New Jersey Real Estate Report

From the Record:

N.J. troubled mortgages grow to 14.5%

As unemployed homeowners struggled to pay their mortgages, the percentage of New Jersey loans in foreclosure or at least a month behind on payments hit 14.5 percent in the third quarter, the Mortgage Bankers Association said Thursday.

That means that almost one of every seven mortgages in the state was in trouble. The nationwide percentage of delinquent or foreclosed mortgages was a record 14.4 percent, up from 10 percent a year earlier.

The rise in unemployment is the main driver behind the rise in foreclosures, according to Jay Brinkmann, the mortgage bankers’ chief economists. Despite the apparent end to the recession, unemployment is running at the highest level in decades — 9.7 percent in New Jersey and 10.2 percent nationwide in October.

“Mortgages are paid with paychecks,” Brinkmann said. As the number of unemployed people jumped by about 5.5 million over the past year, two million mortgages fell into serious delinquency, he said.

And he said mortgage delinquency rates and foreclosures “will continue to worsen before they improve,” because hiring is not expected to pick up until the first or second quarter of 2010.

While subprime mortgages remain the most distressed sector of the market, the number of new delinquencies is growing faster among prime mortgages, which were taken out by qualified borrowers. Those prime borrowers tend to have more savings to support themselves during unemployment, Brinkmann said. But if they are out of work for a long period, eventually even they find it difficult to hang on to their homes.
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New Jersey ranked fifth, right behind those states, in the percentage of loans in some stage of the foreclosure process during the third quarter. With home values down about 20 percent from their peak in the region, many homeowners who lost their jobs and fell behind on mortgage payments couldn’t just sell their houses without taking a loss.
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“We’re seeing people with exploding mortgages that have just started to explode,” Salowe-Kaye said.

From the WSJ:

Mortgage-Delinquency Rate Rose to New High in 3rd Quarter

Mortgage delinquencies rose for the 11th straight time to a new high in the third quarter, although the rate of increase again relaxed a bit, credit information company TransUnion reported Tuesday.

“Until the housing market can consistently demonstrate several months of home value appreciation and the unemployment rate improves, mortgage delinquency will likely continue to rise,” said F.J. Guarrera, vice president of TransUnion’s financial services division.

Mortgage loan delinquency, or the ratio or borrowers 60 or more days past due, rose to 6.25% in the third quarter from 3.96% a year earlier and 5.81% in the previous quarter. While still increasing, the rate of growth sequentially decelerated for the third time in a row.

From HousingWire:

TransUnion Sees Delinquency Rise for 11 Quarters

Mortgage loan delinquency rose for the 11th straight quarter in Q309, according to market research by credit bureau TransUnion.

Overall mortgage delinquency of 60 or more days reached a record 6.25% in TransUnion’s ongoing study of a random selection of 27m credit files from its national consumer database. The rate is up from 5.81% in Q209 and is expected by the credit bureau to come in just under 7% by year-end 2009.

Despite the rising trend, TransUnion saw a bit of positive news in that the rate of increasing delinquency narrowed in Q309, marking the third consecutive quarter of deceleration.

“While it continues to be a positive sign that the increase in mortgage borrower delinquency rates has slowed for three consecutive quarters, we have to keep things in perspective,” said FJ Guarrera, vice president of TransUnion’s financial services division. “Delinquency rates are rising and expected to peak at record levels.”

From the Morning Call:

Mortgage delinquencies rise in the Lehigh Valley

Mortgage delinquencies in the Lehigh Valley area continued to rise in the third quarter, indicating the weight of foreclosures on the local housing market is likely to keep growing, according to a new report released today.

For the three months ended Sept. 30, 4.5 percent of mortgages in the Lehigh Valley area – defined as Lehigh, Northampton and Carbon counties and Warren County, N.J. – were 60 or more days past due, according to the credit reporting agency TransUnion in Chicago. That’s up from 3.1 percent in the same quarter a year ago and up from 4.2 percent in the second quarter of this year.

Being two months behind is considered a first step toward foreclosure, because it’s so hard to catch up with payments at that point.

The local mortgage delinquency rate has been climbing since the first quarter of 2007, when only 1.8 percent of mortgages were 60 or more days delinquent, according to TransUnion.

Step 1: Buy a house for $415,000 (April, 2000)

Step 2: Cash out to the tune of $600,000 (June, 2005)

Step 3: Sell out and profit, a 115% gain in 6 years seems reasonable (May, 2006)

MLS# 2276951
10 Brookvale Road, Kinnelon NJ (Smoke Rise)
Listed: 5/11/2006
List Price: $895,000

Step 4: Hmm, didn’t plan on step 4 (June, 2006)

Step 5: No problem, so the profit is just a bit lower than expected. (Thru the end of 2006)

MLS# 2276951
Reduced to : $695,000 (not much left after commission and expenses)
Days on Market: 190
Expired

Step 6: Too late for Step 5 (December, 2008)

Step 7: Bank dumps it (October, 2009)

MLS# 2687193
Listed: 6/1/2009
Original List Price: $494,900
Reduced to: $428,000
Days on Market: 101
Sale Price: $330,000

From the WSJ:

US Foreclosure Filings Up 19% In Oct, But Positives Seen

The number of U.S. properties for which a foreclosure filing was received grew 19% in October from a year earlier, but declined for the third month sequentially, an indication the foreclosure tide may be turning.
…
Foreclosure filings - default notices, auction sale notices and bank repossessions - were reported on 332,292 properties for the month, down 3.3% from September and resulting in one of every 385 U.S. housing units receiving one.

The troubles in the residential sector are expected to continue throughout 2009, and not surprisingly, much of the pain is coming from former bubble markets that are now dominating RealtyTrac’s report.

From CNBC:

Foreclosures Fall Again But Improvement Likely Fleeting

Foreclosure rates fell for the third consecutive month in October, but remained sharply higher than a year ago, according to a new report, with analysts cautioning that the improvement was at best temporary.
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“It’s good to see that foreclosures have slowed down marginally, but we don’t really think it’s a trend,” said Rick Sharga, vice president of marketing at foreclosure tracking Web site RealtyTrac, which released the report.

Legislation in some states has slowed foreclosures, says Sharga, but the impact will be temporary and won’t ultimately prevent most of them. In Nevada, for example, foreclosures dropped 26 percent from the previous month because of new legislation requiring mediation before initiating foreclosure proceedings.
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RealtyTrac predicts that 3.2 to 3.4 million properties will go into foreclosure in 2009, up from 2.3 million in 2008.

From Bloomberg:

U.S. Foreclosure Filings Surpass 300,000 for 8th Straight Month

U.S. foreclosure filings surpassed 300,000 for an eighth straight month as unemployment made it tougher for homeowners to pay their bills, RealtyTrac Inc. said.

A total of 332,292 properties received a default or auction notice or were seized by banks in October, up 19 percent from a year earlier, Irvine, California-based RealtyTrac said today. One in every 385 households received a filing. The tally fell 3 percent from September, the third consecutive monthly decline.

“The foreclosure problem is still with us and will keep prices down,” Stephen Miller, chairman of the economics department at the University of Nevada at Las Vegas, said in an interview. “The real issue is we don’t know what inventory banks are holding that they have yet to put on the market.”

Distressed real estate transactions accounted for 30 percent of all home sales in the third quarter as the median price fell 11 percent from a year earlier to $177,900, according to the National Association of Realtors. U.S. unemployment surged to a 26-year high of 10.2 percent in October as payrolls fell by 190,000 workers, the Labor Department said last week.
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“The fundamental forces driving foreclosure activity in this housing downturn — high-risk mortgages, negative equity, and unemployment — continue to loom over any nascent recovery,” James Saccacio, chief executive officer of RealtyTrac, said in the statement. “We continue to see foreclosure activity levels that are substantially higher than a year ago in most states.”
…
Filings fell 12 percent from a year earlier in New Jersey, which had the 13th highest rate. They dropped 26 percent to 2,306 in Connecticut, and rose 28 percent to 4,797 in New York.

From CNN/Money:

Foreclosures: ‘Tide may be turning’

Could the foreclosure plague be ending?

Foreclosure filings were down 3% in October, the third consecutive month-over-month dip, according to RealtyTrac, the online seller of foreclosed homes.

To be sure, foreclosure rates are still elevated from a year ago: They’re up 18% compared with October 2008. But the month-over-month decrease followed a 4% drop in filings during September and a 1% fall in August.

“Three consecutive monthly declines is unprecedented for our report, and, on first blush, an indication that the foreclosure tide may be turning,” said James Saccacio, RealtyTrac’s CEO, in a prepared statement.

He cautioned, however, that three consecutive singles does not constitute a hitting streak. So there still may be dark days ahead.

From HousingWire:

Bill Raises Required Down Payment to 5% for FHA Loans

A bill introduced in Congress Monday would increase the minimum down payment for Federal Housing Administration (FHA)-insured mortgages from 3.5% to 5%.

The FHA Taxpayer Protection Act of 2009 — HR 3706 — would also prohibit financing initial service charges, appraisals, inspections, or other fees or closing costs with any part of an FHA mortgage.

The bill’s author, Rep. Scott Garrett (R-NJ), said the current policy of allowing closing costs to be rolled into the mortgage effectively reduces FHA down payments to as low as 2.5% because borrowers don’t have to have as much cash on hand at closing.

“[T]he benefits of promoting homeownership using government subsidies must be balanced against the potential risk of insuring less creditworthy borrowers and exposing the American taxpayer to that risk,” Garrett said in a statement on his Web site. “As we have learned repeatedly throughout the mortgage crisis, the amount of equity a homeowner has in their home directly correlates to the credit risk associated to their mortgage.”
…
The bill also calls for the Government Accountability Office (GAO) to conduct a review of the FHA’s fiscal stability and the state of the Mutual Mortgage Insurance Fund, including the appropriate capital ratio of the fund, and how that ratio affects broader housing market. The bill also calls for an examination of the housing market’s dependence on the fund since the mortgage crisis began.
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The market share of FHA mortgages has increased from 3% in 2006 to more than 20% in 2009, and the rate of delinquency for FHA loans is also on the rise, currently more than 14%, according to testimony Department of Housing and Urban Development (HUD) inspector general Kenneth Donohue gave to Congress in April.

From Bloomberg:

U.S. Mortgage Time Bomb Needs Defusing Yesterday: John F. Wasik

When talking about the U.S. home market, mentioning “the other shoe to drop” was quaint about a year ago. Now we are referring only to bombs.

The latest ordnance is the option adjustable-rate mortgage, one of the many sucker loans marketed during the housing boom. Option ARMs basically gave borrowers four ways to pay back, most of them involving low initial outlays that would reset at much higher monthly amounts at a future date.

Of the $200 billion of these loans outstanding, almost $30 billion is due to reset this year and $67 billion in 2010, according to Fitch Ratings, a New York-based ratings company.

The resets inflict more trauma on the U.S. housing market. The average option ARM monthly payment will soar 63 percent — or $1,052. Although there was a slight increase in home sales in November, prices fell 18 percent from a year earlier, according to the S&P/Case-Shiller Index.

The pain continues. Since most option ARM borrowers will be unable to refinance because of lowered credit ratings or lack of home equity, many of those resets will result in more foreclosures and further depress home prices.

Ultimately, the option-ARM resets might plunge 8 million more households into foreclosure. That’s in addition to the 2.3 million facing home loss last year, says Eric Rothmann, an analyst for Zacks Investment Research in Chicago.
…
The shock-and-awe days of the housing crisis are far from over because of these loans and their cousins: subprime, “Alt- A” and some prime mortgages. While Barack Obama’s administration struggles to fix the banking industry, it will be difficult to directly remove these loans — and related securities — from balance sheets without triggering billions in writedowns.

The option-ARM barrage will exacerbate the housing decline in the worst-hit areas.

Homes that can’t be refinanced probably won’t be sold immediately. Assuming no government aid comes along to help these homeowners, the houses will go into foreclosure and be resold at much lower prices. That fuels what economists call a “feedback loop” of ever-lower values.

Houses that are resold are discounted at least 30 percent from the original selling prices, according to U.S. researchers John Campbell, Stefano Giglio and Parag Pathak, who studied 1.8 million transactions in Massachusetts over the past 20 years.

From the AP:

Home prices post 18 percent annual drop in October

A closely watched index shows home prices dropped by the sharpest annual rate on record in October.

The Standard & Poor’s/Case-Shiller 20-city housing index released Tuesday fell by a record 18 percent from October last year, the largest drop since its inception in 2000. The 10-city index tumbled 19.1 percent, its biggest decline in its 21-year history.

Both indices have recorded year-over-year declines for 22 straight months. Prices are at levels not seen since March 2004.

Prices in the 20-city index have plummeted more than 23.4 percent from their peak in July 2006. The 10-city index has fallen 25 percent since its peak in June 2006.

None of the 20 cities saw annual price gains in October — for the seventh consecutive month.

From Bloomberg:

October Home Prices in 20 U.S. Cities Fall 18% From Year Ago

Home prices in 20 U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales.

The S&P/Case-Shiller index declined 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in September. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

The financial market meltdown that’s reverberated around the globe has prompted banks to curb lending, signaling the housing slump will persist for a fourth year in 2009. Falling property values have eroded household wealth, causing consumers to pare spending and deepening what is projected to be the longest recession in the postwar period.

“As 2008 comes to an end, the housing market is left in a weaker state than at the beginning of the year,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report. “Uncertainty remains high given the unprecedented nature of the recession.”

Economists forecast the 20-city index would fall 17.9 percent from a year earlier, according to the median of 21 estimates in a Bloomberg News survey. Projections ranged from declines of 17 percent to 18.4 percent.

Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in October, led by a 33 percent drop in Phoenix and a 32 percent decline in Las Vegas.

“The bear market continues,” David Blitzer, chairman of the index committee at S&P, said in a statement. The declines in Atlanta, Seattle and Portland surpassed 10 percent for the first time, he said.

From MarketWatch:

Home prices off record 18% in past year, Case-Shiller says

Home prices in 20 major U.S. cities dropped 2.2% in October from the prior month and had fallen a record 18% from the previous year, according to the Case-Shiller price index published Tuesday by Standard & Poor’s.

Prices have fallen in all 20 cities compared with both the prior month and October 2007, and 14 of the 20 metro areas showed record rates of annual declines. Also, 14 of 20 areas sustianed declines of more than 10% on a year-over-year basis.

For Case-Shiller’s original 10-city index, prices fell a record 19.1% in the previous 12 months.

“The bear market continues; home prices are back to their March 2004 levels,” said David Blitzer, chairman of the index committee at Standard & Poor’s.

The largest price drop for October was seen in Detroit, with a fall of 4.5% amid growing troubles for the Big Three automakers.
For the year, Phoenix chalked up the biggest drop — 32.7%.

From the Wall Street Journal:

Case-Shiller Index Shows Sharpest Home-Price Declines in Sun Belt

Home prices continued to drop as the economic downturn deepened further in October, according to the S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, with home prices in the Sun Belt continuing to be hit hardest.

“The bear market continues; home prices are back to their March 2004 levels,” said David M. Blitzer, chairman of S&P’s index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines. As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Mr. Blitzer said.

The indexes showed prices in 10 major metropolitan areas fell 19% in October from a year earlier and 3.6% from September. The drop marks the 10-city index’s 13th straight monthly report of a record decline.

In 20 major metropolitan areas, home prices dropped 18% from the prior year, also a record, and 2.2% from September.

Once again, none of the regions was able to stave off a decline from September to October.

Overview:

S&P/Case-Shiller Home Price Indices Overview

Data:

S&P/Case-Shiller Home Price Indices Data

From the AP:

Existing home sales sink by 8.6 percent in November, as prices plunge a record 13.2 percent

A real estate group says sales of existing homes plummeted far more than expected last month as buyers reeled from October’s big plunge on Wall Street. The median sales price fell by the largest amount on record.

The National Association of Realtors said Tuesday that sales of existing homes fell 8.6 percent to an annual rate of 4.49 million in November, from a downwardly revised pace of 4.91 million in October.

Sales had been expected to fall to a pace of 4.9 million units. according to Thomson Reuters.

The median sales price plunged 13.2 percent in November to $181,300, from $208,000 a year ago. That was the lowest price since February 2004 and the biggest year-over-year drop on records going back to 1968.

From Bloomberg:

U.S. Existing Home Sales Fall 8.6% in November to 4.49 Mln Rate

Sales of previously owned homes in the U.S. fell more than forecast in November and prices dropped by the most on record, indicating the real estate slump will extend into a fourth year and worsen the recession.

Purchases declined 8.6 percent to an annual rate of 4.49 million, from a 4.91 million rate in October that was less than previously estimated, the National Association of Realtors said today in Washington. The median price dropped 13.2 percent from a year earlier, the biggest decline since records started in 1968. Separately, the Commerce Department reported today that new-home sales fell 2.9 percent last month.

Prices will plunge further as job losses sap demand, foreclosures add to the property glut and prospective buyers get turned away by mortgage lenders. The Federal Reserve this month cut its benchmark interest rate target to as low as zero and said it would take more steps to ease borrowing as the longest postwar recession looms.

“Foreclosures are prolonging the declines in home prices,” Jonathan Basile, an economist at Credit Suisse Holdings in New York, said before the report. “Increasing unemployment is a continued impediment to housing.”

Resales were forecast to fall to a 4.93 million annual rate from an originally reported 4.98 million in October, according to the median estimate of 63 economists in a Bloomberg News survey. Projections ranged from 3.98 million to 5.2 million.

Sales dropped 10.6 percent compared with a year earlier. Resales averaged 5.67 million in 2007 and before today’s report, fluctuated around a 4.96 million rate this year.

The number of previously-owned unsold homes on the market at the end of November represented 11.2 months’ worth at the current sales pace, up from 10.3 months’ at the end of the prior month.
…
The median price of an existing home fell to $181,300, and the percentage drop from a year ago was “probably the largest price decline since the Great Depression,” although records don’t go back that far, said NAR Chief Economist Lawrence Yun.

Foreclosures and short sales accounted for 45 percent of last month’s home purchases, Yun said.

From MarketWatch:

U.S. Nov. existing home sales fall 8.6% to 4.49 mln units

With plummeting prices, resales of U.S. single-family homes and condos dropped 8.6% in November to a seasonally adjusted annual rate of 4.49 million, the National Association of Realtors reported Tuesday. Resales are down 10.6% in the past year. Economists surveyed by MarketWatch had expected sales to fall to an annual rate of 4.9 million. In the past year the median sales price fell 13.2% — the largest decline since data collection began in 1968 and likely since the Great Depression — to $181,300. The inventory of unsold homes on the market rose 0.1% to 4.2 million, an 11.2 month supply at the current sales pace. NAR attributed November’s poor results to the weak stock market, job losses and low consumer confidence.

From MarketWatch:

U.S Nov. new home sales down 2.9% to 407,000

U.S. new home sales fell to their lowest level in over 17 years in November, the Commerce Department estimated Tuesday. New home sales fell 2.9% to a seasonally adjusted annual rate of 407,000. This is the lowest level since 401,000 in January 1991. New home sales are 35.3% below their level in November 2007. The drop was slightly above the 400,000 pace expected by economists surveyed by MarketWatch. New-home sales in October were revised to a 419,000 level compared with the previous estimate of 433,000. The months’ supply of homes on the market fell slightly to 11.5 months in November from 11.8 months in October. Median sales prices have fallen 11.5% in the past year to $220,400.

From Reuters:

November home sales fall 2.9 percent

ales of newly built single-family homes slowed in November to the weakest levels since 1991, according to Commerce Department data on Tuesday that offered fresh evidence of housing market distress.

The seasonally adjusted annual sales pace of 407,000 was down 2.9 percent from October and was the lowest rate since January, 1991.

Economists polled by Reuters had forecast sales would notch a 420,000 rate compared with a downwardly revised 419,000 in October, previously reported as 433,000.

The median sales price rose to $220,400 from $214,600 in October. The median marks the half-way point, with half of all houses sold above that level and half below.

From MarketWatch:

Foreclosures could top 8 million: Credit Suisse

More than 8 million mortgages could go into foreclosure in coming years in the wake of the credit meltdown as the economy worsens and the U.S. suffers more job losses, according to a recent report.

Credit Suisse’s fixed-income research team forecast that 8.1 million mortgages will be in foreclosure over the next four years, representing 16% of all mortgages. In a recent research note, Credit Suisse lifted its earlier forecast from April when it predicted 6.5 million foreclosures, or 13% of all mortgages.
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“Despite some initial signs that subprime foreclosures were near a plateau, the combination of severe weakening in the economy, continued decline in home prices, steady increase in delinquencies, particularly in the prime mortgage space, ensure that foreclosure numbers, absent more dramatic intervention, will march steadily higher,” Credit Suisse wrote.
…
Earlier this week, Office of the Comptroller of the Currency director John Dugan released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008.

“The results were surprising, and not in a good way,” Dugan told a gathering in Washington at the Office of Thrift Supervision’s annual conference.

According to the OCC statistics, which looked at loans modified in the first quarter and second quarter of 2008, 36% of borrowers had re-defaulted by being more than 30 days past due and after six months the rate was roughly 56%.

After eight months, 58% of borrowers had re-defaulted. The OCC tracked the number of borrowers that re-defaulted on their mortgages after the modification was completed.
…
Meanwhile, Credit Suisse said that if home prices continue to spiral down, more and more mainstream borrowers could end up walking away from their homes, especially if the mortgage is worth more than the value of the house.

“Thus far, the population of subprime borrowers in the U.S. is relatively small,” the analysts wrote.

“However, the severe recession that appears more and more likely, coupled with the collapse of confidence in housing and resultant foreclosures and the impact on credit scores, risks transforming the U.S. into a subprime society.”

Adding to the headwinds, a deteriorating labor market will put more pressure on foreclosures, they said.

From the AP via CNBC:

How Freddie Mac Splashed Cash to Halt Regulation

From a hefty lobbying budget to the use of free baseball tickets, Freddie Mac fended off any meaningful regulation in the years before the housing mortgage giant crashed, records obtained by The Associated Press show.

When the Washington Nationals played their first-ever baseball game in the nation’s capital in April 2005, two congressmen who oversaw Freddie Mac had choice seats — courtesy of the very company they were supposed to be keeping an eye on.

Efforts to tighten government regulation were gaining support on Capitol Hill, and Freddie Mac was fighting back.
…
The Nationals tickets were bargains for Freddie Mac, part of a well-orchestrated, multimillion-dollar campaign to preserve its largely regulatory-free environment, with particular pressure exerted on Republicans who controlled Congress at the time.

Internal Freddie Mac budget records show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich were recruited with six-figure contracts.
…
The tactics worked — for a time. Freddie Mac was able to operate with a relatively free hand until the housing bubble ultimately burst in 2007.

From the Wall Street Journal:

Investors Hit BofA Loan Modifications

Bank of America Corp.’s decision to embark on an $8.4 billion home-loan-modification program to settle charges brought by state attorneys general against Countrywide Financial Corp. was hailed as a milestone when the deal was announced this fall. But apparently nobody talked to one group that will shoulder much of the settlement’s costs: investors who hold securities backed by Countrywide mortgages.

ow, some of those investors are crying foul, adding to the confusion over what is becoming a central issue in efforts to resolve the wave of foreclosures that is at the root of the global financial crisis.

J.P. Morgan Chase & Co. and Citigroup Inc. recently announced foreclosure-prevention programs that aim to reduce interest rates, extend repayment schedules and, in the case of Citigroup, reduce loan amounts, to help borrowers keep their homes. But the programs have focused primarily on loans wholly owned by those companies because they feel they have more authority to rework those mortgages.

More than $2 trillion in mortgage loans were packaged into mortgage-backed securities and sold to investors by Wall Street, according to Inside Mortgage Finance. But opinions vary regarding the degree to which these mortgages can be modified.
…
Under terms of contracts with investors, mortgage companies generally have the authority to rework loans when it is likely to benefit investors. But just how much authority the mortgage companies have is open to debate.

Modifications also can benefit some bondholders at the expense of others. Reducing a borrower’s loan balance, for instance, may hurt holders of the riskiest piece of a mortgage securitization more than investors who bought securities that had higher credit ratings.
…
Last week, a group of about two dozen investors met in New York with attorneys at Grais & Ellsworth LLP, who believe they may have grounds to sue. Attorney David Grais told them that Bank of America was conflicted when it agreed to the settlement because Countrywide was both the originator of the mortgages and the servicer of the securities. “This is penalty shifting,” Mr. Grais said.

From Bloomberg:

Mortgage Seekers Find Rates Are Down, Credit Standards Tighter

U.S. mortgage rates are dropping. Good luck getting a loan.

Existing home prices have fallen 7.7 percent since their July 2006 high and rates dropped below 6 percent last week for the first time in more than three months. The obstacle for people ready to buy is finding a willing lender, said Suzanne Bach, senior vice president of New York-based Guardhill Financial Corp., and an 18-year home lending veteran.

“Nobody really wants to take risk anymore,” Bach said in an interview. “Deals are getting really hard to do now.”

Lenders including Bank of America Corp. and JPMorgan Chase & Co. keep requiring higher credit scores, bigger cash down payments, and more income than was needed to buy a home during the five-year housing boom. Astoria Federal Savings, a Lake Success, New York-based lender that holds mortgages on its books rather than selling them to investors, has even started discounting annual employee bonuses in calculating income.

About 75 percent of U.S. banks tightened standards on mortgage lending to the most credit-worthy borrowers in the three months ended in July, according to the Federal Reserve’s quarterly Senior Loan Officer Survey released Aug. 11.

The average U.S. 30-year fixed-rate mortgage was 5.78 percent yesterday, down from 6.08 percent the week before, according to Bankrate.com. The Fed is scheduled to meet Tuesday and may lower its key rate to 1.75 percent from 2 percent which may reduce mortgage rates further.
…
“Tighter standards assure the loans are less likely to fail, but also have had the unfortunate effect of limiting the ability of some first-time home buyers to enter the market,” said Sara Tinsley Demarest, spokeswoman for the Washington-based Mortgage Bankers Association.
…
The credit squeeze is contributing to falling home sales. In July, the National Association of Realtors’ index of pending home resales fell 3.2 percent, a decline NAR Chief Economist Lawrence Yun blamed on “overly stringent lending criteria.” The index is down 6.8 percent since July 2007.
…
“The most difficult thing now is the appraisals are being scrutinized so much more than they have ever been,” Stockert said. “The higher the sale price, the more scrutiny that is happening. We’re talking two or three appraisals on the same property.”

Lehman…

Merrill…

Is there anything more to say?

(Update: 24 hours later and 650+ comments, I guess there was more to say.)

From the Financial Times:

Tighter rules dash hopes of end to squeeze

Banks expect to tighten lending standards for US households and businesses through to the end of the year and into 2009, damping any hopes of a quick end to the credit squeeze, according to a report by the ­Federal Reserve.

The Fed survey of senior loan officers is conducted every three months. Monday’s report was based on responses from 52 US banks and 21 US branches of internationally based banks in mid-July.

It highlighted that domestic banks had tightened standards in “all major loan categories” since the last survey in April, with consumer loans in particular becoming tougher to secure.

“Coming at a time when the cash flow from the rebates has dried up and the growth in labour income is slowing to a crawl, the restriction in lending to households underscores the challenges facing the consumer in the second half of the year,” said Michael Feroli, a US economist at JPMorgan.

The survey also pointed to a bleak outlook, with “large net fractions” of foreign and US banks expecting lending standards to tighten further in the remaining part of this year and “smaller, though substantial, net fractions” expected the stricter terms to continue next year.

“These days, you practically need the Jaws of Life [a hydraulic rescue tool] to pry open a banker’s wallet,” said Mike Larson, an interest rate and property analyst at Weiss Research.

“Overall, the longer the crunch ­lingers, the longer the economic slump could drag on.”

From Reuters:

Fed says banks broadly tighten U.S. loan standards

Banks in the United States further tightened lending standards in all major categories, especially for consumer loans, in the past three months amid a weakening economic outlook, according to a Federal Reserve survey released on Monday.
…
The survey added to evidence that a year-long credit crunch sparked initially by subprime mortgage defaults is far from easing as banks hoard capital and make it harder to borrow.

The tightness in credit is now being driven by broader weakness in the U.S. economy and is defying efforts by the Fed to boost liquidity in the banking system and keep interest rates low.

“It clearly is going to be difficult to get a loan. The Fed cutting rates doesn’t help a lot when you can’t get a lender to make a loan,” said Gary Thayer, senior economist at Wachovia Securities in St. Louis.

He said the tighter lending standards was typical in a weakening economy, and creates headwinds that will help delay recovery, along with a worsening housing slump and still-high fuel prices.

The tightening of credit was particularly pronounced in the consumer sector, where banks increased minimum credit scores required on credit cards and reduced card balance limits.
…
he housing sector got no relief in the past three months, as lenders further tightened standards all mortgage categories. The Fed said about 75 percent of U.S. banks tightened lending standards on prime mortgages — those given to customers with better credit histories — versus about 60 percent who said they tightened in the April.
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However, 50 percent of the respondents said there was a lack of demand for such loans and 40 percent said there was a limited number of mortgage applicants at their bank who meet the Fannie Mae and Freddie Mac underwriting criteria for conforming jumbo loans, which require better credit scores and higher down payments.

From the WSJ:

Housing Bill Relies on Banks To Take Loan Losses
Lawmakers Pressure Lenders to Pitch In To Curb Foreclosures
By DAMIAN PALETTA
July 28, 2008; Page A3

WASHINGTON — The housing rescue bill passed by the Senate Saturday hasn’t been signed into law, but top Democrats already are putting pressure on regulators and bankers to make sure a major program to prevent foreclosures doesn’t fall flat.

For struggling U.S. homeowners, the success or failure of the program — which would let roughly 400,000 owners refinance into affordable, government-backed loans — depends largely on bankers’ willingness to take a partial loss on the loans and to reduce the amount of money borrowers owe.

Bankers say they will do it, but it isn’t clear how many loans they might be willing to restructure.

“I absolutely do believe that there will be more principal reductions,” Michael Gross, Bank of America Corp.’s managing director for loss mitigation, mortgage, home-equity and insurance services, told a congressional panel Friday.
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Experts say the program’s eventual participation could rise dramatically if home prices continue to drop — which could put more pressure on lenders to offer borrowers more assistance. Lawmakers are already pressing regulators and lenders to prepare now so the program can begin without delay when it goes into effect Oct. 1.
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Taking a loss on a loan by writing down the principal owed is one of the least desirable options for loan servicers. They typically prefer to either lower the interest rate or extend the life of the loan — from 30 years, for example, to 40 years.

“The real problem is going to be, just like with every program out there, are the banks going to take this seriously?” said Rebecca Case-Grammatico, a staff attorney at the Empire Justice Center in Rochester, N.Y., who advises clients facing foreclosure. “And if they don’t, we’re in the same position we’ve been in all along.”
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The program will be run by the Federal Housing Administration, a division of HUD, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can’t be for more than 90% of a home’s newly appraised value. For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

The program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won’t be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31% as of March 1.