than 29 months on their short sales)

Option-ARM:
1. JPMorgan Chase’s EMC Mortgage – just over 8 months, 43% of distressed sales were Short Sales.
2. Aurora Loan Services – 10 months, 30% of distressed sales were Short Sales.
3. GMAC – just more than 10 months, 33% of distressed sales were Short Sales.

(Again, Countrywide/BOA brought up the rear with a short sale timeline at almost 14 months, 22% of distressed sales were Short Sales.)

Alt-A:
1. First Horizon – just over 9 months, 35% of distressed sales were Short Sales.
2. Both Wells Fargo and Aurora – roughly 11 months, Wells 17% & Aurora 16% of distressed sales were Short Sales.

(That wonderful company Countrywide/BOA again brought up the rear with a short sale timeline at almost 13 months, 24% of distressed sales were Short Sales.)

What Does the Data Mean?

Aren’t those great statistics?  Everyone now has all the answers.

Not so fast.

Why are mortgage servicers taking so long on short sales?

The short sale process is very similar to getting approved for a mortgage to buy a home.  Income, asset and applications must be turned in.  One of several methods to validate the property value must be done.  But, again, that’s all stuff that’s done in 30-45 days on a regular mortgage application.

The heads of these servicers are pretty mum on answering questions like this.

That’s usually a sign they don’t have good answers.

Bank of America, which owns Countrywide, was against short sales until just last spring.  Any surprise they rank near the bottom?

Ocwen has been slapped with several million dollar fines in the past for abusive practices in dealing with borrowers.  No surprise they’re at the bottom either with that track record.

Many hope that the federal government’s new HAFA program will spur more short sales.  If the results of HAMP are used to gauge the effectiveness of the government’s attempts to mitigate the housing crisis, don’t count on it.

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy