My Financial Healthcheck

Mortgage lender Countrywide Home Loans agreed to pay $108 million to settle an FTC case.   The larger issue not covered by the press is that now that Countrywide is part of Bank of America, their mortgage originators are not subject to the misguided state licensing requirements that mortgage bankers and brokers must do.  I guess the Big Bank lobbies must be better than the Mortgage Bankers lobbyists in terms of donations to our great Washington establishment.  The rumored crash of the commercial real estate market has not occurred due to many redoing mortgages and pushing maturities down the road….so we will see when the piper finally comes calling.  Banks are seizing more foreclosed homes, lenders took back a record 93,777 properties in May, Nevada, Arizona and Florida top the list of most affecting states.   New home construction starts fell 10% in May, the first month after the expiration of the homebuyer tax credit.   Building permits fell 5.9% in May…there is amendment in the Senate extending the tax credit to September 30.  In my opinion we will never find the real bottom of the housing market if we keep having government intervention.   Prisoners took advantage of the homebuyer tax credit to the tone of $9.1 million and those not qualifying the the credit received a total of $28 million… this is just one more example that our government is so messed up they can’t control these programs that are meant to help the economy.   

The Sacrificial Lamb of the Mortgage Malaise — Angelo Mozilo

by C.M. "Corky" Watts, CMB

I noticed a short article this week in the Wall Street Journal that reported on the $108 million settlement between Countrywide Financial and the Federal Trade Commission (FTC).  The settlement stems from accusations that two Countrywide mortgage servicing companies collected excessive fees from cash-strapped borrowers who were struggling to keep their homes. It will be used to reimburse overcharged homeowners whose loans were serviced by Countrywide before it was acquired by Bank of America in July 2008.

Although the $108 million judgement represents one of the largest ever levied by the FTC,that wasn’t what caught my eye. Later in the article there was discussion relating to criminal investigations of the business practices of Countrywide and the possibility that civil charges would be filed against Angelo Mozilo, the past CEO of the company.  The article further stated that legal experts believe criminal charges may be filed against Mr. Mozilo.

I can’t comment on the business practices of Countrywide or the pending charges against the management of Countrywide, but it looks like the U.S. government and the Congress are set on making an example of Countrywide. Right now it appears CFC will serve as a sacrificial lamb to help cleanse the sins of many. 

With Mr. Mozilo at the helm, Countrywide helped shape the industry for more than 2 decades.  They provided a vehicle for mortgage brokers to originate loans and earn a fee. They were the largest wholesale mortgage banker and supported third party originators.  Countrywide also provided take out commitments and access to the secondary mortgage market for small thinly capitalized mortgage bankers.  Through their correspondent channel, Countrywide provided an array of products and services to mortgage bankers, including warehouse lines.  Through their small neighborhood branches, they provide low cost loans to many borrowers.  Without paying high loan officer commissions at these branches, borrowers were able to obtain competitive loan pricing.   And finally, their creative products helped many borrowers obtain homeownership and drive homeownership to historical levels.

Yes, Countrywide and executives of the company had something to do with the current mortgage malaise, but so did many other mortgage professionals, Wall Street executives, traders, mortgage originators, builders…and of course borrowers.  The U.S. government and Congress is not immune either.  They created some of policies to help increase homeownership, but lead to unqualified borrowers buying homes. 

Let’s not have a sacrificial scapegoat for the mess many got us into…

Homebuilder Confidence Falls. Same Problems Persist After Tax Credit Expiration

by Adam Quinones

The National Association of Home Builders released the monthly Housing Market Index today.

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

After recording month over month improvements in April and May, home builder confidence declined in June. The Housing Market Index dropped five points to 17…

This modest move lower is small in the grand scheme of things but still the largest month over month drop since November 2009 . The NAHB Housing Market Index is only 9 points above the record low print of 8.

Excerpts from the release…

Each of the HMI’s component indexes recorded declines in June.

• The component gauging current sales conditions fell five points to 17. 
• The component gauging sales expectations for the next six months declined four points to 23 (from a one-point downward revised index level of 27 in May)
• The component gauging traffic of prospective buyers fell two points to 14.

The HMI also posted losses in every region in June. The Northeast, which has the smallest survey sample and is therefore subject to greater month-to-month volatility, fell 17 points to 18 following a 14-point jump in May. The Midwest posted a three-point loss to 14, while the South also registered a three-point decline to 19 and the West fell four points to 15 from a revised May level of 19.

NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Michigan says:
“The home buyer tax credit did its job in stoking spring sales and we expected a temporary pull back in the builders’ outlook after the credit expired at the end of April…However, the reduction in consumer activity may have been more dramatic than some builders had anticipated, which resulted in their lower confidence levels.”

NAHB Chief Economist David Crowe says:
“We expected some softening in the market following the expiration of the home buyer tax credit and this report seems to verify this assumption….In the coming months, an improving economy, rising employment, low mortgage rates and stabilizing home values should help the housing market move forward. But as today’s HMI data shows, builders still remain very cautious and are aware that several factors could impede the nascent housing recovery, including serious problems in obtaining financing for the production of housing, faulty appraisal practices and competition from short sales and foreclosed properties.”

Refinance Demand Declines As Pool Of Qualified Borrowers Shrinks

by Adam Quinones

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending June 4, 2010.

The Mortgage Bankers Association application survey covers over 50% of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a look into consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out a lower monthly payment which can increase disposable income and consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates a decline in home buying interest, a negative for the housing industry and the economy as a whole.

Excerpts Taken From The Release…

The Market Composite Index, a measure of mortgage loan application volume, decreased 12.2 percent on a seasonally adjusted basis from one week earlier. This week’s results include an adjustment to account for the Memorial Day holiday.  On an unadjusted basis, the Index decreased 21.1 percent compared with the previous week. The four week moving average for the seasonally adjusted Market Index is down 0.7 percent. 
The Refinance Index decreased 14.3 percent from the previous week. The four week moving average is up 3.6 percent for the Refinance Index. The refinance share of mortgage activity decreased to 72.2 percent of total applications from 73.8 percent the previous week. This is the first decline in the refinance share in five weeks.

The seasonally adjusted Purchase Index decreased 5.7 percent from one week earlier. The unadjusted Purchase Index decreased 16.3 percent compared with the previous week and was 30.4 percent lower than Memorial Day week last year. The four week moving average is down 11.7 percent for the seasonally adjusted Purchase Index.

Here is a long term chart that puts the post-tax credit demand drop-off in perspective…

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.81 percent from 4.83 percent, with points decreasing to 1.02 from 1.05 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  The effective rate also decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages increased to 4.26 percent from 4.24 percent, with points decreasing to 0.95 from 1.11 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
The average contract interest rate for one-year ARMs decreased to 6.94 percent from 6.96 percent, with points increasing to 0.30 from 0.27 (including the origination fee) for 80 percent LTV loans. The adjustable-rate mortgage (ARM) share of activity decreased to 5.1 percent from 5.2 percent of total applications from the previous week, which is the third consecutive weekly decrease.

The chart below compares the MBA Refinance Index to the MBA average 30 year fixed mortgage rate. I overlaid the these two data points together to illustrate the "this is as good as it gets" relationship between refinance demand and mortgage rates.  The Refi Index is currently at the same level today vs. Refi Index level when mortgage rates last fell to 4.81% in December 2009.

Michael Fratantoni, the MBA’s Vice President of Research and Economics, sums up the mortgage lending environment perfectly…

"Purchase and refinance applications dropped this week, even after an adjustment for the Memorial Day holiday.  Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April…Although rates remained essentially flat, refinance applications dropped this past week for the first time in a month.  Despite the historically low rates, many homeowners have already refinanced recently, remain underwater on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance."

Plain and Simple: Housing is settling into a long, slow recovery process.

by Adam Quinones

According to Realty Trac’s U.S. Foreclosure Market Report^TM for May, a total of 322,920 properties nationwide were the subject of a foreclosure filing during the month compared to 333,837 in April.  This is one in every 400 U.S. housing units. The new figure represents a 3 percent decrease in foreclosure filings vs. April and a 1 percent increase over the filings reported in May 2009.  

RealtyTrac’s report incorporates documents filed in all three phases of foreclosure:

1. Notice of Default (NOD) and Lis Pendens (LIS). This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.
2. Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); If the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.
3. Real Estate Owned or REO properties : "REO" stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

Notices of Default and Lis Pendens were received on 96,462 properties, a decrease of 7 percent from April and a 22 percent decline vs. May 2009. This is good news as it implies less borrowers are falling behind on their payments.

New Foreclosure auctions were scheduled on 132,681 properties. This represents a 4 percent decrease from April, a 1 percent decline vs. May 2009, and a 16 percent improvement from the peak of 158,105 seen in March 2010. This is also good news but possibly a factor of the expiration of the homebuyer tax credit.

Bank repossessions (REOs) were carried out on 93,777 properties in May. This is 1 percent worse than April and a 44 percent increase vs. May 2009. This is the second month in a row where bank reposessions hit a new record high.  All 50 states reported year-over-year increases in bank repossessions. This is bad new as it implies more homeowners are being forced out of their home and bank balance sheets are filling with distressed housing inventory. This is shadow inventory being converted to actual inventory!

James J. Saccacio, chief executive officer of RealtyTrac said, "The numbers in May continued and confirmed the trends we noticed in April: overall foreclosure activity leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months.  Defaults and scheduled auctions combined increased by 28 percent from 2007 to 2008 and another 32 percent from 2008 to 2009 – creating a build-up of delayed bank repossessions. Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed."

As has become the norm, Nevada, Arizona, and Florida topped the list of states in per capita foreclosure activity.  In Nevada one in every 79 housing unit received a foreclosure filing in May, nearly twice the ratio of Arizona the second ranked state.  Still, things are improving in Nevada as well.  May numbers were down 12 percent from April and 16 percent from one year earlier.  In Arizona, where one of every 169 properties saw a filing, the rate was up less than one percent during the month and down 5 percent from May 2009.

Also in the top five were Florida where one in every 174 Florida properties received a notice; California, one in 186; and Michigan which was up nearly 6 percent in the month and where one in every 223 properties received a foreclosure filing

In terms of actual numbers, ten states accounted for over 70 percent of all filings in the nation.  California alone accounted for 22 percent with 72,030 filings, up 3 percent for the month but down 22 percent year-over-year.  Florida had 16 percent of the nation’s filings, a 5 percent increase from April; Michigan was third with 20,322 properties, 6 percent of the nation’s total.  The remaining states were Illinois with 15,061 filings; Nevada (14,346), Georgia (13,778), Texas (11,137), Ohio (10,379), and New Jersey (7993)

Among metropolitan areas, Las Vegas had the highest rate of filings followed by Merced, Modesto, and Vallejo-Fairfield, California, and Cape Coral-Fort Myers, Florida.  All but one of the metropolitan areas in the top ten (Vallejo-Fairfield) had a lower rate of filings than one year earlier.

Plain and Simple: The good news is it seems like the worst is behind us in terms of new defaults. Plus the modest decline in newly scheduled auctions helps out housing on the excess supply front as banks are choosing to hold onto their inventory instead of flood the market with distressed supply (which would drive prices even lower). Perhaps this is a factor of the expiration of the homebuyer tax credit? Now for the bad news. Over the past year, to give HAMP a chance to "work its magic" (which servicers have little incentive to do ) and to reduce the cost of maintaining the condition of foreclosed properties, banks were delaying the foreclosed home liquidation process. This allowed delinquent borrowers to stay in their houses and also allowed banks to avoid asset value write-downs. Unfortunately, with HAMP running out of qualified borrowers, that trend is starting to reverse course. Bank balance sheets are beginning to balloon with REO, shadow inventory is being converted to actual inventory!

This is a negative for two reasons. First it implies more people are being put out of their home and onto the street and second, at some point, the distressed homes banks are adding to their balance sheets will need to be put back up for sale. Once the housing market starts to pick up recovery momentum, banks will begin to slowly liquidate their inventory of foreclosed properties. Hopefully they will do so in a manner that does not greatly disrupt local supply/demand and push prices even lower (which would hurt their own cause). Growing "shadow inventory" is one of two reasons why the housing recovery will likely be a very long process (the other being long term unemployment).

THE BIG QUESTION: Will the housing recovery only be slow in the hardest hit states? Real estate is after all…."all about location location location"

Checking In On Mortgage Reform Legislation; Mark-To-Market Loan Hedging Concerns; FTC & Countrywide; Subprime The Talk Of The Town?

by Rob Chrisman

The Senate voted recently to toughen standards for home loans. Under these new standards, lenders would have to verify that borrowers can repay the loan. Let’s just hope China doesn’t adopt this policy.

As the time approaches when the House and Senate financial reform bills must be reconciled, many in the industry are wondering not only what will happen to current underwriting and compensation parameters but also is (or can) anything be done to influence the final bill. The Mortgage Bankers Association is officially opposed to the Merkley amendment, for example, but is mostly focused on changes to the underwriting portion and not the compensation piece.

"MBA is extremely concerned that the YSP provisions will markedly lessen the range of mortgage financing options available to consumers. Moreover, the new underwriting provisions will markedly tighten credit so that only the lowest risk borrowers will qualify, and they will increase the rate and costs to consumers of mortgage loans." The MBA’s stance on loan officer and broker compensation can be found HERE.

In addition, NAMB has posted a "call to action" for its broker members. Brokers are being urged to write to their representatives to voice objections to current proposed legislation. READ MORE

As an investor would you rather own IBM or Pepsi stock, or subprime loans? Think hard… and buy them while you can. Subprime loans are apparently making a roaring comeback (investing, not originating).  Remember that these older subprime loans are like old cars: the new ones are better, but the old ones that are still working have a place too. Those in the business know that credit risk, appropriately ascertained and valued, is typically a good investment.

From the point of view of anyone originating mortgages, what is occurring in the investor ranks is not too interesting. Any A-paper pools of loans being bought or sold at prices near 107 or 108 or 109, as 30-yr 5.75%-and-above mortgages  don’t impact current rate sheets. But investors are grappling with carry and prepayment projections, along with convexity issue. Overall MBS volume was below "normal" although Freddie Mac security volumes have increased recently as Freddie’s prepayment speeds have diverged from those of Fannie’s.

Rates are great, but how are those mandatory mark-to-market positions looking? You know, the ones where you guaranteed delivery to an investor of the Smith loan, and now prices are a few points better and/or the rate is much lower? As borrowers Mr. & Mrs. Smith are wondering the same thing, perhaps, although with all the hurdles that originators jump through now the process tends to "set the hook" a little more firmly. But large investors are concerned about mandatory mark-to-markets, since all these loans are possibly hundreds of basis points under water, or in the money, depending on how one views them. If the client disappears, an investor is "out" those loans and will lose on its existing hedges.

CitiMortgage told its brokers that starting yesterday, "loans submitted to Citi requiring MI will be directed to an MI company for MI approval. CitiMortgage will continue to underwrite and approve your loan for program eligibility, subject to MI approval" – so make sure loans include proper MI documentation! Citi also reminded brokers of the impending DU update for June 19th – moving to the DU Version 8.1. There are several changes, including IO products will only be available for 1-unite primary residences or second home purchases, or limited cash-out refinances with maximum CLTV’s of 70%. Put another way, the IO option is not available for 2-4 units or investment properties, or for the MyCommunityMortgage or Flexible mortgages.

One down, I don’t know how many to go… The FTC announced that two Countrywide mortgage servicing subsidiaries have agreed to pay $108 million to borrowers to settle allegations that the companies charged excessive servicing fees to defaulting mortgage borrowers. While most mortgage servicers hire third party vendors directly, Countrywide funneled the default services (inspection, maintenance, etc.) through its two subsidiaries that then marked up the fees, resulting in increased profits for Countrywide. The FTC also alleged that Countrywide unfairly targeted borrowers who had filed for Chapter 13 bankruptcy, misrepresenting to these borrowers the status of their loans, and then tried to collect amounts owed after the bankruptcy case closed and the borrowers could no longer look to the bankruptcy court for protection.

Ah, what a time to be a loan officer. Many companies are searching for loan agents to produce loans to help mortgage companies support their internal operations staff, and cover overhead. And I guess big companies are doing the same, with UBS Wealth Management Americas trying to hire mortgage "consultants" for its branch offices as it bulks up its lending services business. In this company’s case, the agents will be selling mortgages to wealthy clients, especially since they often have several homes.

In your opinion, what are the characteristics of the perfect mortgage lending operation? READ MORE

In a story from Reverse Mortgage Daily, there is concern about reverse mortgage defaults. The article mentions that Fannie "reportedly has been reminding reverse servicers they must follow HUD guidelines regarding tax and insurance defaults for HECM customers…Now, however, servicers have been instructed to submit troubled loans to HUD to get approval to start the foreclosure process. Once approved, a demand letter is sent to the borrower(s) who has six months to cure the default. After that, the servicer must start the foreclosure process – one exception is when a borrower refuses to take necessary curative action, at which time the foreclosure process begins immediately."

Originators Operating In New World Must Evolve With Environment

by C.M. "Corky" Watts, CMB

“Everybody says it, and what everybody says must be true” -James Fenimore Cooper (American Novelist 1789 – 1851)
James Cooper’s most famous literary works were his novels, "Leatherstocking Tales" and "The Last of the Mohicans". Cooper was one of the most prolific writers of his time. He published political pieces as well as novels throughout the course of his life. 

The quote shared above jumped out at me for a funny reason.  It oddly relates to comments I’ve been hearing recently from the owner/operators of mortgage banking loan shops.

A month ago I visited a client in Las Vegas, the epicenter of the mortgage and real estate malaise. During my interviews, the owner of the operation informed me that in the peak of mortgage activity in 2006, there were roughly 24,000 licensed originators in the state of Nevada.  Today there are 2,400.

This reflects a growing phenomenon around the country. Everybody says it’s hard to make a living today as loan officer.

The mortgage bank owner I was meeting with shared a story with me about one of their loan officers. I feel this story puts the "originator environment" in perspective. 

This L.O was very successful in 2004-2006. In fact they performed so well that they were able to take a hiatus from the business between 2007 and 2009. Call it “Ring Rust” or an inability to adapt, but when this loan officer returned to work in the past year, they failed to match their previous production record. Nothing seemed to go right for this originator. Things got so bad that they became a disruptive presence to the routine hardened support staff. This originator went as far as far as engaging in a verbal temper tantrum with processors and closers. 

After much deliberation, the owner of this operation came to the conclusion that this L.O. did not have the DNA to survive in the "new world" because they refused give due diligence to the new process of writing, processing, underwriting, and closing loans. This loan officer was "let go".

The days of grabbing a few loans from a local Realtor, quickly assembling the files and hurriedly submitting them to a processor so you can hit the street again are a thing of the past. Remember when appraisals were just a formality?

The mortgage industry has entered a new era and it ain’t easy being a loan officer in it! Nowadays the pressures on a L.O to perform their designated responsibilities are far greater than this era of L.O.s has experienced (there are some vets out there who know what its like to sit in a gym to refinance VA loans). This is not unexpected given the broad based regulatory face lift(s) we’ve undergone (which were necessary to an extent). Not to mention the complete overhaul of credit standards and industry practices and procedures.

What’s the silver lining?  The pie might be smaller, commission margins are contracting, deals take more time and effort to get to the table….but there are opportunities. There are fantastic opportunities out there for originators who can adopt to change. The mortgage industry is not going away. Yes the times are tough, but there will be ample business for those left who are able to embrace change and evolve with the market.

MBS End Week Near Record High Prices. Euro Back In Focus After NFP

by Adam Quinones 

• FN4.5: +0-20 at 102-22! GN4.5: +0-20 at 103-09!
• Secondary Market Current Coupon: 4.029%
• CC Yield Spreads:+82.1/10yTSY. +70.9/10yIRS. 3m10y Vols  Higher
• UST10YR: -16.2bps at 3.208%.+1-12 at 102-15. 2s are least best performer. -9.1bps at 0.73%
• S&P CLOSE: -3.44% at 1064.88. HIGH: 1102.79  LOW: 1061.46

The Employment Situation report disappointed risk markets. Stocks sold off. Bonds rallied and lenders repriced for the better. Aggressively! Mortgage rates are back to their best levels of the year.

The FN 4.5 went out at a record high closing price…only 7 ticks below the all-time intraday high price print.

The 10 year TSY note’s violent bounce at 3.40% support almost totally washed out short-term bearish technicals, but yields failed to break long standing 3.20% resistance.

We’ve been here before….

While this week was all about profit taking and position squaring ahead of the release of NonFarm Payrolls, the stock lever is still the directional guidance giver of interest rates. When stocks sell, bonds rally. When stocks rally, bonds sell.

The devaluation of the Euro currency is the driving factor behind the market’s tolerance for risk (stocks) though. U.S. Stocks and the Euro have been playing grab ass since early April when Greek "contagion" spread overseas into our markets.

If the stock lever is the primary influence over interest rates and a weaker Euro is leading stocks lower….then the bearish breakdown illustrated in the Euro chart below is a sign that interest rates are due to trade lower.

If this bearish breakout is a sign that the Euro is doomed to tick toward parity with the dollar…does that mean the U.S. is destined for a double dip?  With housing teetering on a ledge and 6.7 million Americans out of a job for longer than 27 weeks…another decline in stocks will surely trigger more discussion about the potential for a "double dip".

Although the Euro broke a key technical support level, the S&P is still trading above 1050 and 10s haven’t torn through 3.20% resistance. That means the range is still intact and pre–NFP "status quo" has been restored. With that in mind I think we should let the dust settle on this week end sell off before we seriously consider whether a double dip is really a 50/50 possbility.

PS. Can we even call it a "double-dip" if the economic recovery hasn’t really gotten off the ground yet?

Housing: The Good, The Bad And The Ugly

by Adam Quinones

Standard and Poors released the Case-Shiller Home Price Indices through March this morning.
The S&P/Case-Shiller Home Price Indices are constructed to accurately track the price path of typical single-family homes located in each metropolitan area provided. Each index combines matched price pairs for thousands of individual houses from the available universe of arms-length sales data.  The indices have a base value of 100 in January 2000; thus, for example, a current index value of 150 translates to a 50% appreciation rate since January 2000 for a typical home located within the subject market.

On a non-seasonally adjusted basis, in March, the 20-city home price index fell 0.5 percent while the 10-city home price index declined 0.4 percent.

On a seasonally adjusted basis, in March, the 20-city home price index was unchanged while the 10-city home price index improved 0.2 percent.

In the first quarter, the U.S. National Home Price Index fell 3.2 percent.

READ MORE ON WHY S&P SAYS WE SHOULD FOCUS ON UNSEASONALLY ADJUSTED DATA

The chart below represents the month over month change of the 20 city home price index, not seasonally adjusted. The most recent months of upward price movement: May, June, July, August, and September 2009.

Excerpts Taken From the Release….

In March, 13 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down although the two composites and 10 MSAs showed year-over-year gains. Housing prices rebounded from crisis lows, but recently have seen renewed weakness as tax incentives are ending and foreclosures are climbing.

Looking at the monthly statistics, 13 of the 20 metro areas showed a decline in March compared to February. Boston was flat. Eight MSAs posted new index lows in March – Atlanta, Charlotte, Chicago, Detroit, Las Vegas, New York, Portland and Tampa. Las Vegas and Phoenix have peak-to-current declines of 56.3 and 51.8%, respectively. On a more optimistic note, Los Angeles, Minneapolis, San Diego and San Francisco have shown recovery from recent lows of +7.2%, +7.4%, +10.9%, and +16.2%, respectively. San Diego, in particular, has stood out with 11 consecutive months of increasing home prices.

David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s says:

“The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices….In the past several months we have seen some relatively weak reports across many of the markets we cover."
“While year-over-year results for the National Composite, 18 of the 20 MSAs and the two Composites improved, the most recent monthly data are not as encouraging. It is especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices. Now that the tax incentive ended on April 30th, we don’t expect to see a boost in relative demand.”

The big question everyone is asking: The Home Buyer Tax Credit Has Expired. Will Home Sales Improve, Contract, or Go Sideways?

Let’s look over recent housing headlines….

THE GOOD….

1. Home Prices: For anyone looking to buy a home, they’re affordable!
2. Mortgage Rates: Near Record Low Levels! Well-qualified borrowers can get no cost loans with mortgage rates well below 5.00%
3. Buyer’s Market: The Tax Credit Has Expired But Sellers Are Offering Incentives. These are called "seller concessions". They are NOT refunds.
4. Tax Credit Momentum: There Are Competitive Markets Out There! In certain areas, buyer demand is outpacing seller supply.
5. Builder Confidence Is Up: For now at least home builders will be busy on new starter units thanks to all the sales contracts they got signed before the tax credit expired. There’s always remodeling damand too!
6. New Loan Reporting Standards will help reduce originator confusion and improve turn times

I am searching for more "GOOD" in housing but am finding it difficult to come up with positive perspective….

THE BAD…

1. Rising Defaults: Prime loans are the fastest growing category of loan delinquencies.
2. HAMP Not Meant To Be. Special Servicers are more motivated to deal with loss mitigation. The sun is setting on HAMP.
3. Record Pace of Foreclosures: Shadow Inventory! Banks who largely delayed the liquidation of REO over the winter and most of 2009 are now starting to boot borrowers from their homes and prepare the property for auctions.
4. The GSE’s Continue To Cut Programs and Tighten Credit. Other Government Insured Products Are In Limbo.
5. Risk Retention Reform Threatens to Push Mortgage Rates Higher. Loan Buybacks Are Up 60% YoY!
6. Appraisal Quality Has Not Improved. READ THE COMMENTS ON THIS POST
7. Homebuyers Are Hesitant: the higher unemployment rate for Americans aged 16 to 24 could have a lasting impact on that generation’s lifetime earnings and attitudes
8. The Fate of Fannie Mae and Freddie Mac Is Up In The Air!
9. I shouldn’t go on….

THE UGLY…

1. The number of Americans out of work for longer than 27 weeks: 6.7 million
   

We will likely hear more and more "WILL HOUSING EXPERIENCE A DOUBLE DIP" debate in the months to come…..

What will happen to the housing market is anyone’s guess, sales spiked with the April 30 deadline of the homebuyer tax credit, interest rates remain low, some areas have rising prices…but bank repossessions are on track to surpass a million homes in 2010, more than a quarter of borrowers are “underwater”, and other homeowners are walking away from their homes when they can’t afford the payments.  New home construction rose 5.8% April, but permits sank 11.5%.  Mortgage delinquencies 10% during the first quarter of 2010, the foreclosure rate was 4.63% in the first quarter of 2010.  Lenders have slowed repossessions due to being short staffed, prevention initiatives and banks are approving more short sales.  Existing home sales rose 7.6% in April and new home sales were up 14.8% in April as homebuyers sought to claim the expiring tax credit.