Posts Tagged ‘mortgage news’

Fed Uses ‘Dollar Rolls’ in Mortgage-Bond Program Shift

December 6, 2011

Jody Shenn and Caroline Salas Gage, San Francisco Chronicle

The Federal Reserve Bank of New York entered into paired contracts to buy and sell mortgage securities for the first time since it began reinvesting in the debt in October, in a move that may reduce funding costs.

The so-called dollar roll transactions will "facilitate the settlement of our outstanding MBS purchases," Jonathan Freed, a New York Fed spokesman, said in an e-mailed statement.

The central bank is purchasing bonds for December settlement and agreeing to sell the same amount of similar debt in January, said two people familiar with the matter, who declined to be identified because details haven’t been disclosed. Funding costs for mortgage-bond investors, which had risen in anticipation of banks trimming their balance sheets before year-end, fell after the Fed transactions.

"I applaud the Fed," Scott Simon, mortgage-bond head at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s largest debt fund, said in an e- mail. "This both makes them money and helps the MBS market. There wasn’t enough year-end balance sheet."

The central bank began reinvesting proceeds from its holdings of $1.4 trillion in housing debt into government-backed mortgage bonds to help support the real-estate market and homeowner refinancing, shifting from additional purchases of Treasuries. On Nov. 30, the Fed joined with global central banks to cut emergency dollar funding costs for European lenders as the region’s sovereign debt crisis roils markets.

‘Funding Pressure’

The New York Fed says on its website that it "may use dollar roll transactions if needed to facilitate settlement" of its purchases. The Fed posts details on its mortgage bond buying each Thursday.

With dollar rolls, an investor seeking to borrow money enters into contracts to sell mortgage securities in any month and then buy similar bonds the following month; a lender would undertake the opposite trades. Investors entering into transactions for other reasons may be on either side of the contracts.

The transactions are similar to so-called repurchase agreement, or repo, loans.

The Fed’s latest move in the mortgage bonds may help "alleviate some mild funding pressure" in the market, said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based firm TCW Group Inc., which oversees $120 billion in assets.

The implied cost of dollar-roll financing for some of Fannie Mae’s securities rose earlier yesterday to more than 40 basis points, depending on prepayment-speed estimates, according to Whalen. That compared with 27 basis points for similar repo loans, he said. A basis point is 0.01 percentage point.

Backstop Role

That disconnect "implied a little bit of stress" in money markets, he said. "It’s typical to see this type of mispricing of liquidity" around year-end, and Europe’s crisis is exacerbating the situation, Whalen said.

The implied cost of dollar-roll funding for Fannie Mae’s 3.5 percent 30-year securities fell to between 10 basis points and 20 basis points, depending on prepayment assumptions, early today, according to Credit Suisse Group AG analyst Mahesh Swaminathan. It had increased about 25 basis points since the end of October, he said in an e-mail.

The "Fed’s move to buy dollar rolls underscores their backstop role to support liquidity in the market," Swaminathan said. "I don’t think they are going to do these regularly. It is something intended to be done only when liquidity is perceived to be low."

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/06/bloomberg_articlesLVSMVH07SXKX.DTL#ixzz1fnJO8H85

 

 

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Obama Says Solving Euro Crisis of ‘Huge Importance’ to U.S.

November 29, 2011

via Margaret Talev & Roger Runningen, Bloomberg Businessweek

President Barack Obama said resolving the European debt crisis is of “huge importance” to the U.S. and his administration is “ready to do our part” in stabilizing the global economy.

Obama said a “large part” of the annual U.S.-European Union summit was spent on the impact of the crisis in the euro- zone. He spoke at the White House after meeting with European Council President Herman Van Rompuy and European Commission President José Manuel Barroso.

Van Rompuy said the U.S. and EU “both need to take strong action” to maintain the economic recovery. Barroso said he has “full confidence” that Europe will deal with the sovereign debt issue.

Iran’s nuclear program, strengthening exports and investments, Middle East peace prospects, terrorism and cyber crime also were on the agenda for annual meeting.

The summit comes as European finance chiefs are set to meet this week to discuss a rescue plan, and days ahead of a Dec. 2 report by the U.S. Labor Department on the nation’s unemployment rate for November. The rate for October was 9.0 percent.

About $4.6 trillion was wiped from the value of global equities this month on mounting concern that Europe’s debt crisis is spreading.

Wider Threat

Moody’s Investors Service said today the “rapid escalation” of the crisis threatens all of the region’s sovereign ratings, and the Organization for Economic Cooperation and Development said doubts about the survival of Europe’s monetary union has caused global growth to stall.

“The euro-area crisis represents the key risk to the world economy,” the Paris-based OECD said. Government bond yields for both Germany and France, Europe’s two largest economies, climbed last week as a German bond auction failed to get bids for 35 percent of the 10-year debt on offer.

News of a possible framework for a rescue plan helped push global stocks higher for the first time in 11 days. The MSCI All-Country World Index added 3 percent at 1:20 p.m. in New York, snapping its longest slump since 2008, and the Standard & Poor’s 500 Index rallied 2.9 percent.

The euro strengthened 0.6 percent to $1.3322. The yield on the 10-year German bund advanced four basis points, with the similar-maturity Treasury yield increasing two points after jumping as much as 11 points.

Push to Act

Obama has been calling on European governments to act decisively on a plan to address the crisis. Leaders must summon the “political will” among the 17 nations that use the euro to take steps to ensure fiscal discipline while stabilizing markets, Obama said Nov. 4 in France as the leaders of the G-20 ended a summit.

Van Rompuy and Barroso are top leaders of European institutions having influence over a final resolution, though France and Germany, the largest European economies, are critical to any success.

Obama has spoken frequently with German Chancellor Angela Merkel and French President Nicolas Sarkozy, and today’s White House meetings gave him a chance to further increase his lobbying. Neither head of state is attending today’s summit.

White House press secretary Jay Carney wouldn’t say whether Obama was making any new, explicit requests of the European leaders at the summit.

In a separate fact sheet, the U.S. and European leaders said they directed the Transatlantic Economic Council to create a Working Group on Jobs and Growth.

The panel, to be led by U.S. Trade Representative Ron Kirk and EU Trade Commissioner Karel De Gucht, is ordered to “identify policies and measures” to boost U.S.-EU trade and investment to increase job creation, economic growth and international competitiveness.

The panel is to provide an interim report in June 2012 and a package of final conclusions and recommendations by the end of 2012.

 

 

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Government Housing Strategy: The Industry Reacts

November 22, 2011

via Mortgage Solutions

The government has today published its strategy on “unblocking” the housing market, stimulating buying, lending, construction and job creation.

The Prime Minister David Cameron has promised the plan "will break the current cycle in which lenders won’t lend, builders can’t build and buyers can’t buy."

A key announcement was the widely touted government and house builder backed mortgage indemnity guarantee for new build properties, aiming to get 100,000 first-time buyers access to 95% LTV loans.

In addition, there were announcements around supporting the private rented sector, self build, tackling empty homes and overhauling social housing.

The property industry has largely welcomed the plans, but with notes of caution:

CML director general Paul Smee

This [new build MIG] scheme is good news for home buyers, developers and indeed the UK economy. Lenders will be able to reduce the level of deposit needed by home buyers in the new build sector, enabling more buyers to buy and so supporting the flow of new housing development, with all its positive consequences for jobs and the economy as a whole.

UK lenders will not be compromising the quality of their lending or increasing their risk of loss through this scheme.

It is also anticipated that lending within the scheme will attract relief on the regulatory capital that would otherwise be required on high loan-to-value lending, because of the significant mitigation of the lending risk.

Paul Broadhead, head of mortgage policy at the BSA

We welcome the government’s support for a new build indemnity scheme initiative aimed at helping those with a modest deposit buy their own home. This joined up thinking from mortgage lenders, builders and the government is good for borrowers, the housing industry and in turn jobs.

For the scheme to deliver its full benefits to consumers, it is important that lenders of all sizes can participate. We look forward to working with the government to help ensure this is the case.

Grenville Turner, chief executive of Countrywide

The measures announced today are a step in the right direction and address the key fundamental issues that have restricted the housing market in recent years.

The government needs to ensure that its promise of increasing house building is followed through and not restricted by planning red tape.

Whilst the proposed new build indemnity scheme is a welcomed boost to homebuilders and prospective buyers, it is disappointing to see a lack of measures to assist the vast majority of home movers.

A Stamp Duty holiday for all homebuyers up to £250,000 by would have been a welcomed boost to the resale market and should still be considered.

We also welcome the consideration of tax break measures for buy-to-let investors. Any government support to encourage investment in the buy-to-let sector will help to relieve the supply and demand imbalance.

Charles Haresnape, managing director of Aldermore Residential Mortgages

Any initiative designed to help the housing market and first-time buyers in particular, has to be welcomed.

However, it will be interesting to hear precisely how the government backed mortgage indemnity scheme will work and how the proposed £400m house building fund translates into new homes.

At the moment there are approximately 100,000 new homes being built every year, but that figure needs to increase to 240,000 if demand for new housing is to be satisfied. It is suggested that the government proposed new initiative will result in just 16,000 new properties, which still leaves the government woefully short of its target.

Graham Beale, chief executive of Nationwide

This scheme seeks to boost the supply of properties available with modest deposits and, as such, we are pleased to be part of it, helping to shape its design and development.

We would really like to see people who are saving for a deposit given more help through higher ISA limits and the flexibility to move their funds between cash and equity ISA products, without the restrictions that are in place now.

Paragon Group chief executive Nigel Terrington

It is pleasing that the government has recognized the important role the private rented sector plays in providing a home to millions of renters.

It is important that the private rented sector has a committed base of investor landlords to enable it to grow, and fostering a fiscal and regulatory environment that encourages that is vital.

Institutional investment will only play a complementary role to the mainstay of the private rented sector, the private landlord, and so whilst there is a focus on attracting greater levels of institutional investment into the sector, policies must not favor institutions over individuals.

Stewart Baseley, executive chairman of the HBF

This scheme will allow people to buy their new home on realistic terms and help in particular hard pressed first time buyers.

It will also be a huge boost to house building. Since 2007, the biggest constraint on homes being built has been mortgage availability. This scheme will see more desperately needed homes being built, create jobs and give the economy the boost it needs.

Helen Adams of FirstRungNow.com

Funding which only supports new build is good for the house builders who are being subsidised, but does little to move the whole market as there is no onward chain when a new home is purchased.

Tracy Kellett, managing director of buying agents BDI Home Finders

If the government and house builders are taking on the risk, what will the criteria be for people applying for these loans? The real number of people enjoying the scheme is likely to be far lower than the headline number. The devil, as ever, is in the detail.
The government has become so focused on the first-time buyer that it has forgotten the squeezed middle. Any housing strategy has to cascade upwards through the chain, not focus purely on the first link.
Given the scale of the market crisis, it’s unlikely it can do anything at all. Ultimately, only the market can make the market better.

 

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The Fuzzy Math of Home Values

November 15, 2011

Alyssa Abkowitz via Smart Money

Jason Gonsalves worked hard to turn his 6,500-square-foot stucco-and-stone home in the suburbs of Sacramento into the ultimate grown-up party pad. Inside are the game room, home theater and custom wine cellar. Outside, there’s the recently added piece de resistance — a wood-burning pizza oven, kegerator and searing station, all flanking an infinity-edge pool that overlooks the lapping waters of Folsom Lake. A spread like that doesn’t come cheap, of course, so when interest rates fell recently, Gonsalves, who runs a lobbying firm, looked into refinancing his $750,000 mortgage. That’s when he got some startling news — even as he was putting the finishing touches on his home, it had dropped more than $200,000 in value over a seven-month stretch.

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

Right or wrong, they’re the numbers millions of consumers are clamoring for. In a housing market that’s been mostly a cause for gloom, so-called home-valuation technology has become one of the few sources of excitement. After years of real estate pros holding all the informational cards in the home-sale game, Web-driven companies like Zillow, Homes.com and Realtor.com are offering to reshuffle the deck. They’ve rolled out at-your-fingertips technology via laptop and smartphone to give shoppers and owners an estimate of what almost any home is worth. And people have flocked to the data in startling numbers: Together, four of the biggest websites that offer home-value estimates get 100 million visits a month, and one, Homes.com, saw traffic jump 25 percent in the three months after it launched a value estimator in May. "Consumers used to use us for home buying and move on," says Jason Doyle, vice president of Homes.com. "Now we can stay engaged with them."

Real estate voyeurism aside, the stakes are high for many of the sites’ visitors. Homebuyers use the estimates to get a feel for what’s on the market and, later on, to figure out whether their bid will entice a seller to play ball. Vigilant homeowners like Gonsalves check their values to help decide whether it’s worth the hassle of refinancing, while others who are ready to sell use them to gauge if they’re priced right for the market. Real estate agents, meanwhile, say they’re increasingly resigned to spending more time answering questions — or arguing — about the estimates. "It’s an evolution for consumers," says Gary Painter, director of research at the Lusk Center for Real Estate at the University of Southern California. Banks and other lenders are piggybacking on the trend as well, with some even showcasing the upstarts’ estimates on their own websites. While lenders say they don’t use the estimates to make final decisions about loans, they say Zillow in particular has become a go-to tool for their preliminary research on homes. "I use it every day," says Zach Rohelier, a mortgage banker at LendingTree.

But for figures that carry such weight, critics say, the estimates can be far rougher than most consumers realize. Indeed, if the websites were dart throwers, they’d seldom hit the bull’s-eye, and they’d sometimes miss the board entirely: Valuations that are 20, 30 or even 50 percent higher or lower than a property’s eventual sale price are not uncommon. The estimates frequently change, too, for reasons that aren’t always easy for homeowners to discern. According to the companies themselves, some quotes have swung by hundreds of thousands of dollars in as little as a month as new data gets plugged into the algorithms the sites rely on. (Those algorithms also change, as happened this summer when Zillow made adjustments that affected all of the 100 million homes in its database.) And while the sites say it’s probably rare that individual homeowners (or real estate agents, for that matter) game the system, they do acknowledge that people can enter information that might push estimates higher. Put it all together, say pros, and you’ve got numbers that have become head-scratching legends in one community after another: a Hollywood Hills aerie losing 47 percent of its value in one month (with no earthquakes or mud slides to explain the drop); a century-old home in Louisville, Ky., that, according to local lore, served as the inspiration for Daisy’s home in The Great Gatsby, quadrupling in value over 30 days; and one townhouse in Brooklyn, N.Y., listed now for $5 million, valued at a whopping $31 million in the midst of the real estate crash — at least according to Zillow.

Zillow says the Brooklyn valuation was an error that it subsequently corrected. And make no mistake, all of the competitors go out of their way to make it clear their numbers are guesstimates, not gospel. "A Trulia estimate is just that — an estimate," says a disclaimer on that site’s new home-value tool. Zillow deploys similar language and goes a step further, publishing precise numbers about how imprecise its estimates can be. And every major site urges home-price hunters to "always consult with a real estate agent or house appraisal specialist," in the words of Homes.com. Indeed, these sites say they have strong relationships with the real estate business in general; they get a significant share of their revenue from the industry, in the form of advertising and subscriptions.

But when the real estate version of Pandora’s box is opened, homeowners don’t necessarily pay attention to disclaimers. Consumers and pros alike say many Web surfers put enough faith in the estimates to sway the way they shop and sell. "I’m constantly explaining to clients that those numbers don’t come from a person," says Mindy Chanaud, a real estate agent in Greenwich, Conn., who launched into what she calls her Zillow spiel when shown a Zestimate of one of her listings. Frank and Sue Parks, former owners of the Gatsby house in Louisville, watched as the site put a $331,000 value on the dwelling in May; by July it had climbed to $1.5 million. (Zillow says the lower estimate reflected errors in its statistical model.) The couple got some potential buyer referrals from the site, but they had to fend off a stream of lowball offers before they sold their place this fall. They’re convinced that the estimate roller coaster accounted for some of that. Says Sue, "It really affected our ability to move the place."

For most of real estate history, of course, determining a home’s value has been an appraiser’s job. Appraisal involves gathering data on recently sold homes in the area and comparing them with the "subject property" on matters like size, condition and characteristics, before coming up with an estimate of the home’s worth. If the property has, say, a swimming pool, but most recently sold homes don’t, the appraiser might add a premium to the sale value. Still, the exercise involves as much art as science, as appraisers acknowledge. The more unique or luxurious a property, the harder it is to accurately value. "Imported marble and a view of the ocean are going to be more or less valuable depending on market conditions," says Susan Allen, a vice president at CoreLogic, a data and analysis provider in California. And critics have accused a few appraisers of inflating the value of properties or rubber-stamping other people’s estimates to ensure that deals went through.

The response, beginning in the late 1980s, was the rise of the machines. Economists started developing automated valuation models, or AVMs; instead of having a person visit the property and crunch calculations, these computer models sync the math with data about comparable sales, square footage, number of bedrooms and the like, all in a matter of seconds. Rob Walker, a managing director at AVM purveyor Lender Processing Services, says the models sped up the approval process for second mortgages and home-equity loans; indeed, for years, the tools were mostly reserved for in-house nerds at lending banks. It wasn’t until 2006 that Zillow took them to the masses, with its Zestimate. The company runs data on more than 100 million homes through its own algorithms that recognize relationships between property characteristics, tax assessments and recent transactions. "Humans don’t make these decisions," says Stan Humphries, chief economist at Zillow.

Scores like these have helped build successful business models for some companies — Seattle-based Zillow, for one, just raised $69 million in an initial public offering. And they’ve become weapons in the arsenal of consumers like Terence Avella, an attorney in Eastchester, N.Y. After he and his wife became enamored of a four-bedroom Victorian with an asking price of $650,000, Avella consulted Zillow, finding a much lower valuation: $510,000. He says the Zestimate reinforced his belief that the house would need extensive renovations — and he put up a lowball bid. By the time the process was over, Avella had settled on an offer of just $580,000 (though the negotiations later fell through). Indeed, in a market where listing prices often reflect hope more than reality, some agents and consumers say that online tools are a useful reality check. Simms Jenkins, an Atlanta marketing executive, says he’s recently relied on sites like these to both buy and sell homes. "I can’t imagine 25 years ago, when people would just go out and spend their entire Saturday looking at homes," Jenkins says. "You don’t have to do that now."

But what’s a godsend to Jenkins is an ongoing mystery to Mike Battaglia. Battaglia lives in a Frank Lloyd Wright inspired mansion in Louisville, on a historic street, across from a lush park. But his neighborhood is decidedly eclectic — homes like his sit near much smaller starter homes — making it a challenge, local appraisers and agents say, to figure out how much each home is worth. Among the online estimates, that difficulty plays out in real time. Homes.com valued the manor at $761,700, but that figure dropped $85,000 in a month. Zillow pinned its worth at $1.1 million in December 2010, then posted no Zestimates at all for several months — only to peg its value at $327,000 in May, a 70 percent haircut. By fall, it was back up to $1 million.

Battaglia, a business consultant, says he knows the numbers are only estimates, but he still thinks that notion doesn’t register with people: "It’s the perception of value that affects people’s psychology." Zillow says its wide range of estimates was a result of volatility in the local market. Homes.com’s Doyle declined to comment specifically on Battaglia’s house, but says that a home in a neighborhood like his could definitely be vulnerable to inaccuracies. "If there’s a transaction next door and someone just gave away a house, it will throw off the model," Doyle says.

Indeed, appraisers and real estate consultants say that those models veer off target with alarming frequency. Typically, data for valuation models come from two sources: records from tax assessors and listing data for recent sales. Middleman companies — the dominant ones are CoreLogic and Lender Processing Services — gather this data from more than 3,000 U.S. counties and license them out to the Web sites and other model-builders. Collection is itself a challenge, because not every county tracks properties the same way. In North Carolina’s high-tech Research Triangle, anyone can get data directly from the Wake County website, while in rural Wright County, Mo., tax rolls are available only on paper. The size of a home could be reported by square footage or by the size of each bedroom and bathroom, so data companies must "scrub" the data to make it uniform. Even then, the data isn’t always useful in the field, say real estate pros. County assessors often use AVMs in newer subdivisions where floor plans don’t vary much. But with custom homes or neighborhoods going through gentrification, the models can go haywire. "You cannot use a computer model in certain areas and expect the value to come out right," says John May, the former assessor of Jefferson County, Ky.

Some properties’ data can be too tough a nut for any computer model to crack. On a quiet street in one of Brooklyn’s grander old neighborhoods stands the brownstone that, according to Zillow, was worth $31 million in 2007. "I don’t even know if there’s ever been a home in Brooklyn worth that much," says a spokeswoman for The Corcoran Group, the agency that now lists the property on the market, for $5 million. Zillow declined to discuss why its earlier estimate was so high, but a look at the house’s records suggests one potential reason for the enormous spread: Although the address is a two-family townhouse, the current owners use the entire house, giving them square footage that’s off-the-charts big by New York City standards.

Public records are hardly the only problem. Automated models aren’t designed to account for the unique details that often make or break a deal — something their designers readily acknowledge. AVMs usually can’t capture data that determines the condition of a property, such as whether there’s been a ton of wear and tear. Is a home right next to the railroad tracks or a golf course or a landfill? AVMs can’t always answer those questions, say industry pros, though GPS technology is improving things on that score. Models also can’t decipher the motivations of a buyer or seller, says Leslie Sellers, a past president of The Appraisal Institute. A couple who’s going through a nasty divorce, for example, may have taken the first offer that came along just to unload the property. For all these reasons, says Lee Kennedy, managing director of AVMetrics, a firm that audits and tests industrial-grade AVMs, the models that banks use often add a "confidence score" to their value estimates, with a low score signaling that it’s best to send in a human appraiser.

Consumers, however, don’t get to see a confidence score; instead, they get disclaimers, some of which are eye-opening. Zillow surfers who read the "About Zestimates" page find out that the site’s overall median error rate — the amount the estimates vary from the actual fair value — is 8.5 percent, and that about one-fourth of the estimates wind up being at least 20 percent off the properties’ eventual sale price. In some places, the numbers are far more dramatic: Gibson County, home of the West Tennessee Strawberry Festival, has a 57 percent error rate; in Hamilton County, Ohio, where the Cincinnati Bengals play, it’s 82 percent. Site users are always one click away from this data, but agents say few homebuyers read it (on Zillow’s homepage, the font for the "About Zestimates" link is slightly smaller than the main home-data type — and quite a bit fainter).

The sites argue that, over time, edits and corrections will help them perfect their numbers — and many of the corrections will come from their customers. On Homes.com, for example, anyone who knows certain specifics, like a homeowner’s surname and the year the home was last purchased, can edit the details to reflect, say, a sprawling two-bedroom addition. Zillow also allows site visitors to modify its property details, and in four years, it has accepted revisions on 25 million homes — perhaps the strongest testament to how seriously consumers take the estimates. Today, Zestimates are helpful enough, says the site, to give consumers an accurate sense of any home’s value. In the meantime, says Humphries, the company’s economist, "We’re always tweaking the algorithm or building a new one."

But in the eyes of some skeptics, that tweaking only increases the potential for off-base estimates. Steve Levine, a real estate agent in Shrewsbury, Mass., says he recently changed his home description on one site, adding the fact that he has a finished basement. Over the next six months, his home rose from $516,000 to $558,000 — a healthy 8 percent — while a neighbor’s nearly identical home sank in value. Levine says he has no way to tell how big an impact his update made, "but being able to change the facts is one more tool for manipulating the system." The sites say they believe intentionally wrong changes are rare, but acknowledge they can only go so far policing those tweaks. "It’s not 100 percent bulletproof," says Homes.com’s Doyle.

In the end, some critics say, the sites’ business models may pose a bigger problem for consumers than their algorithms. Even their flaws help to sustain the buzz around the estimates, drawing curious visitors. The online firms earn significant revenues from advertising, and the more traffic they get, the greater that ad revenue is. Zillow says 57 percent of its revenue comes from display ads from the likes of home-supply store Lowe’s, realty franchisor Century 21 and builder KB Home. Realtor.com’s parent company, Move Inc., generates 42 percent of its sales from listings by local agents, while Homes.com says advertising is its fastest growing revenue area. Trulia expects its traffic to grow now that it has launched a beta version of an online estimator, says head of communications Ken Shuman; after all, he adds, "consumers asked for it." As long as they keep asking, say industry insiders, stumbles in reliability aren’t especially important. "It’s not about being accurate or precise; it’s about being sticky," says Kennedy, of AVMetrics. For their part, the sites say stickiness matters to their business plans, but that they take the estimates very seriously; otherwise, as a Zillow spokesperson put it, "we wouldn’t have a team of Ph.D.s trying to make them better all the time." They depict the estimates as an ongoing experiment that is likely to achieve a very high degree of accuracy — someday. (At least for now, one site is deferring to agents in the home-value game: Realtor.com says it removes its estimates from homes once they actually go on the market.)

In the future, of course, homeowners may look at today’s estimates the way they look at those enormous console televisions from the 1940s — as an awkward early phase for what became a ubiquitous, reliable technology. But in the meantime, many are content to use them, flaws and all, whether in earnest or as entertainment. In an exurb outside Phoenix, Mike Lang, a commercial-property manager, has seen his home jump almost 20 percent in value on Zillow in the past few months — he’s not sure why. Though he’s not moving any time soon, he’s enjoying his time at the top of the real estate heap. "I’ve got the most expensive house in the neighborhood," Lang says.

 

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HUD Leader Touts Home Stabilization Efforts

November 15, 2011

Bob Christie via Bloomberg Businessweek

The Obama administration’s top housing official touted the government’s efforts to stabilize neighborhoods hard hit by foreclosures during a visit to Phoenix neighborhood on Thursday.

U.S. Housing and Urban Development Secretary Shaun Donovan visited two homes bought out of foreclosure, rehabilitated and put back on the market for sale to families by a nonprofit group awarded federal funds.

Efforts of groups such as Chicanos Por La Causa in cities across the U.S. are helping stop blight and home price declines triggered by vacant and foreclosed homes like those that had been prevalent in the South Mountain neighborhood where Thursday’s event was held, he said.

"When a foreclosure sign goes up on this house, it drops in value," Donovan said. "And so does the house next door and across the street."

The Phoenix home where Donovan spoke was bought out of foreclosure for just over $80,000 and Chicanos Por La Causa spent about $21,000 to fix it up.

A buyer has already agreed to pay $94,000 for the home. The group uses some of its $33 million in federal Neighborhood Stabilization Program grant to pay for the difference.

The government has poured nearly $7 billion into the program under both the Obama and Bush administrations.

The federal government is also poised to expand a program that helps homeowners who owe more than their home is worth to refinance at today’s much-lower interest rates. President Barack Obama announced the expansion of the Housing Affordable Refinancing Plan last month, with details due out later this month.

Donovan, in an interview with The Associated Press, said the government will remove the cap for refinancing mortgages held by Fannie Mae and Freddie Mac from the current 125 percent. The goal is to help homeowners free up an average of $2,500 a year they now spend on higher interest rates, thereby allowing people breathing room and an incentive not to walk away from their "underwater" homes.

The government will also ease rules for appraisals and other requirements to make it easier for people with those mortgages to refinance.

Donovan said the hope is that the federal action will set a model that conventional mortgage holders like banks can use to prevent foreclosures.

Donovan also urged Congress to act on Obama’s American Jobs Act proposal, but reiterated that the administration would use executive authority to make the moves it can even without the legislation.

"We need Congress to move," he told those at the event. "We need them to get back to work so we can get back to work."

Rep. Ed Pastor, D-Arizona, said critics who object to the government trying to help solve the foreclosure crisis are off the mark.

"The private sector has not done it, that’s the problem. If you had the financial institutions lending money for these types of projects, I think you would have the private sector getting involved. It’d be great to have the private sector, but they’re not stepping up right now, for various reasons, so now you need the public sector to be able to do it."

 

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MetLife Originates Over $1.6 Billion in Agricultural Mortgages

November 9, 2011

by Emily Phillips via MarketWatch

NEW YORK, Nov 08, 2011 (BUSINESS WIRE) — MetLife, Inc. MET +0.04% announced today that it has originated over $1.6 billion in agricultural mortgages in the first nine months of 2011. MetLife, through its agricultural investments unit, provides mortgage loans on farms, ranches, timberland and agribusiness facilities throughout North America.

"MetLife continues to be very active in the agricultural lending industry," said Robert Merck, senior managing director and head of agricultural investments for MetLife. "Our mortgage production to date demonstrates our expertise in providing borrowers with a reliable and trusted source of financing for the long-term growth and success of their business. At the same time, with the transactions we’ve completed this year, we have continued to further strengthen our high-quality portfolio of agricultural mortgages."

Some of MetLife’s Agricultural Investments unit’s recent transactions include:

Aurora Cooperative — Aurora, Nebraska

— $75 million of a $90 million senior secured loan

— Secured by fixed assets principally comprised of grain handling and storage facilities

— Aurora Co-Op is a grain merchandiser and specializes in handling and storage, as well as a merchandiser and distributor of crop chemicals, fertilizers and energy products

FIA Timber Partners, L.P. – Continental U.S.

— $80 million senior secured, 5.25 year fixed rate loan

— Secured by timberland located across the southern, southeastern, and northwestern United States

— Stands are primarily well distributed age classifications of Southern Pine and Douglas Fir

— Assets managed by Forest Investment Associates of Atlanta, GA

Central States Enterprises, LLC — Heathrow, FL

— $56 million first mortgage, 10 year fixed rate loan

— Secured by grain storage and handling facilities in Northeast Indiana

— Central States Enterprises provides grain and feed handling, merchandising and transportation logistics services

Woolf Enterprises – Fresno & Madera Counties, CA

— Three senior secured fixed rate loans with a combined total of $43 million

— Secured by irrigated field crop land, almonds, pistachios and wine grapes in the western San Joaquin Valley of California

— Woolf Enterprises is a diversified, vertically integrated, multi-generational family business

"MetLife has a deep understanding and knowledge of our industry and worked seamlessly with our banking group to provide us with an optimal structure of long and medium-term solutions," said Aurora Cooperative CFO Robert Brown. "I have worked with numerous financial institutions in my more than 30-year CFO career, and MetLife’s industry expertise was extremely valuable in supporting our financing needs."

Through its agricultural investments department, MetLife oversees a $13 billion agricultural portfolio, which consists of farm and ranch, food and agribusiness and timberland mortgages. MetLife has provided agricultural financing solutions since 1917 and is one of the largest agriculture mortgage lenders in North America. MetLife has agricultural investments offices in Fresno, Calif., Overland Park, Kan., West Des Moines, Iowa, and Bloomington, Ill., as well as a National Timber Office in Memphis, Tenn. For more information, visit http://www.metlife.com/ag .

 

 

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The Five Star Institute Announces Top Women in the Mortgage and Housing Industry Banquet

November 9, 2011

Mortgage Group Will Honor Industry Trailblazers at the 2011 MPact Conference and Expo

via Five Star Institute

The Five Star Institute, a mortgage industry group, announced today that it plans to honor several distinguished women in mortgage and the housing industry at the 2011 MPact Conference and Expo, held Dec. 4-6, 2011.

MPact will feature the honorees at the 2011 Top Women in the Mortgage and Housing Industry Banquet immediately before former U.S. Secretary of State Condoleezza Rice delivers her keynote address.

The Five Star Institute developed a list of several criteria to assess and determine final candidates for the banquet. The criteria included industry impact, "Big Picture" thinking, name brand equity and reputation, and a record of accomplishment with other companies.

The Five Star Institute is pleased to announce the following final honorees:

  • Caren Jacobs Castle, President, United States Foreclosure Network
  • Francene DePrez, CRP/SGMS, President, Fidelity Residential Solutions
  • Colleen Hernandez, President and CEO, Homeownership Preservation Foundation
  • Margaret M. Kelly, CEO, RE/MAX World Headquarters
  • Christine Larsen, COO of Trust and Securities Processing Division, JPMorgan Chase
  • Rebecca Mairone, National Mortgage Outreach Executive, Bank of America
  • Roseanna McGill, Chairman, PrimeLending
  • Frances Martinez Myers, President, Employee Transfer Corporation/ETCREO Management
  • Deb Still, President and CEO, Pulte Mortgage
  • Ivy Zelman, CEO, Zelman & Associates

"This select group of mortgage and housing industry leaders gives testimony to the strength of our democracy and exemplifies the importance of real leadership, above and beyond gender," says Ed Delgado, CEO of the Five Star Institute. "It is our great esteem and pleasure to recognize these trailblazers for their substantive and continuing contributions to our industry and markets at a time when we need strong leadership the most."

Additionally, the 2011 MPact Conference and Expo is focused on increasing the viability and success of mortgage industry professionals working in originations, servicing, data and analytics, and the secondary market.

 

 

 

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Credit Scores to Factor in More Consumer Data

November 9, 2011

Mary Ellen Podmolik via Los Angeles Times

Many consumers applying for a mortgage are going to start sharing more personal information with lenders next year, like it or not.

FICO scores, the industry standard for determining credit risk in mortgages backed by Fannie Mae, Freddie Mac and the Federal Housing Administration, largely have been based on a person’s credit history. But in an attempt to develop a more well-rounded picture of a person’s finances beyond credit, tools are being developed to help the lending industry dig deeper.

Fair Isaac Corp., or FICO, the company behind the widely used scoring formula, and data provider CoreLogic recently announced a collaboration that will result in a separate score that will be available to mortgage lenders and incorporates information that will include payday loans, evictions and child support payments. In the future, information on the status of utility, rent and cellphone payments may also be included.

Separately, the big three credit reporting companies — Experian, Equifax and TransUnion — recently began providing estimates of consumer income as a credit report option. And Experian this year began including data on on-time rental payments in its reports.

The new information could prove to be a double-edged sword for consumers: It may open the door to homeownership to some consumers who have, according to industry speak, a "thin file" or worse, a "no file," meaning that they lack sufficient credit histories.

On the other hand, the extra information may make a borderline borrower look even worse on paper. Also, it’s unlikely to quiet critics who complain that too much emphasis is put on a single number.

Still, there is thought among researchers that consumer transparency, if it demonstrates both good and bad behavior, has its place.

"You’re trying to convince someone to loan you an awful lot of money at a low interest rate," said Michael Turner, president of the Policy and Economic Research Council. "Only you know whether you’re going to pay it back. There is a harmony in this data exchange."

The FICO-CoreLogic partnership won’t result in a credit score that will rule out a borrower for a mortgage backed by Fannie Mae, Freddie Mac or the FHA, which together own or guarantee at least 90% of the mortgages being written. That’s because the report required for such a loan does not rely on CoreLogic data. However, it could affect mortgage fees or interest rates charged by lenders that in today’s lending environment have heartily adopted risk-based pricing.

"We’re fascinated to see, as we get into the data, whether that may expand the universe of people who can get a mortgage," said Joanne Gaskin, director of product management global scoring for FICO. "Banks are saying, ‘How do I find ways to safely increase loan volume, to find the gems out there?’"

As a result, there’s a rush by credit reporting firms to provide financial companies, including mortgage banks and credit card providers, with a wealth of information on individual customers.

"Before the [housing] bubble burst, there was a huge amount of interest in targeting the unbanked," said Brannan Johnston, an Experian vice president. "It was a desperate dash to try and grow and go after more and more consumers. When the bubble burst, that certainly dialed back some. They want to grow their business responsibly by taking good credit risks."

FICO scores have been around since the 1950s, but they didn’t become a major factor in mortgage lending until 1995, when Fannie Mae and Freddie Mac began recommending their use to help determine a mortgage borrower’s creditworthiness. The score, which ranges from 300 to 850, factors in how long borrowers have had credit, how they’re using it and repaying it, and whether they have any judgments or delinquencies logged against them.

The change comes as mortgage lenders reward the most creditworthy borrowers with low rates and tack extra fees onto loans for those with lower credit scores.

There are concerns about whether inquiries and charge-offs from payday and online lenders should be included in determining credit scores.

"Payday loans are extremely onerous," said Chi Chi Wu, a staff attorney at the National Consumer Law Center. "They trap people in a cycle of debt. To report on them is to cite that person as financially distressed. We certainly don’t think that’s going to help people with a credit score."

The extra information may also help more affluent homeowners who aren’t on the credit grid.

Two years ago, David Pendley, president of Avenue Mortgage Corp., worked with a college professor who didn’t believe in using credit. "He was putting down 40% and he had the hardest time getting a loan, even though he had $120,000 in the bank and he was 22 years on the job."

Eventually, Pendley secured a loan for the customer through a private bank, but he paid for it. "He didn’t get the lowest rate possible," Pendley recalled.

 

 

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Mortgage Lenders Could Soon Take Homes’ Energy Costs Into Account

November 1, 2011

Kenneth Harney via Washington Post

When you apply for a mortgage to buy a house, how often does the lender ask detailed questions about monthly energy costs or tell the appraiser to factor in the energy-efficiency features of the house when coming up with a value?

Hardly ever. That’s because the big three mortgage players — Fannie Mae, Freddie Mac and the Federal Housing Administration, who together account for more than 90 percent of all loan volume — typically don’t consider energy costs in underwriting. Yet utility bills can be larger annual cash drains than property taxes or insurance — key items in standard underwriting — and can seriously affect a family’s ability to afford a house.

A new, bipartisan effort on Capitol Hill could change all this dramatically and for the first time put energy costs and savings squarely into standard mortgage underwriting equations. A bill introduced Oct. 20 would force the big three mortgage agencies to take account of energy costs in every loan they insure, guarantee or buy. It would also require them to instruct appraisers to adjust their property valuations upward when accurate data on energy efficiency savings are available.

Titled the SAVE Act (Sensible Accounting to Value Energy), the bill is jointly sponsored by Sens. Michael Bennet (D-Colo.) and Johnny Isakson (R-Ga.). Here’s how it would work: Along with the traditional principal, interest, taxes and insurance (PITI) calculations, estimated energy-consumption expenses for the house would be included as a mandatory underwriting factor.

For most houses that have not undergone independent energy audits, loan officers would be required to pull data from either previous utility bills — in the case of refinancings — or from an Energy Department survey database to arrive at an estimated cost. This would then be factored into the debt-to-income ratios that lenders already use to determine whether a borrower can afford the monthly costs of the mortgage. Allowable ratios probably would be adjusted to account for the new energy/utilities component.

For houses with significant energy-efficiency improvements built in and documented with a professional audit, such as a home energy rating system study, lenders would instruct appraisers to calculate the net present value of monthly energy savings — i.e., what that stream of future savings is worth today in terms of market price — and adjust the final appraised value accordingly. This higher valuation, in turn, could be used to justify a higher mortgage amount.

For example, Kateri Callahan, president of the Alliance to Save Energy, a nonprofit advocacy group and a major supporter of the new legislation, estimates that a typical new home that is 30 percent more energy efficient than a similar-sized, average house will save about $20,000 in utility expenses over the life of a mortgage. Under the Bennet-Isakson bill, appraisers would be required to add those savings to the current market valuation of the house. In this instance, Callahan says, the increase in value would be about $10,000.

Dozens of housing, energy and environmental groups have endorsed the new legislation including appraisers, large home builders, the U.S. Chamber of Commerce, the U.S. Green Building Council, the Natural Resources Defense Council, green-designated real estate brokers, the Institute for Market Transformation and the National Association of State Energy Officials, among others.

Business groups such as the U.S. Chamber are backing the legislation because they see it as an employment generator that requires no federal budget outlays, no new taxes or programs. A joint study by the American Council for an Energy-Efficient Economy and the Institute for Market Transformation estimated that 83,000 new jobs in the construction, renovation and manufacturing industries could be stimulated by the legislation if the new underwriting rules were phased in over a period of years.

But not all interest groups are lining up behind the bill. The National Association of Realtors expressed concern that it might hamper a real estate recovery by complicating the mortgage process. “NAR supports efforts to promote energy-efficiency in housing and believes it’s something that all consumers should strive toward,” the group said. “However, we believe that homeowners should move toward energy efficiency at their own pace, without a mandate that impedes their ability to qualify for a mortgage or causes them to incur substantial additional costs to purchase a home, especially while the housing market continues to recover.”

Another group whose members and clients could be affected by the bill, the Mortgage Bankers Association, declined to comment for the record, saying it is still evaluating the bill’s provisions.

But one might ask: In a fractious, polarized Congress, could this bill actually make it through this session? The co-sponsors are optimistic and supporting groups say there is substantial bipartisan support — a rarity — for the idea in both the House and Senate.

In the meantime, for homeowners who think their energy-efficiency and cost-saving improvements should be worth something, there is no rule barring you from asking a qualified appraiser or a lender to assess the added market value of those features. You can get your house rated and documented and insist they do precisely that.

Or you can invest in documented improvements that save on utility expenses — a worthy goal in its own right — and hope that the federal agencies see the light and change their underwriting and valuation procedures before you go to sell. Sooner or later, this is going to happen.

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A Realistic Fix for the Mortgage Crisis

November 1, 2011

By Elyse Cherry via Los Angeles Times

President Obama recently announced that the federal government will take steps to reduce interest rates on mortgages for some existing homeowners. Unfortunately, that won’t help millions of U.S. homeowners already in foreclosure and millions more about to join them.

The current foreclosure crisis is not due to poor choices by individual homeowners. Most people caught up in it fell prey to a national bubble and bad lending practices. These taxpayers – schoolteachers and medical technicians, salesclerks and mechanics, veterans and parents of soldiers in Iraq and Afghanistan – are often simply people who got in over their heads. They deserve a second chance.

One reason the mortgage industry hasn’t done more, its leaders say, is that it fears creating a "moral hazard" – the concept being that if homeowners in default are given too much help, other homeowners might be tempted to deliberately default in order get the same help. That hasn’t been the experience of Boston Community Capital, a 27-year-old nonprofit, community development finance institution I’ve led for 14 years.

As part of its Stabilizing Urban Neighborhoods initiative, Boston Community Capital has renegotiated many mortgages on foreclosed homes, and we’ve seen no evidence that doing so sets off a flood of voluntary defaults. We believe our model could be applied much more widely in this national crisis.

Foreclosure isn’t something a homeowner chooses if it can be avoided. Today, a good credit score is required for countless transactions, and foreclosure destroys a person’s credit score. In many states foreclosed homeowners can’t qualify for another mortgage for many years, nor can they easily rent houses, qualify for college and car loans, or even get some jobs.

Since 2009, Stabilizing Urban Neighborhoods has prevented the eviction of almost 150 Massachusetts households by securing reduced mortgage payments that line up with homeowners’ real incomes – rather than with the value set by a real estate bubble that burst long ago.

Our formula is straightforward. We negotiate with the lender’s representative to buy foreclosed homes at current, distressed market values – often 50 percent less than the amount paid by the homeowner. We then resell the homes to their current occupants with a new 30-year mortgage at a fixed interest rate of 6.375 percent (a rate that, although higher than the best loans available to people with excellent credit, is far lower than the rate that the high-risk clients we assist could get elsewhere – if they could get other loans at all).

We qualify our clients by closely analyzing their finances and employment situations. We work with local nonprofits to understand client histories. Even after accounting for reserves, emergency repairs and closing expenses, we are able to lower monthly housing expenses and the overall cost of a home loan to affordable levels. On average, homeowners pay about 40 percent less per month.

We require homeowners to share any future potential appreciation with our neighborhood nonprofit if the market rebounds, discouraging speculators and people who aren’t serious about keeping their homes from coming to us.

Our initiative cannot solve every foreclosure problem. Some would-be participants don’t have enough income to sustain even a sharply reduced mortgage payment. Some in the mortgage industry, citing moral hazard, refuse to sell us homes at their current values because we plan to keep foreclosed homeowners in the homes. At times, we have been outbid for a home we were trying to save, but we won’t spend more on a home if that would mean we would have to offer our borrowers new mortgages that were still too high for them to manage.

Our Stabilizing Urban Neighborhoods initiative is not a bailout or a charity. It is a sustainable model that can offer relief to a substantial percentage of homeowners in foreclosure and relieve mortgage industry gridlock. The Open Society Foundations and others have provided us planning funds to explore other locations across the country where our model might work. The approach is best suited to areas that have suffered substantial depreciation in housing prices, that have high levels of foreclosures, and that have trusted, long-standing community organizations interested in entering partnerships to administer the program. We estimate that our approach could help 1 in 5 homeowners whose homes have significantly dropped in market price, and who are either late in paying their mortgages or in foreclosure.

Renegotiating realistic mortgages that keep people in their homes helps homeowners and neighborhoods. It also helps the mortgage industry, which must come to grips with the fact that many of its borrowers can’t afford to continue to make payments on mortgages that were entered into during the bubble. Our strategy could work on a far grander scale – the kind of scale that, say, Bank of America, Citigroup, HSBC or Wells Fargo or others could adopt.

Foreclosure and eviction are lengthy and expensive. As more homes become owned by lenders, those institutions will bear increasing responsibility for paying local property taxes, insurance and maintenance costs, as well as steep fines if they fail to comply with local building codes and city ordinances.

The groundless fear that helping some borrowers will lead to an avalanche of new foreclosures has discouraged sensible and systemic solutions to the foreclosure crisis. Allowing the mortgage industry to hide behind this fiction has created a genuine hazard – to neighborhoods, to communities and to the nation’s economic health.

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