C.A.R Market Matters, November 6

Thursday November 06, 2008

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS

C.A.R's Mortgage Update

This week C.A.R is introducing an occasional new feature in Market Matters entitled Mortgage Update. Mortgage Update will update REALTORS and consumers on recent news about the mortgage market. 

This issue of Mortgage Update contains news and updates on the "Hope for Homeowners" program, and foreclosure assistance programs for borrowers with mortgages issued through Indymac, JP Morgan Chase and Co, and Countrywide.

MAKING SENSE OF THE STORY FOR CONSUMERS

Early projections indicate that only 20,000 troubled homeowners will apply for the "Hope for Homeowners" program, a considerable reduction from the previously estimated 400,000 homeowners who were expected to apply. The $300 billion program was launched Oct. 1 and is designed to help troubled homeowners rewrite a "risky" mortgage loan into a 30-yr, fixed-rate loan with a lower interest rate. During the first two weeks of the program, the Federal Housing Administration, which oversees Hope for Homeowners, reported receiving only 42 applications. Some housing experts believe the low application rate is due to the program being voluntary for lenders and provisions requiring homeowners to agree to an equity share with the government. 

Full Story

Less than half of homeowners with mortgage loans through IndyMac have responded to offers from the Federal Deposit Insurance Corporation (FDIC) to lower loan payments and interest rates. The FDIC, which is running IndyMac, mailed 35,000 letters offering homeowners an opportunity to rework the terms of their mortgages. The goal is to reduce the monthly payment on a loan, including taxes and insurance, to no more than 38% of the borrower's pretax income. The FDIC is prepared to implement the following: reduce the interest rate to as low as 3%; extend a loan's terms to 40 years; and waive interest on a portion of the mortgage balance.

Full Story

JPMorgan Chase % Co has reported that it is instituting a 90-day foreclosure freeze while it searches for ways to make payments easier for consumers. The program may enable up to 400,000 borrowers to reduce their interest rates or principal amounts. The bank will also open 24 mortgage counseling centers in areas with the highest delinquency rates. JPMorgan also is planning to hire 300 loan counselors to work with delinquent borrowers and employ approximately 150 additional staffers to review each mortgage prior to sending it through the foreclosure process. The program offer is extended to borrowers who have loans through Washington Mutual Inc., and clients of EMC, a mortgage unit of Bear Sterns Companies. Both companies were acquired by JPMorgan in recent buyouts and takeovers.

Full Story

Bank of America, which acquired Countrywide in July, said that nearly 400,000 troubled homeowners who have subprime mortgages and option adjustable-rate loans through Countrywide may be eligible for loan modifications. To be eligible for the Bank of America plan, homeowners must occupy the home as their primary residence, the mortgage must be seriously delinquent---or likely to become so; and the loan must have been serviced by Countrywide and originated prior to December 31, 2007. Bank of America will help borrowers by restructuring first-year payments of principal, interest, taxes and insurance to no more than 34% of the borrower's income; halting foreclosure sales against borrowers who are likely to qualify for a loan modification; and waiving restructuring fees and prepayment penalties. 

Full Story

 Chicago Tribune

Finding an area with appreciation potential

Some real estate experts believe that home buyers who purchase a house during the current market will gain equity if they stay in the house for at least five years and purchase in a desirable neighborhood.

MAKING SENSE OF THE STORY FOR CONSUMERS

Neighborhoods with strong employment bases, such as hospitals, universities, and government, tend to be recession-proof. People desire to live near their jobs, so housing that is in close proximity to these types of industries are generally higher in demand than those in other areas.

High gas prices and roadway congestion have led many people to see "walkable" communities--nieghborhoods that offer both daily needs such as grocery stores and coffee shops to more speciality items like hair salons, all within walking distance. Walkable communities also provide public transportation, which is becoming more desirable to many home buyers and is increasing demand for housing in these areas.  One web site, walkscore.com, calculates teh walkability of a community by locating stores, restaurants, schools, parks, and other attractions that are within walking distance. The scores are based on a 100-point scale with 100 points being a walker's paradise.

Home buyers who seek a new or nearly-new home should search in areas where the homebuilder is known for honoring warranties and building high-quality homes that are structurally sound. Homes in these areas are more likely to weather well and gain value in the future than homes in areas where the home builder is unknown.

Homes in neighborhoods with sales momentum generally appreciate at a faster pace than areas where sales are flat. Some real estate industry consultants advise clients to pay close attention to the "list to sale" numbers, which reflect the difference between the asking price and the final closing price. Usually if the gap in list-to-sale numbers is narrow, then the real estate market in that area is improving.

Full Story

CNN MONEY

7.5 million homeowners "underwater" 

Approximately 7.5 million U.S homeowners owe more on their mortgages than their homes are currently worth, and an additional 2.1 million Americans own homes valued at only 5% more than their loan.

MAKING SENSE OF THE STORY FOR CONSUMERS

According to some estimates as many as 12 million borrowers may have negative equity in their home, meaning that they owe more on their mortgage loans than their homes are currently worth. However, according to statistics gathered by C.A.R over the last 40 years, homeowners who purchase a house and keep it for at least five years have an average annual rate of return at nearly 12%. 

Although California's inventory of homes with high negative equity is higher compared with other states, lower home prices have increased affordability, making it easier for first-time home buyers to enter the market and other buyers to move up to larger houses or more desirable neighborhoods.

Borrowers who are facing foreclosure should work with their lender and apply for a loan modification program. Many financial institution are offering homeowners the opportunity to rewrite an adjustable-rate mortgage into one that is fixed for 30 years. Some banks are also offering existing customers zero interest for a short period of time and lowering the principle balance on the loan to make payments more affordable.

Full Story

Washington Post

Meltdown 101: How we'll know we're in a recession

Recent economic reports and many news stories have led some Americans to believe the country is in a recession. Although unemployment is high and incomes have failed to keep pace with inflation, the country is not yet in a recession, which must be declared by the National Bureau of Economic Research (NBER)

MAKING SENSE OF THE STORY FOR CONSUMERS

The National Bureau of Economic Research (NBER) is the entity that officially declares the country is in a recession. Founded in 1920, NBER consists of more than 1,000 university professors and researchers who study the economy. The Business Cycle Dating Committee within the NBER makes the call on recessions. Often times NBER doesn't declare a recession until after it's over.

Contrary to popular belief, a recession is not defined as two consecutive quarters of negative gross domestic product growth. NBER defines a recession as a significant decline in an economic activity spread across the economy, lasting more than a few months. This is usually based on reports such as the gross domestic product--a measure of the value of all goods and services produced within the United States; real income, employment, industrial protection, and wholesale and retail trade.

A recession's start and end dates are based on the high and low points within the nation's "business cycle" --periods of economic growth and contraction. A recession begins when the economy peaks at the top of an expansion period. It continues as the economy contracts until it hits the "trough", the lowest point on the downward cycle. After that, the economy begins to recover. The "peak" date is the beginning of the recession and the "trough" date is its end. The last official recession began in March 2001 and lasted eight months before ending in November 2001.

Full Story

LA Times

'Green' improvements can add to a home's appeal

Many home buyers are seeking "green" homes to offset their carbon footprints and pocketbooks. Although most green homes are new houses, owners of existing homes for sale can make "green adjustments" to be more competitive in the market.

MAKING SENSE OF THE STORY FOR CONSUMERS

C.A.R recently launched a new Green website--"At Home with Green", which provides information to consumers and REALTORS about how to find and sell green homes; how to make green home improvements; and other tactics for greening their homes, offices, and lives. To visit, "At Home with Green" CLICK HERE

Consumers can work with their local utility company to conduct an energy audit to determine how green a home is and to get pointers on how to further green the home. Although the changes could be costly and the homeowner likely will not recoup all the money spent making the green upgrades, the home could sell faster with the improvements. Some home buyers may make an offer on the home as is, but might request a credit towards making the green improvements. Often times the credit will be nearly twice the amount that it would have cost had the homeowner made the improvements prior to listing the home.

Homeowners can make green improvements in their homes by making simple changes, such as replacing regular light bulbs with compact fluorescent bulbs (CFLS) which use only one-fifth the energy of regular bulbs and last almost 12 times longer, or more substantial improvements like replacing appliances with ENERGY STAR-rated ones, which can use as little as one-quarter the energy of older models.

Full Story

In Other News...

CNBC

What Does 'Good' Credit Really Mean?

Wall Street Journal

The Stampede of White Elephants

Mercury News

Freddie Mac says fewer homeowners are borrowing from equity

Washington Post

A crackdown on credit fixes

LA Times

Banks, consumer advocates urge U.S to allow credit card debt forgiveness

Talking Points

Here's what to tell consumers

The U.S Dept. of Housing and Urban Development (HUD) offers an online guide to preventing foreclosure. The guide provides consumers with information such as how to contact a housing counselor; when and how to talk to their lender, how to find foreclosure resources, tips on avoiding foreclosure and foreclosure scams, as well as information for consumers who cannot keep their home. The guide to preventing foreclosure can be accessed here. 

New Proposal Attempts to Stave Off Future Foreclosures

On Wednesday, Gov. Schwarzenegger made a proposal that will instate a 90-day freeze period for homeowners on the brink of foreclosure--basically, once a notice of default has been posted against them, their mortgages companies have to halt proceedings until they can prove that they have modified their loan processes to make it easier for people to stay in their homes. The goal is to inspire "aggressive modification programs" that will hopefully benefit both homeowners and lenders. The proposal still has to be passed by legislature.

Click here for the full story, published in Mercury News and written by Sue McAllister.

C.A.R Market Matters, October 16

Thursday, October 16, 2008

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS

Wall Street Journal

Mortgage Lending for Sellers

Due to stricter loan underwriting standards and increased difficulty for some borrowers to qualify for a loan, even for those who are well-qualified, more sellers are offering financing to potential home buyers, which some believe can be mutually beneficial to both buyers and sellers, and can give sellers a competitive edge.

MAKING SENSE OF THE STORY FOR CONSUMERS

In addition to sellers receiving a steady flow of income by providing financing to home buyers, sellers also can profit from the interest payments. Sellers also may be able to sell the mortgage on the secondary market, thus reducing their risk. However, seller-financing is not always the best option. Sellers who need the equity from their current home to purchase their next one are advised to not offer seller financing. 

Buyers, especially those who are self employed, work on commission, or have lower credit scores, but can explain the circumstances that led to it, also may benefit from seller financing. often times, these buyers do not qualify for traditional, conforming loans, reducing their ability to become homeowners. 

To reduce the risk of possible loan default, most real estate professionals recommend that sellers request a down payment of at least 10%, especially if the buyer does not have an ideal credit score. Buyers who do not have a large financial stake in the home may be more likely to default than those with a more substantial down payment. It is also recommended that sellers work with a real estate attorney to draft a contract that includes possible implications if the buyer issues a late payment, defaults on the loan or neglects to adequately insure the property. Sellers also should work with an experienced loan servicer who can collect payments and keep records.

FULL STORY

Los Angeles Times

California REALTORS forecast lower home prices, rising sales in 2009

The California Association of Realtors on WEdnesday presented its "2009 Housing Market Forecast," at California Realtor Expo 2008 in Long Beach, Calif. The annual forecast drew a crowd of more than 1,200 real estate industry professionals who learned what consumers and the real estate industry can expect for California's housing market next year. 

MAKING SENSE OF THE STORY FOR CONSUMERS

Sales of existing family homes are expected to increase in 2009 by 12.5 percent, to 445,000 units. In August, sales were 85% above the monthly for the current cycle and for the first time this year were ahead of 2007 in year-to-date terms.

Although the median home price is expected to decline by 6% in 2009, to $358,000, the lower home price likely will increase the state's affordability rate, currently at 48%, enabling more first-time home buyers to enter the market. C.A.R anticipates home prices will stabilize once inventory thins out. In August, the Unsold Inventory Index stood at 6.7 months, down from 16.9 months in January 2008, meaning that it would take approximately 6.7 months to deplete the market at the current sales rate. 

The ability of consumers to obtain financing continues to play a vital role in stabilizing home prices. Currently, buyers with at least 10% available for a down payment, proof of income and excellent credit scores may qualify for conforming loans--mortgage loans that are $729,750 or less.

FULL STORY

Wall Street Journal

No quick fix for Housing Prices

The recently enacted government rescue plan, which includes the U.S government taking stakes in major financial institutions and temporarily guaranteeing new bank debt, is expected to stabilize the economy. However, some economists believe that additional measures are needed to help stimulate the demand for housing and reduce mortgage delinquencies and foreclosures. 

MAKING SENSE OF THE STORY FOR CONSUMERS

In July, the government approved a permanent loan limit increase--from $417,00 to $625,000--on mortgages backed by the Federal Housing Administration (FHA), which some analysts believe is helping more homeowners obtain mortgages, especially in high-cost areas like California.  In September, 28% of home purchases were financed with FHA mortgages, an increase from 19% in August. This year, more than twice as many home buyers sought government-backed mortgages than did those who did so last year.

Although the government program, Hope for Homeowners, aims to assist homeowners by helping them refinance their current mortgage loans into more affordable ones in exchange for the homeowners sharing price appreciation with the government, some experts believe that the program will not assist enough homeowners. Hope for Homeowners will help 400,000 homeowners who are in default or foreclosure; however, some estimates show that there are nearly 12 million Americans who owe more on their mortgages than their homes are currently worth. Homeowners at risk of defaulting on their mortgage should contact their mortgage company as soon as possible to explore options including loan modification.

Some economists believe that mortgage rates, although still at historic lows, need to decline to 5.25 percent in order to attract more home buyers and deplete the current supply of homes on the market.

FULL STORY

In Other News...

San Francisco Chronicle

Mortgage last loan people pay, study finds

Sacramento Bee

Local builders find few looking to buy new homes

CNN 

Credit tight, but key lending rate eases

Los Angeles Times

Errors in loan documents can save strapped homeowners

Wall Street Journal

California officials try to avoid second housing hit

C.A.R Market Matters, October 09, 2008

Thursday, October 09, 2008

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS

New York Times

Central Banks Coordinate Global Cut in Interest Rates

Hoping to thaw the current credit freeze, the Federal Reserve, the European Central Bank, the Bank of England, and the central banks of Canada and Sweden reduced their primary lending rates by a half percentage point on Wednesday. The Chinese central bank also reduced its key interest rate and lowered bank reserve requirements, while the Bank of Japan's rates remained unchanged.

MAKING SENSE OF THE STORY FOR CONSUMERS

The purpose of the rate cut is to increase consumer confidence, which in turn should help stimulate the economy. When consumers and businesses have more confidence in the economy, they usually spend more money, which bolsters the economy by enabling retailers to increase sales and prevent future layoffs.

The Federal Reserve controls the interest rate that banks charge each other for short-term loans. Usually this leads to banks lowering the rates they charge consumers and businesses. The short-term loan-rate reduction, from 2 percent to 1.5 percent, should have an almost immediate effect on credit card rates, according to financial analysts. Interest rates on automobile and business loans also should decline. Generally, the short-term loan-rate reduction also leads to reduction in mortgage rates; however, it is too soon to predict if that will happen in this case given the way the market has reacted to recent economic news.

Some credit card companies already have reduced their credit card rates. Although there may be room for further reductions for some consumers, many experts believe that only consumers with the best credit scores and payment history will benefit from the rate reduction.  Most credit card companies deem consumers with high credit scores as providing the least amount of risk.

Consumers with fixed-rate mortgages will not benefit from the rate cut; however, those with adjustable-rate mortgages (ARMs) may. When banks receive an interest rate cut, they may pass along the savings to consumers. Homeowners with ARMs could receive a payment reduction.

Click here for the full story

MSN

Sell your home fast in any market

Due to the large number of available homes on the market, and the fact that the traditional home-buying season is coming to a close, sellers need to be aware of key factors that can determine whether their home sells quickly or lingers on the market.

MAKING SENSE OF THE STORY FOR CONSUMERS

Accurately pricing a home continues to be the number one factor to conclude a successful sale. Most REATLORS guide sellers in determining an accurate listing price for their home by tracking comparable properties in their neighborhood that have sold within the previous three to four months. Since the market can greatly fluctuate from one neighborhood to another, some REALTORS believe that setting a price based on comps older than three to four months will not accurately reflect the current market and could result in pricing a home at odds with current market conditions.

Even in today's market, sellers do have some control over many contingencies. Some buyers may request that their contracts include contingencies based on their ability to obtain financing. To avoid risks associated with this contingency, some REALTORS advise their clients to request buyers to provide a pre-approval letter from a well-established lender; a financial information sheet outlining the buyer's employment history, income, assets and liabilities; and a recent bank statement showing that the buyer has enough funding reserves for the required down payment. This ensures that the buyer is likely to be approved for a mortgage loan, and reduces the risk to the seller.

Some buyers may use a home's inspection report as a bargaining chip to negotiate a lower price. When this occurs, some sellers offer buyers a lump sum of money so the buyer can make the repairs, rather than the seller repairing each item listed on the report. Sellers may be able to avoid paying a lump sum to the buyer by having the home pre-inspected prior to listing. This enables the seller to obtain accurate estimates for the cost of repairs ahead of time and provides the seller with the option of making the repairs before listing the home.

Click here for full story

CNBC

Brokerage Asks Sellers to Cut 10% off Home Prices

In an attempt to lure potential buyers off the sidelines, a nationwide real estate brokerage is asking its approximately 25,000 sellers who have homes listed with its brokers to reduce their listing prices by as much as 10% for its first national, 10-day sales event. 

MAKING SENSE OF THE STORY FOR CONSUMERS

According to a recent Coldwell Banker survey, more than half of its real estate agents said listing prices in their market are still too high to attract qualified buyers. The brokerage is hoping that the 10-day price reduction will entice home buyers to venture back into the market and help reduce the current supply of unsold homes. In California, C.A.R's Unsold Inventory Index for existing single-family detached homes in August 2008 was 6.7 months. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

Buyers who are uncertain if now is the right time for them to purchase a home should consider the price of the home, along with the recent reduction in mortgage rates, which could reflect a sizable savings. According to the primary Mortgage Market Survey, 30-year fixed-rate mortgages averaged 5.94% with an average .6 points for the week ending Oct.9. This is a decline from the previous week when fixed-rate mortgages averaged 6.10%. Last year at this time, the 30-yr fixed-rate mortgage averaged 6.4%.

Click here for full story

In Other News...

Los Angeles Times: Countrywide mortgage pact may be worth $3.5 billion to California loan holders? 

Los Angeles Times: How much foreclosure relief will homeowners get from bailout plan?

Sacramento Bee: Rescue bill won't curb region's foreclosures, experts say 

Mercury News: Forecast calls for continued drop in home prices

Mercury News: Freddie, Fannie cut back mortgage fees

Wall Street Journal: California Officials Try to Avoid Second Housing Hit

CNN Money: Consumers rein in borrowing 

C.A.R e-Blasts are published by the California Association of Realtors

Bottoming Out: How discounted distressed sales are saving the day

With widespread foreclosures and falling prices comes some of the best news of the summer--across CA home sales are rising for the third month in a row. After thirty months of declines, the first realistic signs that the CA housing bottom's been hit are starting to make themselves known. Most of the recent transactions are discount foreclosure sales, a clear indication of how much slimmer CA bank accounts are now compared to three years ago.

According to an exclusive article on Bloomberg.com titled California's Discount Foreclosure Sales Point to Housing Bottom, written by Dan Levy and Daniel Taub, the $1.3 trillion in homeowner equity CA residents lost since housing prices peaked in 2005 (makes me cringe too) means prices have fallen roughly 50%. These new, lower numbers are making previously unaffordable homes realistic for some families, and are helping clear out the massive ranks of foreclosed homes lining CA streets.

 A stable market won't be able to gain footing until the inventory of empty homes gets cleared out. Droves of high foreclosure rates across the state pushed down prices and led to  "discounted distressed sales" on many properties, which were suddenly valued at under $500,000 for the first time in years. With sales picking up speed, progress toward a stable market is underway. 

Make sure you check out the full article (just click the title) for a clear and helpful map to the foreclosure crisis and the stages CA real estate has undergone throughout the past five years or so (it even predicts its future). It covers the subprime crisis, the impact of loan defaulting, and the potentially good repercussions of Bush's new housing bill. It's a must-read for any CA resident looking to buy, sell, or simply understand the story behind their property values. 

California Association of Realtors, Market Matters

Bottom's up: This real-estate rout may be short-lived

Home sales and prices may be down, foreclosures may be mushrooming and the blowback from the subprime mortgage crisis may be threatening banks and secondary mortgage lenders, but there are some early signs the real estate market is trending in a more positive direction -- although you may not know it if you rely on the mainstream media for your real estate news.

MAKING SENSE OF THE STORY FOR CONSUMERS

· Recent data suggest real estate market pessimism may be overblown. Even economist Karl Case, father of the S&P/Case Shiller Home Price Index, admits many industry pundits and members of the media are ignoring key facts – as demonstrated by their focus on negative year-over-year price figures rather than more recent monthly data. An example: Home prices actually increased slightly in eight of 20 Case Shiller markets between March and April. Instead, the focus of most media reports was on year-over-year figures, which continue to support the notion that the market may not have hit bottom, let alone begun to improve.

· Transaction-related indices may be skewed at present by a far larger than normal share of subprime-derived default and distress sales. In the San Francisco Bay Area, for example, more expensive homes (those priced over $721,548) have dropped in price by only about 10.7 percent from their peak, compared with homes priced under $473,711, which have tumbled by 40.9 percent.

· Even new housing construction numbers suggest an improvement, according to Case. He notes that housing starts, which fell to 975,000 in April from 2.27 million in January 2006, have fallen by similar percentages three times during the last 35 years. Case observes that each previous time this has occurred the market has staged a surprising upturn within a quarter. Only a slide into a recession would temper his optimism about the potential for a similar recurrence of this trend.

To read the full story, please click here

Fed stiffens restrictions on mortgage lenders

The Federal Reserve is clamping down on what it called "deceptive acts and practices" by some mortgage lenders that it says helped lead to the subprime mortgage crisis. The new rules, which apply to all banks and other lenders and specifically target subprime loans and borrowers, will take effect Oct. 1.

MAKING SENSE OF THE STORY FOR CONSUMERS

· The new rules "are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership," said Federal Reserve Chairman Ben Bernanke.

· The new rules will prohibit loans to borrowers who can't repay the loan from income and assets other than the home's value and will require lenders to verify the borrower's income and assets. Prepayment penalties are banned for the first four years of any adjustable rate subprime loan and for the first two years on other subprime loans. Lenders also must establish escrow accounts for property taxes and insurance for all first-lien loans

· Also banned are seven misleading advertising practices, including use of the word "fixed" to describe a rate or payment that changes at any time during the loan term. Other prohibited practices include loan comparison advertising (unless all payments and rates are disclosed), foreign-language ads where disclosures are presented in English, and encouraging appraisers to misrepresent a home's value. The rules also will require lenders to credit payments on the date of receipt, prohibit pyramiding of loans, and require a good faith estimate of costs and payments on any loan application for a home secured by its value (including home equity loans and refinancings) within three days. Further, borrowers cannot be charged any fees other than to obtain a credit report before receiving that estimate.

To read the full story, please click here:

Bush offers plan to save Fannie, Freddie

Eroding confidence in the nation's two largest mortgage finance companies led President Bush to ask Congress to approve a rescue plan that would provide billions of dollars in investments and loans to the two companies. Separately, the Federal Reserve said it would make funds available to Fannie Mae and Freddie Mac on a short-term basis, if necessary. The dual rescue efforts came over the weekend after stock prices for the two quasi-governmental companies plunged late last week, potentially jeopardizing a planned debt offering by Fannie Mae and sending shock waves through the nation's equity markets.

MAKING SENSE OF THE STORY FOR CONSUMERS

· The White House plan calls on Congress to raise the national debt limit and to allow the Federal Reserve to determine how large a cash reserve the two companies must have on hand. The proposals are expected to be attached to a housing bill that will be voted on by Congress as early as this week.

· Both Fannie Mae and Freddie Mac have existing credit lines of $2.25 billion that were set 40 years ago by Congress when Fannie Mae held about $15 billion in outstanding debt. It now has about $800 billion in debt; Freddie Mac debt totals about $740 billion.

· Despite concerns that the program will protect shareholders and investors while asking taxpayers to foot the bill, Treasury Secretary Henry M. Paulson, Jr. reiterated that the failure of either Fannie Mae or Freddie Mac would have a devastating impact on the world economy because their debt is held by investors around the globe.

To read the full story, please click here:

In Other News…

Bloomberg.com

Foreclosures rose 53% in June, bank seizures tripled

To read the full story, please click here:

CNNMoney.com

Calm down: Beyond the Fannie and Freddie panic

To read the full story, please click here

Riverside Press-Enterprise

Inland condo projects shut down as single-family home foreclosures flood market

To read the full story, please click here

Sacramento Bee

Feds' aid for mortgage giants is said to aid Sacramento market

To read the full story, please click here

San Francisco Chronicle

No sign of slump in S.F. rental market

To read the full story, please click here

Talking Points

Here's what to tell consumers

· The nation's banks are in less danger of failing today than they were during the savings & loan crisis of the late 1980s and early 1990s, when more than 1,000 financial institutions failed and taxpayers funded a bailout totaling more than $125 billion. How does the current crisis compare? To date this year, only six lenders have failed and the Federal Deposit Insurance Corporation (FDIC) has only 90 banks on its "watch" list, compared with 575 banks in 1994. However, former FDIC Chair William Isaac recently called bank failures a "lagging indicator" rather than a "leading indicator" and predicted there will be more bank failures this year as lenders cope with subprime lending losses.

· Banks and loan servicers may be beginning to catch up with troubled loan workouts, but the numbers of borrowers who require assistance continues to rise. During the first six months of this year, Countrywide says it modified the terms of 86,000 loans, and Bank of America, which recently acquired Countrywide, reports that counselors are completing more than two workouts for every completed foreclosure. Hope Now, an alliance of lenders, says it conducted 70,000 loan modifications in May, although an estimated 85,000 families lost their homes that month. Even if loans are modified borrowers still may not be able to make their mortgage payment if they have lost a job, for example. According to a working group of the Conference of State Bank Supervisors, 32,000 loans that were modified in recent months already are delinquent again. That may be because few loan modifications actually result in lower monthly payments due to a cut in the principal loan balance. In California, only 1.3 percent of loan modifications involved such a reduction.

· IndyMac Bancorp's new management, the Federal Deposit Insurance Corporation (FDIC), has halted foreclosures and said it is focusing on modifying existing loans to make them more affordable for IndyMac borrowers. The bank has about $15 billion in mortgage loans in its own portfolio and manages servicing for another $185 billion in mortgages owned by other institutions. FDIC officials said they were examining troubled loans contained in the broader servicing portfolio loan by loan to determine whether they can be modified. However, borrowers serviced by IndyMac who need help may want to move quickly: The FDIC hopes to sell the troubled thrift and its assets within 90 days. IndyMac reopened under federal oversight on Monday after regulators closed its doors on Friday. Last year, it ranked as the tenth-largest mortgage lender and eight-largest mortgage servicer in the county.

Silicon Valley Survives, Foreclosure-Free Zone

On Yahoo News an article was posted a few days ago about the relative strength of the real estate market in Silicon Valley. Link--In Silicon Valley, Real Estate Remains Strong

Most of the article discusses the technology powerhouses behind the market's strength (Oracle, Google). Big web company employees get massive paychecks, and most of those employees live in Santa Clara and San Mateo Counties. 

While the rest of the country was chewed up and spit out by foreclosures, Silicon Valley dodged major damage thanks to job growth in the tech sector and the area's high average salaries. Subprime issues are only really hitting parts of San Jose and the fringes of the Valley. The areas with the best schools (see? schools have a lot to do with the value of your home, check out some other posts for more info on this topic) have the most thriving markets (Palo Alto, Woodside, Los Altos, etc).

The market here has definitely slowed, but plenty of listings still attract multiple offers. Teardowns are still happening too, another indicator of the market's strength. Teardowns are when a buyer purchases a house solely to knock it down and build another in its place. The real gold in Silicon Valley is the land--undeveloped land is going for high prices because investment potential for buildable plots is sky-high. 

  

Market Finding Equilibrium?

On Wednesday the front page of the Mercury News business section featured an article that sparked some hope about California real estate. The article focuses on the research of economist Ryan Ratcliff, who is confident that although the market still has room to fall, it will soon find equilibrium. 

A handy chart based on Ratcliff's research from the UCLA Anderson Forecast illustrates the phases of CA's real estate bust. Here's a re-cap--

Phase 1--When home sales plummeted in 2005 and new home builders began to cut prices and offer incentives

Phase 2--When foreclosures stormed the market in 2007

Phase 3--(We aren't here yet!) It will supposedly happen when prices are still weak but sales increase

Ratcliff estimates we're currently somewhere between stages 2 and 3. 

So is the worst almost over?

Economic studies say that bargain hunters taking advantage of lower prices in areas slammed with foreclosures are helping halt the market's free fall. Although foreclosure problems are by no means disappearing, higher volumes of sales in areas like Centra Costa and Solano counties are good signs that things are starting to balance out. 

The article bears the tentative title Signs of Life for Real Estate?, and it stresses that we not take the market's long-awaited stirrings as proof that a normal housing market is on its way. 

Still, economists predict foreclosures caused by resetting adjustable rate mortgages could have already reached the top of the mountain, and might slowly start to decline by 2009.  

In the paper, the article is called Signs of Life for Real Estate? It's written by Sue McAllister. I tried to find the same article in the online version of Mercury News. The link leads the same article,  strangely with a different title. 

It's called Study: Bargain-hunters may soon end California's real estate "free fall"

Click the title to read it!