Some NJ homeowners left under water as market prices fall

Cynthia Spratt, a single mother of two, recently considered putting her Toms River home on the market and moving inland so that she could avoid the expense of flood insurance and save thousands of dollars.

It was a good idea — except that she bought her home in 2007 near the peak of the housing market. The value of the house and the equity she put in it have dwindled.

“There’s no way I could turn around and sell my house,” said Spratt, 37. “I would walk away from this house with almost nothing to put down on the next house.”

Spratt is one of thousands of New Jersey homeowners who have watched as what was supposed to be their most valuable assets — their homes — lose so much ground that it is virtually worthless to them.

Purchasing a home once was thought to be a cornerstone to building wealth. But now buyers who did just that at the peak of the real estate bubble have little flexibility. They would have a hard time moving if they found a new job out of state. They couldn’t tap into their homes’ equity in case they need a new roof.
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Before the housing bubble, a house was “forced savings,” said Jordan Celkupa, a financial planner with Robert J. Oberst Sr. & Associates in Red Bank.

“You borrowed a chunk of money. You paid the mortgage off. And then, magically, you owned this big asset,” Celkupa said.

Now? If you bought a house near the peak, “you’re going to have to make some tough decisions,” he said.
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The problem could last for as long as a decade, experts said. Median home prices in New Jersey more than doubled from 2000 to 2007, fueled not by rising income — that grew just 25 percent during that time — but by increasingly exotic mortgages, according to Patrick J. O’Keefe, director of economic research for the Roseland-based accounting firm J.H. Cohn.

Some homeowners began to default. Foreclosures rose. Workers lost their jobs. Lending standards tightened. And the supply of homes for sale far outpaced demand from qualified buyers. Home values have declined 34 percent nationwide and 20 percent in New Jersey from their peak in 2006, O’Keefe said.

One result: Some 310,000 homeowners in New Jersey, or 16 percent of the state’s homeowners, are “underwater,” owing the bank more than their homes are worth, said Jeffrey Otteau, president of Otteau Valuation Group, a real estate appraisal and consulting firm in East Brunswick.

New York Housing Market Could Still Collapse: Analyst

There’s been a lot of talk recently about home prices reaching a bottom. Most notably, Bill McBride at Calculated Risk — perhaps the most respected housing market analysts in the blogosphere — says housing starts already bottomed and housing prices are likely to bottom in March.

But not everyone is convinced. Keith Jurow argues that home prices are nowhere near the bottom. In fact, he thinks that one particular market — New York City — is close to collapsing.

From Jurow:

Let’s look at the most misunderstood housing market in the country — the NYC metro. The published median sale price for both NYC and Long Island has seemingly held up better than other major metros — not much less than $400,000 for Queens or Suffolk counties. This has fooled people into thinking that the worst is over in the NYC area. On the contrary, the real collapse in prices is imminent.

In November 2011, Minyanville.com posted my 30-page New York City Housing Market Report. The report included never-seen-before charts, graphs and data that revealed what has been going on there. The banks have not been foreclosing for the past three years. This started well before the robo-signing mess. On February 7, 2012 there were a total of only 242 repossessed properties on the active MLS in Queens according to foreclosure.com. This is a borough with a population of 2.2 million.

Because of this, the number of seriously delinquent properties throughout NYC has been soaring. Based on individual charts for each borough from the NY Federal Reserve Bank which I included in my report, there were roughly 80,000 properties where the mortgage had not been paid in more than 90 days as of June 2011.

That number is considerably higher now. How about this statistic? I received updated numbers from the N.Y. State Department of Banking a few weeks ago. In 2009, the state legislature passed a law requiring all mortgage servicers to send a “pre-foreclosure notice” to all delinquent owner-occupants in danger of losing their home to foreclosure.

As of the end of December 2011, a total of 165,000 pre-foreclosure notices were sent to delinquent owner-occupants just in NYC. This does not include delinquent investors because the law requires that these notices be sent only to owner-occupants.

While not all of these borrowers were more than 90 days delinquent, the vast majority were 60+ days delinquent. What do you think will happen to home prices once the banks finally begin to foreclose on these properties? Prices will collapse in the four outer boroughs and will decline sharply in Manhattan. I am convinced that this will occur although we can’t be sure when the banks will begin to move on this.

The situation is even worse in Long Island — Nassau and Suffolk counties. I wrote a 22-page report on the Long Island housing market which Minyanville posted in December 2011. Just for these two counties — with a total of less than three million people — more than 149,000 pre-foreclosure notices had been sent as of the end of 2011.

As in NYC, the banks have not been foreclosing in Long Island. But they cannot put it off indefinitely. When they begin, prices there will collapse.

CoreLogic® Home Price Index Shows Fifth Consecutive Month-Over-Month Decline

Home prices in the U.S. decreased 1.4 percent on a month-over-month basis, the fifth consecutive monthly decline. However, the HPI excluding distressed sales posted its first month-over-month gain since July 2011, rising 0.2 percent. The CoreLogic HPI shows that, including distressed sales, home prices in the U.S. decreased 4.7 percent in 2011 compared with December 2010. This year-end report shows that home prices continued the trend of year-end decreases—this is the fifth consecutive year with a decrease in the HPI. The HPI excluding distressed sales shows that home prices decreased by 0.9 percent in 2011, giving an indication of the impact of distressed sales on home prices in 2011.

Highlights as of December 2011

Including distressed sales, the five states with the highest appreciation were: Montana (+4.4 percent), Vermont (+4.0 percent), South Dakota (+3.1 percent), Nebraska (+2.5 percent) and New York (+1.7 percent).

Including distressed sales, the five states with the greatest depreciation were: Illinois (-11.3 percent), Nevada (-10.6 percent), Georgia (-8.3 percent), Ohio (-7.7 percent), and Minnesota (-7.5 percent).

Excluding distressed sales, the five states with the highest appreciation were: Montana (+7.7 percent), South Dakota (+3.5 percent), Indiana (+3.3 percent), Alaska (+3.1 percent), and Massachusetts (+2.9 percent).

Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-9.7 percent), Minnesota (-5.2 percent), Arizona (-4.9 percent), Delaware (-4.2 percent) and Michigan (-3.5 percent).

“While overall prices declined by almost 5 percent in 2011, non-distressed prices showed only a small decrease. Until distressed sales in the market recede, we will see continued downward pressure on prices,” said Mark Fleming, chief economist for CoreLogic.

Economists See Ways to Aid Housing Market

he underpinnings of a housing recovery are hiding in plain sight: sharp price declines, low mortgage rates and rising rents have made owning more affordable than renting in a growing number of markets.

Yet housing largely remains in a funk. The prospect of continued price declines—led by the oversupply of foreclosed homes—has deterred some potential buyers, while others can’t qualify for loans.

Many economists, including some at the Federal Reserve, are urging President Barack Obama to do more, and the president will be “aggressive on housing” in his State of the Union address on Tuesday, his housing secretary said last week. The administration is already rebooting a refinancing initiative and putting finishing touches on programs to convert some foreclosed properties into rentals.

What more can be done? Economists cite three broad ideas that could advance a housing recovery.

First, local investors could play a greater role in spurring a recovery in their own communities. Some mom-and-pop investors have begun to buy up excess housing stock and rent it out.
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Second, policy makers could restore clarity to lending by finalizing a clutch of pending regulations. The government’s extraordinary steps to rescue Fannie and Freddie helped prevent a cataclysmic shock but it has made no real movement to overhaul the companies and the nation’s broader housing-finance machinery.
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Third, a growing number of economists are warning that the overhang of debt in some of the most distressed housing markets will linger for years, particularly if more borrowers default. They say mortgage investors and banks should consider reducing debt for more troubled homeowners.
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Mustering the political will to take any of these three steps wouldn’t be easy. Given the state of the market, “there isn’t a solution which will make everyone love you and cost no money,” Mr. Ranieri says.

Indeed, no single idea will fix all of housing’s problems. Many involve taking on more risk or rewarding bad behavior.

Rural Areas Slower to Rebound

FOR whatever reason, homes sales picked up in New Jersey in the latter part of 2011. A new statewide market report shows contract signings increased in six of the seven months from May through November, compared with 2010.

Also, the inventory of homes for sale shrank every month since May, according to Jeffrey G. Otteau, an analyst, whose Otteau Valuation Group in East Brunswick does monthly reports for the real estate industry; he called the latest news a concrete sign that the market was “stabilizing.”

His December report was the first one in several years to sound a hopeful note. Until the state’s huge foreclosure backlog comes back on the market — and how fast that happens is important — the market may improve sometime this year to the point that prices stop declining and perhaps even modestly start to rise.

But that is the statewide picture. A great division in market fortunes between northern and southern Jersey — and urbanized areas close to Manhattan and more rural regions — became clear during the recent recession and remains stark in the fresh statistics. Mr. Otteau predicted that the gap would shape the timing and pattern of potential recovery, and several agents in the field agreed with him.

“Simply put,” said Dawn Rapa, a Coldwell Banker Elite agent working in rural Salem County, “the only people I’ve seen selling their houses recently are those who absolutely had to — because they were in financial disarray, a job change, divorce or death.”

Salem County, rich in historic houses and farmland but short on well-paying jobs or a quick commute to an urban center, has the largest inventory of all 21 counties surveyed: 44.5 months’ worth of houses, the preponderance of them priced under $400,000.
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Several other counties in southern New Jersey have inventories about twice the size of the state average — 29 months’ worth in Cumberland County, 26 in Cape May County, and 24 in Atlantic County.

In Cape May and Atlantic, the primary backlog is for more expensive homes, many of them built in the boom years to appeal to shoreline vacationers. Atlantic has just shy of six years’ worth of inventory in the $600,000-to-$1 million range.

For homes priced from $1 million to $2.5 million, the Otteau report predicted, it will take more than four years to sell the inventory in Atlantic County and close to seven years in Ocean County.
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The market misery is not all concentrated in the south, however. In the northernmost county, Sussex, the inventory is 20 months. In the $400,000-to-$599,999 bracket, five and a half years’ supply is already on the market.

In the town of Vernon, which is home to several popular ski areas, and where construction was booming in the mid-2000s, the average sale price of a home was $250,000 in 2007, according to the real estate Web site Trulia. Now the site has it at $100,000.
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Nearby in the somewhat more affluent town of Sparta, a number of large houses built about a decade ago on one-acre or larger lots are now being offered at reduced prices or as short sales.

“Houses are selling,” said Catherine Kut, an agent at Weichert Realtors in Sparta, “but they have to be in fabulous condition and still occupied, as a rule.

5 Events that Really Mattered for Housing in 2011 – and Beyond

Government, the mortgage industry and forces of nature all shook the housing market in 2011. They had both an immediate impact and slow-burning effects, setting the stage for a bumpy 2012 with more foreclosures, political battles and local market risks.

1) Robo-Signing Reverberations
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What Really Mattered: The threat of robo-signing lawsuits made banks gun-shy about pursuing foreclosures in 2011, which left many homes stuck in the foreclosure process. But once a settlement is reached, we’ll see a rush of foreclosures in 2012.

2) The Debt Ceiling and the Budget Deficit
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What Really Mattered: After the debt ceiling debate, the back and forth deliberations by the unsuccessful bipartisan deficit-reduction supercommittee teased us with some proposals that will surely rear their heads again. One idea that both Republicans and Democrats didn’t totally disagree about was reducing the mortgage interest and other tax deductions. If and when that happens, high-income homeowners with mortgages would pay a lot more in taxes.

3) The Expansion of HARP
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What Really Mattered: Borrowers who strategically fell behind on their payments in hopes of negotiating a loan-modification won’t be helped. What this plan will do is stimulate the economy without having to get Congress to agree on additional stimulus.

4) Natural Disasters Cause Insurance Disaster?
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What Really Mattered: In flood-prone areas, you can’t get a mortgage if you don’t have flood insurance. Without NFIP, housing markets in these areas would skid to a stop. As part of last week’s payroll tax agreement, the program got a last-minute extension until May 2012, but its future remains uncertain.

5) Lowering the Conforming Loan Limit
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What Really Mattered: Mortgage lenders are willing to charge lower rates for loans that are backed by Fannie or Freddie; with a lower conforming loan limit, a small number of loans that used to qualify for federal backing no longer do.

From Grim:

What Really Mattered for Housing in 2011

1) Continued decline of prices

How can you possibly overlook the continuation of the housing decline into it’s fifth year? This is, undoubtedly the single most important event for housing in 2011.

2) Stabilization of prices

Not to sound contradictory, but the decrease in the overall rate of decline (Second derivative? Don’t crash if you are reading this on your phone in the car morning) in spite of numerous negative forces (double digit U-6, slow to no job or income growth, etc), and without significant market influence (homebuyer credits, etc) does point to an overall stabilization in pricing.

3) Disconnect between mortgage rates and housing demand

I think these one can finally be put to bed this year. Extremely low mortgage rates do not necessarily lead to an increase in housing purchase activity. For years the thought was a lower price of housing capital (interest) would lead to greater demand for it. Turns out this isn’t the case and Greenspan’s greatest play simply can’t be repeated.

4) Slow Economic Recovery/High Unemployment

Probably the biggest single external influence on the housing market? Nothing more needs to be said here.

5) Bailout Capitulation

Finally the year that the housing bailout went out of style. Realization sets in that other than shoveling dollars into buyers pockets directly, which at best only elicits a temporary boost in housing, there just isn’t a scheme that’ll fix the market.

Home prices down in most major US cities

Home prices in the New York metropolitan area, including North Jersey, dropped 2 percent in the 12 months ended in October, the Standard & Poor’s Case-Shiller index reported Tuesday.

Nationally, home prices dropped 3.4 percent.

Home prices in the region are back to the levels of spring 2004, and are about 22 percent off their mid-2006 peaks, while national prices have returned to the levels of mid-2003, and are 32 percent off their 2006 peaks.

Home sales and prices have been under pressure from a slow economy and high unemployment. Potential buyers are also concerned that prices may be pulled down further by distressed sales, which are expected to hit the market once the foreclosure pipeline gets moving again after last year’s “robo-signing” reports.

Single-family homes in Bergen County sold for a median $380,000 during the month, down 14.4 percent from a year earlier, while the number of sales dropped 3.3 percent. Home prices declined 18.6 percent in Passaic County, to a median $245,297, as the number of sales plunged almost 20 percent.

Home Prices in U.S. Cities Decline More Than Forecast, Case-Shiller Says

Residential real estate prices dropped more than forecast in the year ended October, showing a broad-based decline that indicates the housing market continues to be weighed down by foreclosures.

The S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said today. The median forecast of 27 economists in a Bloomberg News survey projected a 3.2 percent decrease.

The real-estate market is bracing for another wave of foreclosures that may keep pressure on home prices, indicating any housing recovery will take time to develop. Nonetheless, rising builder confidence, a pickup in construction and fewer unsold new properties for sale are among signs the industry that triggered the last recession is steadying.

“Home prices at the national level clearly remain depressed, dragged down by areas of the country that remain weighted down by a large inventory of foreclosed properties,” Peter Newland, a U.S. economist at Barclays Capital Inc. in New York, said before the report. “However, other areas are beginning to see stabilization and some price gains.”

Estimates in the Bloomberg survey for the price change ranged from declines of 2.4 percent to 3.6 percent. The Case- Shiller index is based on a three-month average, which means the October data were influenced by transactions in August and September.

From CNBC:

Home Prices Fall in Most Major US Cities: Case-Shiller

U.S. home prices fell in most major cities for the second straight month, further evidence that the housing recovery will be bumpy.

The Standard & Poor’s/Case-Shiller index shows prices dropped in October from September in 19 of the 20 cities tracked. Prices in a majority of cities declined for the second straight month. Prior to that, they had risen for five consecutive months in at least half of the cities tracked.

Atlanta, Detroit and Minneapolis posted the biggest monthly declines.

Prices in Atlanta and Las Vegas fell to their lowest points since the housing crisis began. Prices rose in Phoenix after three straight monthly declines.

U.S. Home Prices Fell 2.8% in October From Prior Year, FHFA Says

U.S. home prices fell 2.8 percent in October from a year earlier, the Federal Housing Finance Agency said, as foreclosures continued to depress real estate values.

The slump was led by the regions that include Nevada and Arizona, and California and Washington, which both had a 5.5 percent decrease, the agency said today in a report from Washington. The region that includes Illinois and Ohio had the second-largest decline of 3.9 percent.
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Home prices in October dropped 0.2 percent from the previous month on a seasonally adjusted basis, according to the FHFA. That was worse than economists’ projection of an increase of 0.2 percent, the average of 16 estimates in a Bloomberg survey.

The FHFA’s U.S. House Price Index is 19.2 percent below its April 2007 peak and about the same as the February 2004 level, according to the report.

From Bloomberg:

Decline in U.S. Home Values Smallest in Four Years, Zillow Says

U.S. home values probably will have their smallest decrease in four years in 2011 after the decline in property prices slowed, Zillow Inc. said today.
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An increase in buyer demand is needed before property values can begin to recover, Zillow said. Low borrowing costs may be helping, with sales of existing homes rising in November to a 10-month high, according to a National Association of Realtors report yesterday.

“While homeowners suffered through another year of steep losses, the good news is that homes are losing value at a substantially slower pace as the market works its way towards the bottom,” Stan Humphries, Zillow’s chief economist, said in today’s statement.

While property values declined at a slower pace this year, an oversupply of homes for sale, low consumer confidence and an 8.6 percent unemployment rate will continue to weigh on the market and probably keep it from recovering until late next year or early 2013, Humphries said.

Shadow inventory down 16% from a year ago

Lenders had a “shadow inventory” of 1.6 million distressed properties and repossessed homes they hadn’t yet put up for sale at the end of October, down 16 percent from a year ago, loan data and analytics provider CoreLogic reported today.

Six states account for half of the shadow inventory: Florida, California, Illinois, New York, Texas and New Jersey.

Housing analysts track shadow inventory because it’s typically not included in the official metrics of unsold inventory, and represents a pending supply of homes. CoreLogic estimates that for every two homes listed for sale in a multiple listing service (MLS), lenders have another one in shadow inventory.

The current level of shadow inventory represents a five-month supply of homes, down from a seven-month supply in October 2010, when shadow inventory stood at 1.9 million units.

Shadow inventory should represent less than a one-month supply of homes in a healthy housing market, CoreLogic said. At the peak of the housing bubble, in mid-2006, shadow inventory stood at 380,000 homes.

From CNBC:

Home-Sales Revisions to Hurt: More Distress in Market

Now we know that the recent housing crash was about 14 percent worse than previously thought. That is the conclusion of benchmark revisions by the National Association of Realtors, after they realized that their numbers were “drifting” from other industry calculations.

That drift was caused by a big shift away from For Sale By Owner (FSBO) sales to Realtor sales (which was a big factor in their methodology), an increase in the geographic size/range of many multiple listing services (MLS), and double counting due to Realtors listing properties in several different local MLS’s.

So what does this change? I’ve already expounded on what it doesn’t change, which is really anything happening today in the economy, current home sales and prices and already-accounted-for losses from the housing crash.

It does however, change perception and economic prediction as we go forward. The Commerce Department will have to revise the housing component of GDP lower, and, perhaps more importantly, we have to look at comparisons and the overall health of today’s housing market differently.

From HousingWire:

NAR reduces home sales index 14.3%

The National Association of Realtors revised its existing home sales downward 14.3% in the period from 2007 to 2010, after the group said its data diverged from actual market conditions.

The trade group announced the revisions Wednesday in its monthly existing-sales report. November sales rose 4% from last month and 12.2% from a year ago. Jed Smith, the head of quantitative research at NAR said in a conference call that numbers in reference to supply and demand in the market are unchanged.

Lawrence Yun, NAR chief economist, said about half of the revisions came from a decline in for-sale-by-owner transactions. NAR said those sales dropped from 16% of the market in 2000 to 9% in 2010.

Multiple listings, geographic population shifts and house flipping also contributed to the revisions, Yun said.
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John Burns Consulting contends that for years, the mortgage market believed NAR’s numbers to be overstated. Zillow recently added it would not be changing any of its operations as a result.

Bergen, Passaic home prices continue to slide

North Jersey home values dropped 3 percent in the first half of this year, bringing Bergen County’s median single-family home price below $400,000 for the first time since the housing meltdown began five years ago, an analysis by The Record has found.

The analysis also found that prices did not move in lock step across Bergen and Passaic counties; values fell furthest in lower-priced communities hard-hit by rising foreclosures and the troubled economy. More affluent housing markets held their value better. Some even rose.

Rick Del Guercio, a Glen Rock appraiser, said his experience bears out The Record’s findings.
Hard hit at the bottom

Prices generally dropped most at the low end of the North Jersey housing market, but held their own at the high end.

The analysis for this article and accompanying graphics used tra­ditional “arms-length” sales that reflect market values as well as sales of properties at various stages of a foreclosure or estate liq­uidation process. Sales of distressed properties were included be­cause they represent a significant part of the housing market and reflect the true value of homes in many communities, according to real estate experts.

“You see a greater drop in some of these lower-end towns than in some of the higher-end towns,” he said. “The lower end is being flooded by foreclosures, which is obviously dropping the price for everyone.”

“Locations where the distressed property percentage is high are having huge problems, while other areas are stabilizing,” said Barbara Weismann, a real estate agent with Weichert Realtors in Tenafly.

The Record’s analysis also found that the number of home sales in the two counties plummeted 25 percent from the first half of 2010 to the first half of 2011, though that probably reflected the fact that sales were artificially inflated in early 2010 by the $8,000 federal tax credit for buyers.

The number of homes sold decreased from about 3,600 to 2,800 in Bergen and from 1,450 to 1,000 in Passaic. The latest numbers are down by about two-thirds from the highest levels seen during the housing boom.
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As painful as it is to see housing wealth disappear, “most sellers at this point have adjusted to the new pricing realities,” said Beth Freed of Prominent Properties Sotheby’s International Realty in Ridgewood.

But rather than accept lower prices for their homes, many are simply delaying plans to sell, if they can.

“I think most of the people who are selling right now are doing so because they have to, either because of job loss or divorce,” said Jaime Bolnick, a Re/Max agent in Franklin Lakes.
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“Buyers are seeing incredible savings in comparison to just a couple of years ago,” said John Reilly of Century 21 Van Der Wende Associates in Little Falls, who says prices have returned to 2003 levels in many towns.
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“A lot of buyers are hesitant to commit even if it’s priced fair or below market,” said David Hsu, an agent with Abbott and Caserta Realtors in Ho-Ho-Kus.

That smaller pool of buyers translates into lower demand, which in turn, means lower prices.

Carmelo “Mel” Oliveri of Property Hub Realtors in Paramus predicts that prices will continue to drop because of the large number of foreclosures and short sales expected to come on the market over the next couple of years.

Sheldon Neal, a Re/Max agent in Oradell, agreed.

“The ones who benefit will be first-time buyers,” Neal said.

But, Hsu warned, they should resist the temptation to treat a home as “an investment vehicle.”

“Those days are over for a while,” he said.

Home Prices Edge Downward

Home prices declined in September and are poised for a grim winter as banks step up their efforts to take back and sell foreclosed properties.

Prices fell 0.6% from August, according to the widely watched Standard & Poor’s/Case-Shiller index of 20 major metropolitan areas, breaking a five-month run of increases during the spring and summer, when higher sales volumes typically firm up prices.

For the third quarter, prices were down 3.9% nationwide compared with a year earlier, a slight improvement from the 5.8% annual decline recorded at the end of June, according to the Case-Shiller National Index.

Prices remain under pressure as the housing market continues to digest high volumes of foreclosed and other “distressed” properties that tend to sell at a discount. Though sales picked up at the end of the summer, analysts said buyers were only closing deals they perceive as a bargain, which could help explain why prices are sliding again.

“Buyers don’t want to tell their friends ‘I bought a home.’ People look at you sideways. But if it’s a foreclosure, they pat you on the back,” said John Burns, president of a home-building consulting firm in Irvine, Calif. “People need to feel like they’re getting a great deal.”

What Housing Risk?

Before the 2007 housing bust, financial analysts who raised questions about Fannie Mae and Freddie Mac’s shaky finances were dismissed as cranks. So it’s worrying to see a thoughtful critique of another taxpayer-backed monolith—the Federal Housing Administration—receive a similar brush-off.

The flap centers around an American Enterprise Institute paper “Is FHA the Next Housing Bubble?” by Wharton real-estate finance professor Joseph Gyourko earlier this month. Mr. Gyourko notes that while the FHA’s loan exposure has grown to more than $1 trillion this fiscal year from $305 billion at the end of 2007, the agency hasn’t “increased its capital reserves commensurately.” Sure enough, the Department of Housing and Urban Development recently reported that the FHA’s capital reserves are 0.24%, a far cry from the 2% statutory minimum.

If the FHA were a private entity, these revelations would alarm investors exposed to the risk and force management to adjust. But the FHA is a bureaucracy, so its instinct is the opposite. In a blog post titled “The Continued Strength of the FHA,” Assistant Secretary for Research and Policy Development Raphael Bostic dismisses Mr. Gyouko’s “outrageous claims” and says the FHA’s books are “sound.” His arguments are worth mulling for what they reveal about what passes for FHA thinking.

Mr. Bostic focuses on the FHA’s expansion and recent reforms. Although the agency expects “record” payouts next year as borrowers default, it forecasts $9 billion of new business over the same period. FHA credit scores have improved markedly: At the end of 2007, 47% of borrowers had a credit score of less than 620, but today that figure is 3.5% and the average credit score tops 700. The Obama Administration has increased FHA premiums three times, made “reforms to credit policy, risk management, lender enforcement, and consumer protections,” and “total liquid assets are at their highest point ever,” Mr. Bostic notes.

In other words, the FHA wants to grow its way out of its problems by shedding subprime borrowers and expanding into prime loans, an area historically served by private insurers. Mr. Bostic makes this argument explicit, arguing that the FHA’s market dominance—the agency now backs nearly one-third of all new single-family mortgages—is “essential” to a housing-market recovery, adding: “Providing access to credit for homebuyers of all income ranges and in all communities, and stabilizing our housing market, has been FHA’s mission for nearly eight decades.”

And here we thought its mission was to make housing affordable for lower-income earners. But if the FHA now wants to dominate America’s housing market with taxpayer monies, that’s even more reason to examine the risks, not ignore them.

From the WSJ:

Homes Under Pressure

Those looking for signs of a recovery in New Jersey home values may need to take the long view, as more than 100,000 homeowners are dealing with foreclosures that are stalled in court and another 48,000 are way behind on mortgage payments.

The numbers were among the results of a national mortgage delinquency survey released this week that suggest a backlog of unresolved foreclosures in New Jersey could be a drag on home prices for years to come.

“Foreclosures place downward pressure on neighborhoods,” said Jeffrey G. Otteau, an appraiser and housing consultant. “Home prices are falling fastest in those urban and rural markets most affected by foreclosures.”

Sarah G. Laks, who runs a real estate and construction business, fought in court to head off a foreclosure auction on her five-bedroom home in Lakewood, NJ. She said the backlog of foreclosures was “hurting the building industry,” and she blamed the backlog on the difficulties in negotiating reduced payments with banks.

The delinquency survey, by the Mortgage Bankers Association, found that 8.1% of homes in New Jersey were in foreclosure in the third quarter.

It ranked second, after Florida, in the percentage of mortgages in foreclosure, surpassing Nevada, which was hard hit during the downturn. New York ranked fifth among all states, with 5.7% of homes in foreclosure, while Connecticut ranked ninth, with 4.8% reported in foreclosure. The figures are based on a survey of all homes with mortgages.

The high rankings were reported even though the region was spared the worst of the housing downturn, and has shown strong signs of stabilization: The shares of homeowners with newly delinquent mortgages were below average in the region, and a small fraction of those in Florida and Nevada.

The foreclosure figures were so high in the region because New York, New Jersey and Connecticut all require that foreclosures be handled through court proceedings. These in turn were delayed by complaints about robo-signing: bank employees signing documents without knowing they were accurate.

In New Jersey, major banks suspended most mortgage filings last December, until banks could demonstrate that there were no irregularities in their foreclosure practices. The banks were permitted to resume mortgage activity in August and September, but an appellate court decision in August added new requirements and uncertainty for banks, further delaying many foreclosures, court officials said.