April Existing Home Sales

Posted on May 22, 2013 by grim
Posted in Economics, Housing Recovery, National Real Estate | 105 Comments

From Bloomberg:

Sales of U.S. Existing Homes Probably Rose to Three-Year High

Sales of existing homes probably climbed in April to the highest level in more than three years, giving a lift to the U.S. expansion, economists said before a report today.

Purchases of previously owned residences rose to a 4.99 million annualized rate last month, the highest since November 2009, from 4.92 million in March, according to the median forecast of 78 economists surveyed by Bloomberg.

Housing has gained strength as borrowing costs near record lows and job gains rebuild confidence, spur demand and stabilize prices. The effects are rippling through the world’s largest economy, affecting builders including Ryland Group Inc., retailers such as Home Depot Inc. (HD), and mortgage lenders.

“The market is definitely a lot healthier than it has been for some time,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama. “Other parts of the economy aren’t holding up their part of the bargain, but housing is holding up its end.”

Federal Reserve Chairman Ben S. Bernanke, who is to testify before Congress today on the economic outlook, will be able to point to the real estate rebound as a policy success even as manufacturing and other sectors cool. The central bank is boosting home sales and holding down interest rates with $40 billion a month in mortgage bond purchases.
…
The National Association of Realtors’ home-sales report is due at 10 a.m. Washington time. Economists’ projections in the Bloomberg survey ranged from 4.85 million to 5.1 million.

The projected pace of April sales would be the fastest since a homebuyer tax credit was first due to expire in November 2009. It would be the third-highest since July 2007.

Should public workers be forced to live here?

Posted on May 21, 2013 by grim
Posted in Demographics, Economics, Politics | 84 Comments

From the Star Ledger:

New Jersey’s captive workforce: Opinion

Every month, dozens of jittery public workers gather before a five-member tribunal in Trenton, to be grilled on their personal lives: Divorces. Child custody issues. Family illnesses. Financial woes.

Why? To beg permission to move out of New Jersey. A state law that quietly went into effect two years ago requires all public employees to live in this state.

To get a waiver, you’ve got to ask for an exception — a process not unlike standing before the mean judge on “American Idol.”
…
Which leads you to wonder: Why was it that we passed this law in the first place?

The idea behind it was simple: New Jersey jobs should go to New Jersey residents. And the taxpayer dollars that pay their salaries should stay in our state.

This law, passed in 2011, was the brainchild of Sen. Donald Norcross (D-Camden), who called it the “New Jersey First Act” — because it was all about putting “our own residents first,” he said.

Other states have similar residency rules for police officers or firefighters, so they can respond quickly to an emergency. But New Jersey was the first in the nation to enact such a broad requirement for all public employees — from state or municipal government to teachers at our public schools.
…
To the people at these hearings, though, it just sounds like a life sentence.

Hensley says she’s paid taxes here all her life, unlike the Pennsylvania residents who got grandfathered in. How could she have anticipated this law, or her husband’s death, when she first took her job more than a decade ago?

“I feel like I’m a prisoner of New Jersey and I never did anything wrong except being a taxpaying citizen,” she said. “Now I’m just stuck here until I retire or die, I guess.”

Siegert, who teaches language arts, took on extra work as a custodian and coach at his Franklin Borough elementary school to try to make ends meet. But his wife’s medical condition leaves them no choice but to seek help across the border, he says.

“It’s hard enough to swallow your pride to move in with family,” he told the panel. “But if I can’t do that — what are my other options?”
…
That’s what New York state Assemblyman Kenneth Zebrowski and 25 of his colleagues asked Christie in June. The lawmakers sent him a letter expressing their strong opposition to New Jersey’s residency law, but so far they haven’t gotten an answer.

Along with legislators in Pennsylvania, they argue this policy hurts the regional economy and reduces the talent pool for public jobs — while at the same time leaving them little choice but to propose identical laws to protect their own constituents, whose job prospects have shrunk.

“I don’t think it’s the right policy, but if a neighboring state like New Jersey is going to do that and limit the occupations open to New York residents, then New York is going to have to follow suit,” Zebrowski said. “I think it’s going to create a race to the bottom.”

Banks halt foreclosures … again.

Posted on May 20, 2013 by grim
Posted in Foreclosures, Mortgages, National Real Estate | 70 Comments

Will we ever get through the backlog? From the WSJ:

Some Banks Halt Foreclosures, Citing Regulator’s Bulletin

Some of the nation’s largest banks, including Wells Fargo & Co., suspended foreclosure sales in a number of states following guidance issued last month by federal banking regulators.

While some foreclosures have since resumed, the halt marks the latest dustup over how foreclosures are handled.

Banks said their actions were triggered by a four-page bulletin issued last month by the Office of the Comptroller of the Currency and the Federal Reserve. The bulletin outlined basic operating standards for foreclosure sales. Many of the nation’s largest banks were already operating under consent orders with the OCC or the Fed in response to foreclosure-processing abuses that surfaced in late 2010.

Officials at Wells Fargo and J.P. Morgan Chase & Co. said they had postponed scheduled foreclosures earlier this month in response to the latest guidance. J.P. Morgan has since resumed foreclosures, a spokeswoman said.

A Wells Fargo spokeswoman said the bank hasn’t resumed foreclosures but said it expected the pause to be “brief.” It wasn’t immediately clear what part of the regulatory guidance had prompted the suspensions or how many states were affected.
…
News of the foreclosure suspensions was first reported Friday by the American Banker.

During April, Wells Fargo completed around 80 foreclosures per workday for five Western states–California, Nevada, Arizona, Oregon and Washington–according to data compiled by ForeclosureRadar, which tracks filings in those states. But since May 6, Wells Fargo has completed no more than eight foreclosures on any day.

The bank said the guidance didn’t affect other parts of the foreclosure process outside of the final step, in which the lender takes title to the property.

The slowdown in foreclosures came as a surprise to market analysts because the OCC’s compliance letter “appears to cover all of these things the banks should have been doing,” said Sean O’Toole, president of ForeclosureRadar.

An OCC spokesman said regulators hadn’t directed any foreclosure pause. “However, if servicers are not certain they are meeting these standards, pausing foreclosures is a responsible and productive step,” said OCC spokesman Bryan Hubbard.

Why home price gains are lagging here

Posted on May 19, 2013 by grim
Posted in Economics, Foreclosures, Housing Recovery | 36 Comments

Same dynamics apply to NJ. From Newsday:

Why Long Island home prices are rising slower than the U.S. average

U.S. home prices are up about 10 percent right now from the same time last year, multiple national reports have shown, yet local reports have indicated that Long Island’s appreciation is just half of that — or even less.

The closely watched Case-Shiller Home Price Index most recently reported a 9.3 percent nationwide increase, while a similar measure from market analytic firm CoreLogic, released May 14, found a 10.5 percent increase.

Meanwhile, a local report from Douglas Elliman, which excludes the East End, found median home prices down 2.6 percent annually and a report from the Multiple Listing Services of Long Island, which includes Queens, showed a 4.5 percent uptick. CoreLogic’s Nassau-Suffolk home price index measured a 3.2 percent increase in prices.

So no matter how you slice it, Long Island is underperforming relative to the rest of the country. And that’s especially surprising considering the historically low supply of homes on the local market. What’s to blame?

It’s mostly New York’s foreclosure process, industry experts explained. The state employs a judicial process that, on average, takes 1,089 days from the time a lender files a complaint to the time the property is officially foreclosed, according to a recent report from RealtyTrac. That’s tops in the United States, where the overall average is 414 days.

As a result, there’s a humongous inventory of distressed homes looming in the shadows awaiting clearance to be offered for sale. Nassau and Suffolk counties have more than 24 months supply worth of distressed homes that haven’t completed the foreclosure process and entered the sales market, according to the CoreLogic report.

Consider there’s only one other market among the nation’s 25 largest that even has more than 15 months worth of supply — the Edison-New Brunswick, N.J. region has a 16-month supply of distressed homes.

So while other localities have made significant progress clearing supplies of distressed homes — especially since the massive federal mortgage settlement in February 2012 — Long Island hasn’t. Nationally, between 20 and 30 percent of all homes sold in March 2013 were in some stage of distress in many of the largest markets compared to between 30 and 40 percent a year ago. The elevated, but decreasing share of distressed sales indicates that foreclosures are clearing through the market.

“That’s how you make a housing market recover,” Jonathan Miller, president of appraisal firm Miller Samuel, said in an interview. “You move the distressed properties from weak hands to strong hands. Until that happens you can’t truly recover.

Wait a minute, Doc. Are you telling me that you built a time machine out of a DeLorean?

Posted on May 18, 2013 by grim
Posted in Mortgages, National Real Estate | 20 Comments

From Loans.org:

Back to the Future of Home Loan Rates

NJ unemployment falls to 8.7%

Posted on May 16, 2013 by grim
Posted in Economics, Employment, New Jersey Real Estate | 137 Comments

From NJBIZ:

Labor reports jobless rate hits lowest level in four years

New Jersey’s unemployment rate dropped to its lowest level in four years in April, falling by 0.3 percentage points to 8.7 percent, according to new figures from the New Jersey Department of Labor and Workforce Development.

The new rate continues a sharp drop since January, when the unemployment rate was 9.5 percent. The report also showed the state added a net sum of 3,300 jobs in April, with 4,100 new private-sector jobs more than offsetting a loss of 800 public-sector jobs.

Joel Naroff, president at Naroff Economic Advisors, said the number probably represents a more accurate picture of the labor market than the much-higher numbers of the winter.

“On the unemployment rate, it’s probably as much a statistical issue as it is anything else,” he said.

Naroff said the 9.5 percent and 9.6 percent unemployment rates of the winter months coincided with very high estimates of the growth of New Jersey’s labor pool. That matters because the rate is based on an estimate of the number of people working and those actively looking for a job. During the highest-rate months, New Jersey’s labor pool was said to be growing by 1.5 percent, more than three times faster than the national labor pool’s estimated growth, Naroff said. Such a high rate of growth never made sense, he said.

“It’s not that the state is doing well, but it’s not doing that badly,” he said. “And I think the indication of that is the payroll numbers, where we have a fairly decent growth in the number of nonfarm jobs over the year.”
…
“The marked decline in unemployment over the last year mainly reflects the ongoing gains in jobs we are experiencing,” he said, noting that the state added nearly 60,000 jobs from April 2012 to April 2013.
…
Naroff said the numbers are likely to have a significant political impact, but he’s more concerned with the reality for job seekers; a reality he said is still far from ideal.

“I think people are going to look at 8.7 and say ‘Oh, gee, that doesn’t help us a whole lot,’ ” he said. “It’s better than it had been. But it’s not good. The unemployment rate is simply too high.”

NJ property tax increases slow, but still higher

Posted on May 15, 2013 by grim
Posted in Economics, New Jersey Real Estate, Politics, Property Taxes | 136 Comments

From Bloomberg:

New Jersey Property Taxes Rise to Record as Growth Slows

New Jersey’s average residential property-tax bill rose 1.6 percent to a record $7,885 last year as most towns abided by Governor Chris Christie’s 2 percent cap on the levies, slowing the growth rate, according to state data.

The average homeowner paid $126 more than in 2011, the smallest increase in at least five years, according to the Community Affairs Department. New Jersey residents pay the nation’s highest average real-estate levies, according to the Washington-based Tax Foundation.

“By any measure, the property-tax reforms have been a resounding success,” Community Affairs Commissioner Richard Constable told the Assembly Budget Committee May 9. “This success is measured against a cumulative average increase of 70 percent in the 10 years before Governor Christie took office.”

The average property-tax bill in 2011 was $7,759, 2.4 percent more than in 2010, state data show. Along with the property-tax cap Christie won in 2010, he and the Democratic-led legislature passed a pension overhaul in 2011 that requires government workers to pay more toward retirement and for health-care benefits. Constable said that measure will save New Jersey’s 566 municipalities $543 million in fiscal 2014.
…
While the rate of property-tax increases may be slowing, the net amount paid by New Jersey homeowners rose almost 19 percent during Christie’s first three years in office as he cut rebate programs, NJ Spotlight, a nonprofit research group, said May 6. Under Christie’s predecessor, Democrat Jon Corzine, the net amount paid rose 6 percent over three years as rebates offset rising levies.

Retire somewhere warm? Or tax friendly?

Posted on May 14, 2013 by grim
Posted in Demographics, Economics, National Real Estate | 90 Comments

From the WSJ:

It’s getting trickier to put up your feet and sidestep taxes at the same time.

Investors getting ready to retire have long looked at state and local tax laws in deciding where to settle when their working days are over, alongside sunny weather and recreational opportunities.

But some states are becoming tighter-fisted with tax breaks for retirement income. Georgia and Michigan have imposed new limits on deductions and exemptions, and Kentucky is considering similar changes.

“As the population ages, it’s going to be harder and harder for some states to keep their generous programs,” said Kim Rueben, a senior fellow at the Tax Policy Center, a joint venture of two Washington think tanks, the Urban Institute and the Brookings Institution.
…
The result is a shifting landscape that is complicating what is already a difficult calculation of the financial impact of uprooting to another state.

Some states, including Florida and Texas, don’t tax any personal income, including retirement income. Pennsylvania doesn’t tax any retirement income, while Illinois doesn’t tax most retirement income. Other states appeal to tax-conscious retirees because they have low property taxes or don’t have a sales tax.
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The changes could also alter the debate in other states, particularly those wrestling with the issue of whether increasing taxes will compel residents to leave.

William Schooling, a demographer at the California Department of Finance, says there is limited information about whether people move based on tax concerns. But a New Jersey report linked tax rates to “small but significant effects on net out-migration from a state.”

Financial advisers often discuss tax regimes with clients who are getting ready to retire. Andrew Tignanelli, president of the Financial Consulate, an advisory firm in Hunt Valley, Md., is working with a New Jersey doctor who plans to retire to Hershey, Pa., because taxes are lower there and family members also live in Pennsylvania.
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On the West Coast, retirees are sometimes drawn to Nevada partly because it has no income tax, says Christopher Jones, who runs Sparrow Wealth Management in Las Vegas. Mr. Jones has personal experience—he moved the firm from the East Coast two years ago, partly to be close to family and partly to save money. “I was getting killed on New York City taxes,” he says.

Hey Rich New Jersey – PAY UP!

Posted on May 13, 2013 by grim
Posted in National Real Estate, Politics, Property Taxes | 84 Comments

From the Record:

Jackson: If D.C. reform kills property tax write-offs, N.J. will feel the pain

Several deductions that help offset the high cost of housing in North Jersey and the property taxes that come with it may be scaled back as the White House and Congress debate ways to overhaul the federal tax code.

Among the 50 states, New Jersey is one of the biggest beneficiaries from the deductions of local property taxes, state income taxes and mortgage interest.

Given how federal policy usually scales back the value of benefits as wealth increases, and targets spending toward lower-income beneficiaries, the deductions represent a rare case where a high-wealth state such as New Jersey comes out near the top from a federal policy.

But economists also see these deductions as an expensive “tax expenditure,” with a national price tag last year of $181 billion that would have otherwise been owed to the federal government, according to the Congressional Research Service. And that high price tag makes them a tempting target for House and Senate tax committees trying to rewrite the code to meet different policy goals without raising rates.

For New Jersey, the three breaks combined were worth an average $9,879 per tax filer in 2011, about 80 percent higher than the national average.

One plan proposed by President Obama would cap the value of the deductions and bite harder in New Jersey than many other states.

A study by Citizens for Tax Justice found that while only 3.6 percent of taxpayers nationwide would pay more under Obama’s plan, the rate would be 6.7 percent — almost double the national average – in New Jersey.

And in some parts of North Jersey, tax data suggest the impact would be far higher.

“New Jersey is one of the richest states, and people pay a fair amount in property and income taxes, and they take deductions for them,” said Steve Wamhoff, the legislative director at Citizens for Tax Justice, which generally favors higher taxes on the rich. “It’s a combination of those things.”

Some in New Jersey say the wealthy can afford to pay more.
…
Obama, in his 2014 budget proposal, called for capping the value of the three deductions, along with other things, at 28 cents on the dollar for taxpayers in the upper-income brackets.

Generally, that means there would be no impact on people in the 28 percent bracket or lower, defined this year as couples filing jointly with $223,000 in taxable income or less. Those in higher brackets, whose deductions right now are worth 33 to 39.6 cents per dollar, would have to pay more.
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Pascrell said he would prefer a cap, like the kind Obama proposed, to a total phase-out of deductions for mortgage interest and state and local taxes. But he said he’s not sure the cutoff Obama set is the right one.

“The president’s proposal is to limit itemized deductions, not eliminate any individual tax expenditure. It acts as an aggregate limitation,” Pascrell said. “That path is worth looking at, but my cutoff would be a higher one.”

Buyer must feed squirrels

Posted on May 12, 2013 by grim
Posted in Economics, Housing Bubble, National Real Estate | 11 Comments

From the NYT:

In a housing market starved for inventory, buyers are stepping over one another to bid on desirable properties. But a high bid may not be enough — sellers are also seeking offers without mortgage contingencies.

Usually included in a sales contract, a mortgage contingency gives buyers the option of backing out if they can’t obtain financing within a specified period. And if they do back out, they can take their down payment with them.

But the combination of a competitive market and a difficult lending climate has made sellers in New York less amenable to such conditions. They want noncontingent or all-cash offers.

“When you have a market that’s heating up,” said Marc Israel, the executive vice president of Kensington Vanguard National Land Services, a title insurer, “sellers feel emboldened to say to buyers, ‘I’m not going to give you this clause because I don’t want to take the risk that you can’t get your mortgage.’ ”

The stance makes perfect sense from a seller’s viewpoint. When the market is hot, added Mr. Israel, a continuing education instructor for real estate lawyers, “the last thing sellers want to do is tie themselves up with a buyer for some extended period of time just to have the buyer cancel the contract.”

For buyers, however, signing a contract without a mortgage contingency is risky. If their financing was delayed or denied, they could forfeit their down payment.

Given the typical 10 percent down payment in New York, “you’re talking about a very significant amount of money at risk,” Mr. Israel noted.

In such a competitive market, buyers who need financing may find themselves up against those able to pay in cash or put at least 50 percent down, said Peggy Aguayo, an executive vice president of Halstead Property. It is not uncommon for high bids to be passed up for slightly lower bids that are noncontingent or all cash.

“A typical buyer with 25 or 30 percent to put down” Ms. Aguayo said, “if they don’t waive that contingency, the seller will go with someone else.”

The problem can be discouraging. Some of her buyers have decided to pull out of the market altogether until inventory loosens up.

Only up from here? Or bubble beware?

Posted on May 10, 2013 by grim
Posted in Economics, Housing Recovery, National Real Estate | 95 Comments

From the WSJ:

Housing Rebound Grows as Prices Climb Sharply

Home prices in metropolitan areas saw their biggest year-over-year gains in more than seven years in the first quarter, evidence that the housing recovery is spreading across the nation.

The National Association of Realtors said Thursday that the national median closing price for an existing single-family house was $176,600 in the first quarter, up 11.3% from the first quarter of 2012. That was the largest year-over-year gain since the end of 2005. Of the 150 metro areas tracked by the NAR, sale prices rose in 133 and declined in 17.

“The supply/demand balance is clearly tilted toward sellers in a good portion of the country,” said NAR chief economist Lawrence Yun.

The biggest gain was in Akron, Ohio, where the median sale price rose 32.7% to $108,300. Following Akron, prices were up 32.6% in the San Francisco-Oakland-Fremont area; 32.1% in Reno-Sparks, Nev.; 31.7% in the Silicon Valley area surrounding San Jose; 31.1% in Atlanta; and 30.1% in Phoenix.

Prices are still falling in Kankakee-Bradley, Ill., where they were down 18.8%. Prices declined 8.6% in Edison, N.J.; 8.3% in Allentown-Bethlehem-Easton, Pa.; 5.5% in Champaign-Urbana, Ill.; and 5.0% in Erie, Pa.

NJ foreclosures up 138% in April

Posted on May 9, 2013 by grim
Posted in Economics, Foreclosures, New Jersey Real Estate | 125 Comments

From the Record:

New Jersey foreclosures starts climb

Foreclosure filings in New Jersey, which had been held up by legal issues, spiked to the highest levels in more than two years in April as a long-running logjam in the courts continues to loosen up.

Scheduled foreclosure auctions in New Jersey soared 91 percent last month to 793 from April 2012, a 27-month high, according to RealtyTrac, a company that markets foreclosed properties and sells real estate data.

The New Jersey foreclosure activity was in contrast with the national picture, where foreclosure filings in April fell 23 percent from a year earlier to the lowest level in six years and two months, according to Irvine, Calif.-based RealtyTrac.

“Foreclosure starts have been increasing for several months in many of the judicial states, and now that increased volume is showing up in the second stage of the process: the public foreclosure auction,” Daren Blomquist, vice president at RealtyTrac, said in a statement. “Lenders are serious about moving forward with completing the foreclosure process.”

Only Florida and Nevada had greater year-over-year increases in scheduled auctions.

A 138 percent rise in foreclosure starts between March and April in New Jersey was the largest month-to-month increase in the country for those handouts of initial notices of default. Foreclosure starts in New Jersey totaled 2,917 in April, up from 1,227 in March.

“It’s about time,” economist Joel Naroff of Naroff Economic Advisors in Holland, Pa., said of the state’s higher foreclosure numbers.

Increasing expectations for continued growth in home prices

Posted on May 8, 2013 by grim
Posted in Economics, Housing Recovery, National Real Estate | 91 Comments

From the WSJ:

Fannie: Over 50% of Americans Expect Home Prices to Climb, First Time in Survey’s History

More than half of Americans now expect the country’s home prices to climb within the next year, illustrating a growing optimism toward the health of the housing industry, according to new data by mortgage-finance company Fannie Mae (FNMA).

“For the first time in the survey’s three-year history, the majority of Americans surveyed now expect home prices to increase,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Crossing the 50% threshold marks a significant milestone as most Americans believe a housing recovery is truly occurring throughout the country.”

The share of respondents polled in Fannie’s April housing survey who expect home prices to go up rose three percentage points in April to 51%. At the same time last year, only 32% expected an increase in home prices.

The share of respondents who say now is a good time to sell climbed four percentage points in April to 30% compared with 15% at the same time last year.

According to the survey’s results, the average 12-month home-price-change expectation held steady at 2.7%. The share of respondents who say mortgage rates will go up fell three percentage points to 43%, while those who say they will go down increased slightly to 7%.

North Jersey Contracts – April 2013

Posted on May 7, 2013 by grim
Posted in Economics, Housing Recovery, New Jersey Real Estate | 100 Comments

Here it is! The first look at pending home sales (contracts) for Northern NJ.

(Source GSMLS, except Bergen- NJMLS) – Updated with 2011 Data

April Pending Home Sales (Contracts)
——————————-

Bergen County
April 2011 – 669
April 2012 – 812
April 2013 – 1016 (Up 25.1% YOY, Up 51.9% Two Year)

Essex County
April 2011 – 320
April 2012 – 352
April 2013 – 555 (Up 57.7% YOY, Up 73.4% Two Year)

Hunterdon County
April 2011 – 100
April 2012 – 126
April 2013 – 149 (Up 18.3% YOY, Up 49.0% Two Year)

Morris County
April 2011 – 394
April 2012 – 436
April 2013 – 619 (Up 42.0% YOY, Up 57.1% Two Year)

Passaic County
April 2011 – 168
April 2012 – 205
April 2013 – 320 (Up 56.1% YOY, Up 90.5% Two Year)

Somerset County
April 2011 – 280
April 2012 – 332
April 2013 – 418 (Up 25.9% YOY, Up 49.3% Two Year)

Sussex County
April 2011 – 107
April 2012 – 122
April 2013 – 175 (Up 43.4% YOY, Up 63.6% Two Year)

Union County
April 2011 – 330
April 2012 – 323
April 2013 – 470 (Up 45.5% YOY, Up 42.4% Two Year)

Warren County
April 2011 – 74
April 2012 – 73
April 2013 – 133 (Up 82.2% YOY, Up 79.7% Two Year)

Obamahouse?

Posted on May 6, 2013 by grim
Posted in Economics, Foreclosures, Housing Recovery, Politics | 56 Comments

From CNBC/The Street:

Mortgage Forgiveness Presents Challenges in Housing Recovery

Deeply indebted homeowners with government-backed mortgages may have a fresh shot at receiving meaningful mortgage relief, but it will likely come with strings attached.

Earlier this week, President Obama nominated House Financial Services Committee member Mel Watt (D-N.C.) to head the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac.

If confirmed, Watt, as the regulator of the agencies that guarantee nearly 60 percent of the U.S. mortgage market and back nine out of ten new mortgage loans, would have a major say on various aspects of government housing policy, including the $180 billion dollar question of what to do with the bailed-out mortgage giants.
…
While his confirmation is by no means certain—analysts expect stiff opposition from Senate Republicans—Watt’s nomination has been welcomed by consumer activists who have been calling for the removal of current FHFA acting director Edward DeMarco.

DeMarco has come under attack over the past year for opposing principal modifications, a contentious form of mortgage relief.

Proponents of principal reduction believe it is the most effective form of mortgage relief for deeply underwater borrowers—those who owe more than their homes are worth.
…
On principle, he argued that principal reductions were unfair as it punished borrowers who continued to make their mortgage payments despite being underwater. As the conservator charged with minimizing losses to the taxpayer, he said the program would be too costly to administer and could encourage “strategic defaults” by borrowers hoping to take advantage of the program. The costs outweighed the benefits, he concluded.
…
Watt’s nomination also coincided with the release of a report from the Congressional Budget Office this week that said implementing a principal forgiveness program at Fannie Mae and Freddie Mac could, under one option, generate as much as $2.8 billion in taxpayer savings.

But it remains to be seen if Watt changes his stance once he becomes director of the FHFA. In an interview with The Wall Street Journal, Watt said that he might reach the same conclusion as DeMarco. He wasn’t even sure if principal reductions should even be on the agenda.

“I don’t know what the timing would be of when I would get over there. It might be an issue whose time has already passed. And there may be information that would lead me to the same conclusion that they have already reached, if the issue is still a timely issue to consider. I don’t know how I would come down on that,” he told the newspaper.
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The reason why mortgage investors and lenders are often unwilling to reduce principal on the mortgage, but are more willing to ease other terms, is because the borrower often gets the complete upside from the arrangement.

He gets to lower his payment and stay in his home, while the bank takes a loss. Then when the housing market turns higher, he is able to sell his home at a price higher than the loan amount and gets to pocket the difference.

Now with housing on the mend, the upside from rising prices could provide an even greater incentive to strategically default.