New Jersey Real Estate Report

From HousingWire:

Fitch Says Prime Jumbo RMBS Near 10% Delinquent

The performance of US prime jumbo loan performance within residential mortgage-backed securities (RMBS) slipped again in January as serious delinquencies (60+ days past due) rose for the 32nd consecutive month and edged closer to 10%, according to the latest market commentary from Fitch Ratings.

Prime jumbo loan delinquencies began to rise in Q207 but accelerated since then. In 2009, the rate of delinquency nearly tripled during the year. The serious delinquencies rose to 9.6% in January from 9.2% in December.

“The new year has brought no relief from declining jumbo loan performance,” said Fitch managing director Vincent Barberio. “The trend line for delinquencies indicates the 10% level could be reached as early as next month.”
…
California spearheaded the rising delinquencies, jumping to 11.3% in January from 10.8% a month earlier. The state represents 44% of the $381bn prime jumbo RMBS market.

Four other states rounded out the top five in terms of highest volume of prime jumbo loans outstanding. New York, which represents 7% of the market, saw delinquencies rise to 6.1% from 5.8% the month before. Florida, representing 6% of the market, rose to 16.6% delinquent, from 16%. Virginia, representing 5% of the market, jumped to 5.6% delinquent from 5.4%. And New Jersey, representing 4% of the market, grew to 7.4% delinquent, from 7.1%.

From the LA Times:

Prime jumbo loan delinquencies still rising, report shows

People who hold jumbo loans on pricey U.S. properties continued to struggle in January as more Americans lose their jobs and property values have plummeted, according to a report released Monday.
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“The deterioration in performance is really the combination of two things going on: rising unemployment that took place throughout 2009 as well as our estimate that about a third of all jumbo loans that are current are underwater in terms of the value, so [borrowers] owe more on their properties than they are worth,” Fitch managing director Vincent Barberio said. “As more of these loans become delinquent, they ultimately will come into foreclosure.”
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Prime jumbo loan delinquencies began to rise in the second quarter of 2007, but accelerated in 2009 and nearly tripled over the course of the year, Fitch said. The five states with the highest volume of prime jumbo loans outstanding are California, New York, Florida, Virginia and New Jersey.

From Fitch:

Fitch: New Year, No Improvement as U.S. Prime Jumbo RMBS Delinquencies Approach 10%

The five states with the highest volume of prime jumbo loans outstanding (California, New York, Florida, Virginia, and New Jersey) comprise approximately two-thirds of the loans in question. Prime jumbo RMBS 60+ days delinquencies for these states at January 2010 compared to December 2009, and their approximate share of the $381 billion market, are as follows:

–California: 11.3%, up from 10.8% (44% share of the market);

–New York: 6.1%, up from 5.8% (7% share);

–Florida: 16.6%, up from 16% (6% share);

–Virginia: 5.6%, up from 5.4% (5% share);

–New Jersey: 7.4%, up from 7.1% (4% share).

From the WSJ:

FHA to Lift Mortgage Insurance Fees

The Federal Housing Administration will announce more-stringent lending requirements and higher borrower fees on Wednesday to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency.

The FHA, which has taken on a major role in the housing market during the economic downturn, doesn’t lend money to home buyers, but insures lenders against default on loans that meet FHA criteria. In exchange for that backing, borrowers who take out FHA-backed loans must pay an upfront insurance premium, currently set at 1.75% of the total loan amount. The premium can be rolled into the loan.

The FHA is set to raise that fee to 2.25%, the second increase in the past two years, according to people familiar with the matter. The value of the FHA’s reserves to cover losses has fallen to $3.6 billion, about 0.5% of the $685 billion in loans outstanding, down from 3% a year earlier. Congress requires the agency to maintain a 2% capital-reserve ratio. If the larger upfront fee had been in place last year, the FHA would have boosted its reserves by more than $1 billion.
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The FHA, which backs as many as half of all new loans in certain housing markets, has come under fire for insuring loans with little or no money down as home prices have plunged over the past three years. With its reserves falling, the agency has been forced to walk a tightrope between protecting taxpayer dollars and helping to facilitate the housing recovery.

The FHA will keep minimum down payments at the current 3.5% level for most borrowers. But the agency will require riskier borrowers with credit scores below 580 to make a minimum 10% down payment. While the FHA doesn’t have a credit-score cutoff, most lenders require a minimum 620 score.

Some housing analysts have pushed for higher down payments on FHA-backed loans, and a bill in Congress would raise down payments to 5%, from the current 3.5%.

Instead, the FHA will reduce the amount of money that sellers can kick in for closing costs to 3% of the sale price, down from the current level of 6%. The higher cap led to abuses where sellers “heavily marked up the purchase price,” says Lou Barnes, a mortgage banker in Boulder, Colo.

From the NY Times:

F.H.A. to Raise Standards for Mortgage Insurance

The Federal Housing Administration, which is supporting the housing market by insuring thousands of new mortgages every day, is expected to announce on Wednesday that it is tightening standards.

Borrowers who get an F.H.A.-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of the loan, up from 1.75 percent.

Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent.
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For years, the F.H.A. operated largely out of the public view. But it has become a subject of controversy recently even as it has ballooned in size. Some of the agency’s critics want it to tamp down risk by insuring fewer loans; others think it should help the market by insuring even more.

As of December, the F.H.A. was insuring 5.8 million single-family residences that had a total loan balance of $750 billion. More than half a million of the loans were seriously delinquent and heading toward foreclosure.

Many of these troubled loans were made in 2007 and 2008 as the market was plunging.

From Bloomberg:

Loan Modification Recipients Fall Short, Drop Out

About 25 percent of homeowners who received trial loan modifications through President Barack Obama’s main foreclosure prevention plan are failing to keep up with their new reduced payments, the Treasury Department said.

At least 196,000 borrowers have missed some or all of their required payments, according to comments Treasury officials made on a conference call today and calculations from government data. An additional 115,000 homeowners who started trial repayment plans last year have either dropped out or been kicked out of Obama’s Home Affordable Modification Program, the officials said.

“None of these programs have really been a success,” said Vivek Sriram, a mortgage strategist for RBC Capital Markets in New York. “With the high unemployment rate, it’s tough to solve the problem because these people will redefault even if their loan terms are fixed.”

The U.S. has shed 7.2 million jobs since the recession began in December 2007, with almost half those losses occurring after Obama took office in January 2009. The mortgage program, which Obama said would target as many as 4 million Americans struggling to hold onto their homes, has successfully modified 66,465 loans as of Dec. 31, according to data released today by the Treasury.

From UPI:

Mortgage modification numbers still small

Only a few U.S. homeowners enrolled in a federal foreclosure prevention program have achieved permanent loan modifications, statistics indicate.

Data released Friday by the U.S. Treasury Department showed that only 7 percent of those in the Obama administration’s Making Home Affordable program have moved from its trial phase into a permanent loan modification — about 66,000 of the 850,000 homeowners enrolled, The Washington Post reported.

Government and industry officials have said the main reason is that many of the homeowners in the program’s trial phase have been unable to provide enough documentation to prove they qualify and are at risk, but housing advocates counter that in some cases, homeowners have indeed provided the necessary paperwork but are in limbo while waiting for their lenders to act, the Post said.

Edison-based lender Security Atlantic Mortgage was subpoenaed by the HUD Office of the Inspector General today. Security Atlantic and 14 other lenders nationwide are being investigated by the U.S. Department of Housing and Urban Development for having significantly high default rates on FHA loans they’ve issued.

Security Atlantic Mortgage (http://www.fhaok.com) is a large FHA wholesale shop. According to their website, they’ve got 30% of the FHA market in New Jersey. According to the HUD Neighborhood Watch Early Warning System (Hat tip Calculated Risk) 15.48% of Security Atlantic’s FHA loan originations were in default or claim terminated compared to the 5.05% nationwide average.

From HUD:

HUD INSPECTOR GENERAL PROBES MORTGAGE COMPANIES WITH SIGNIFICANT CLAIM RATES

U.S. Department of Housing and Urban Development (HUD) Inspector General Kenneth M. Donohue and Federal Housing Administration (FHA) Commissioner David H. Stevens announced today an initiative focusing on mortgage companies with significant claim rates against the Federal Housing Administration mortgage insurance program.
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Inspector General Donohue said, “The goal of this initiative is to determine why there is such a high rate of defaults and claims with these companies and whether there is wrongdoing involved. We aren’t making any accusations at this time, we have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud. We are members of the President’s Financial Fraud Enforcement Task Force and today’s activities reflect our commitment to seeking information on red flags that may arise from data analysis.

“This initiative was prompted, in part, by the FHA Commissioner, David Stevens, who was alarmed by the incidence of claims against the FHA insurance fund by a number of poor performing companies and reached out to the HUD OIG for assistance.

FHA is the new subprime. It’s amazing how many subprime shops have morphed into FHA lenders following the subprime collapse. As the securitization market shut down, FHA went from being a rarely used homeownership tool to being a cesspool for subprime loans. Too little too late Inspector Donahue, we’re all on the hook already.

“The FHA market share has skyrocketed,” Inspector General Donohue further said. “Our job is oversight. We work for the American taxpayer. Each loan on this list will be thoroughly examined and we will track down the reasons why it failed. Once we determine the causes, we will look to see whether there is a need for further review or remedial action. We want to send a message to the industry that as the mortgage landscape has shifted we are watching very carefully and that we are poised to take action against bad performers.”

“Skyrocketed” is code-word for get your wallets out taxpayers, you’re on the hook for one hell of a bailout.

From Bloomberg:

Housing Animal Spirits to Be Banished by Prime Foreclosures

Homeowners with the best credit are the next big risk for the U.S. housing market.

An increase in mortgage defaults among prime borrowers in 2009 is likely to accelerate this year, slowing the real estate recovery even as Americans become more optimistic about the economy, said Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.

“There will be continuing foreclosures, and not just subprime, it will be prime mortgages,” Shiller, a professor at Yale University, said in an interview. “This is creating a huge shadow inventory of homes that are still owned, but they’re going to be on the market in the next year or so.”

The number of prime mortgages overdue by at least 60 days more than doubled in the third quarter from a year earlier to 838,000, according to a Dec. 21 report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Unemployed homeowners struggling to pay their bills will default on their home loans and increase foreclosures, Shiller and Wellesley College’s Case said.
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“Unemployment is not respecting income boundaries,” said Case in an interview. “It’s affecting rich people, poor people and middle-income people and they all have mortgages.” The U.S. may begin to see some signs of a housing recovery this year, he said.
…
“What makes the rising default rates on prime loans so insidious is these are not folks who took out some crazy new type of mortgage,” said Brad Hunter, chief economist at MetroStudy real estate research in West Palm Beach, Florida. “These are people who probably took out what would ordinarily be a responsible mortgage.”

From Reuters:

Fannie mortgage holdings sink, delinquencies leap

Fannie Mae’s gross mortgage portfolio shrank sharply in November while the delinquency rate on single-family loans it guarantees leaped in October, the government-controlled U.S. home funding company said on Monday.

The company said its mortgage investments fell at a 26.1 percent annual rate last month to $752.2 billion. Year-to-date, the portfolio has declined by an annual 4.9 percent from $787.3 billion at the end of last December.

Fannie Mae also reported an ongoing jump in the rate of late payments on single-family loans it guarantees, a problem that has eaten into its capital and forced borrowing from the U.S. Treasury.

In October, the most recent figures available, the conventional single-family serious delinquency rate rose 26 basis points to 4.98 percent. A year earlier, the rate was 1.89 percent.

The multifamily serious delinquency rate dipped 1 basis point to 0.61 percent but remained starkly higher than the 0.21 percent rate in in October 2008.

Loans that are three months or more past due or in the foreclosure process for single-family homes and those that are 60 days or more past due for multifamily homes are considered serious delinquencies.

From the WSJ:

Delinquencies Rise Further In Fannie Mae’s Portfolio In Oct

Fannie Mae (FNM) said delinquencies in its mortgage portfolio continue to rise as the mortgage financier reported its portfolio size shrunk.
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Fannie said October serious delinquencies, or those at least 90 days behind, rose to 4.98% on single-family homes from 4.72% in September and 1.89% a year earlier. Fannie’s delinquencies have been higher than Freddie’s.

From the Courier News:

New Jersey real estate trends don’t mirror national patterns

As the real estate market seems to be stabilizing nationally and the number of foreclosed homes across the country fell for the fourth straight month, according to Realty Trac, closer examination of local markets shows that New Jersey is not following that trend.

While New Jersey’s statewide foreclosure rate is 0.03 percent — a third of the national rate — Realty Trac, a national company that tracks real estate statistics indicates that the number of people behind on their mortgage payments is not falling every month. In fact, New Jersey figures for July through October are significantly higher than numbers for fourth-quarter 2008 and first-quarter 2009.

HARD-HIT PROPERTIES: While there are foreclosures in every town, communities with the densest populations and oldest housing stock - the more urbanized areas - have been hit hardest. In Central Jersey, the number of homes receiving foreclosure notices is about three times higher in Middlesex County than the combined number in Somerset and Hunterdon counties. Middlesex County also has more urban centers and a higher population than Somerset and Hunterdon counties.
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Several reasons exist for the higher foreclosure rates in Middlesex County:

First, the least affluent homeowners live in the most urbanized areas, where housing has traditionally been less expensive because the homes are older and built closer together.

“Those owners are the least likely to have savings if they lose their job,” Crivello said.

Second, when the economy weakened, the jobs that disappear first are the lower-paying service and retail jobs that these homeowners were likely to have, according to Jeffrey Otteau, chief executive officer of Otteau Valuation Group, an appraisal company in East Brunswick that also studies industry trends and market forces.

Third, many of these homeowners were given subprime loans or no-documentation loans, mortgages that carried significantly more risk.
…
ames Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick, pointed out that the key to stabilizing the housing market is a stable employment outlook — and New Jersey’s employment picture has been in decline for some time.

The state’s unemployment rate, at 9.7 percent, remains just below the national figure, but New Jersey will this decade with fewer jobs than when it started in 2000. The recession has only worsened the situation.

“Since the recession started in January 2008, we’ve lost 179,400 jobs,” Hughes said.

The prospects for job growth in New Jersey are not good, either. The state is losing high-paying jobs and replacing them with very low-paying jobs. In fact, from 2005 to 2008, household income has declined here, at a rate 100 times greater than the national average, according to Otteau.

“New Jersey is not attractive to business because of our high cost of living and of doing business, our high taxes and our restrictive practices,” Otteau said. Some of those practices relate to environmental, zoning and building regulations, among others.

From the NYT:

U.S. Will Push Mortgage Firms to Reduce More Loan Payments

The Obama administration on Monday plans to announce a campaign to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence mounts that a $75 billion taxpayer-financed effort aimed at stemming foreclosures is foundering.

“The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview Friday. “Some of the firms ought to be embarrassed, and they will be.”

Even as lenders have in recent months accelerated the pace at which they are reducing mortgage payments for borrowers, a vast majority of loans modified through the program remain in a trial stage lasting up to five months, and only a tiny fraction have been made permanent.

Mr. Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.

“They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.

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.
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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.”
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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.
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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