Home price decline continues

S&P/Case-Shiller Home Price Indices tracks 2 different indices, ten & twenty metropolitan statistical areas across the country & is released by Standard & Poor's. The report released in January indicates that nationwide price decline for existing family homes has continued into this year also. Sixteen of the twenty metropolitan statistical areas (MSAs) in the survey have reported record declines with 10 of them reaching double digits.

Both 20-City & 10-City Composite Indices now report annual declines exceeding 10%. The 20-City has reported a decline of 10.7% & the 10-City a record annual decline of 11.4%.

Just few months back also Miami & Las Vegas were the boom cities, now price-wise, are the weakest cities in January. Miami & Las Vegas have showed decline in prices year-over-year of 19.3% and Phoenix at 18.2% is closely following these two cities in price declines.

Some other metropolitan statistical areas having double-digit price declines include Los Angeles (16.5%), San Diego (16.7%), Detroit (15.1%), Minneapolis (10%), Washington (10.9%), Tampa (15%), & San Francisco (13.2%).

The base year used by the indices is 2000, & number 100 is assigned to year 2000. So, a present score of 150 will indicate a 50% appreciation in price in last 8 years. The score for 20-City Composite is 180.65 & the 10-City 196.06. With this long view of Home Price Indices data, homeowners in many metropolitan statistical areas are still counting their blessings as some of the worst hit cities as per the present performance are even now showing remarkable appreciation since year 2000, like Log Angeles (224.21), Miami (225.40) & Las Vegas (186.05).

In his remarks on survey results, David M. Blitzer, Chairman of the Index Committee at Standard & Poor's said;

Capital requirement for Fannie Mae & Freddie Mac lowered

In a recent development OFHEO (Office of Federal Housing Enterprise Oversight) announced increase in liquidity of the MBS (Mortgage Backed Securities) market by as much as $200 billion.

According to OFHEO, Fannie Mae & Freddie Mac will be allowed to invest a significant portion of the thirty percent capital surplus they have to maintain into mortgages & mortgage-backed securities. Reduction in capital requirements to 20% has been called as "appropriate" by Office of Federal Housing Enterprise Oversight & it may further reduce this capital requirement in future.

In combination with the increase of portfolio caps this reduction in capital requirement will allow the 2 GSEs (Government Sponsored Enterprises) to guarantee or purchase about $2 trillion in mortgage in this current year. This purchasing capacity will allow the 2 GSEs provide assistance in subprime refinancing, loan modification & also do more of jumbo mortgages, for which they have got permission now.

J.P. Morgan acquires Bear Stearns

J.P. Morgan Chase acquired the investment bank Bear Stearns with a price tag that was a real stunner; it has agreed to pay $2 per share for acquiring Bear Stearns. This purchase price will be paid fully in stock & includes company's forty five storey NY Office Tower. Before the announcement, the price that was talked about was $30 per share. But with $2 per share, the total value of the acquisition, roughly about $236 million is only a fraction of Bear Stearns market value - $3.5 billion.

According to The New York Times, Federal Reserve is providing $30 billion credit line to J.P. Morgan Chase which will be secured by Bear Stearns portfolio less-liquid assets like mortgage securities. In a situation these assets lose more value, Federal Reserve will be affected, not J.P. Morgan.

Bear Stearns was known as one of the biggest gamblers of mortgage securities business. It had provided large lines of credit to many subprime lenders & had underwritten Alt-A mortgages. By last month, foreclosure rate on such mortgage was at 15%, about twice to what was the industry average.

KAMCO to purchase defaulted mortgages in US

Korea Asset Management Corp. has planned to purchase defaulted mortgages in US. KAMCO which is a state-run asset management company was created to settle bad debts of companies which were rescued by government at the time of Asian Financial crisis in 1997-98.

KAMCO has plans of establishing 1 trillion funds in cooperation with financial institutions & local pension funds for investing in US bad debts. It recently sent a group of official with the aim of examining country's debt market & also meet officials of banks run by ethnic Koreans, mortgage lenders & investment banks in LA, NY & FL.

New GFE and changes in RESPA by HUD

A proposed mortgage reform package was recently released by HUD Secretary, Alphonso Jackson for helping borrowers clearly understand terms of mortgage loan they want to take. If enacted, the changes will reform the GFE & thirty year old RESPA, but before that it has to go through a mandatory period of public comment.

One of the main changes is a proposal that lenders & brokers provide borrowers with a standard GFE. The standard GFE when used will enhance disclosure of major aspects of mortgage loan such as,

a.Interest rate & monthly payments
b.Whether mortgage contains balloon payment or prepayment penalty
c.Whether rate & principal balance can go up, if yes, by how much

The new proposals also specify charges which can & cannot change at settlement and if any fee changes, there will be a limit on the amount by which it can change. Another significant feature in the GFE being proposed is that lender payments to brokers known as yield spread premiums will have to be disclosed.

HUD has also proposed legislative changes in RESPA which will give it authority of imposing penalties if some specific sections of RESPA are violated.

The specific sections for which HUD will have authority would be those which deal with:

a.Loan servicing
b.Referral & unearned fees
c.Prohibition against kickbacks
d.Good faith estimate
e.Settlement cost booklet
f.Title insurance
g.Escrow accounts

HUD also wants that

• Secretaries of State as well as other regulators are allowed to seek equitable & injunctive relief if RESPA regulations are violated.
• HUD-1 be delivered to borrowers 3 days before closing
• A uniform statute of limitations be established which would be applicable to both private as well as governmental actions under RESPA.

On why he wants implementation of these proposals, Alphonso Jackson, Secretary of Housing and Urban Development (HUD) has commented that -

HomeSaver Advance program from Fannie Mae

HomeSaver Advance program has been announced by Fannie Mae for helping homeowners delinquent on their mortgages and will be available to all Fannie Mae servicers by April 15, 2008. This program is part of Fannie Mae's larger HomeStay initiative & is an excellent solution for borrowers who are in trouble due to temporary events like medical emergencies.

This program is for borrowers who are capable of continuing their mortgage & would be able to resume normal payments if the arrearage is brought current.

Through HomeSaver Advance program the corporation authorizes its servicers to provide unsecured personal loans which can enable borrowers to recover from payment defaults on Fannie Mae securitized or owned mortgage loans. This unsecured personal loan will have fewer up-front costs & could be put in place quickly.

HomeSaver Advance program will provide funds for payment of past due balances of PITI & also up to 6 months (in some instances twelve months) of HOA fees. Advances for attorney fees & escrow advances are also covered but late fees & few other costs are not eligible under this program.

For getting the funds, borrower has to sign a promissory note payable over a fifteen year term with five percent fixed rate of interest. Additionally, no payments are necessary during first 6 months nor does interest accrue in that 6 months period, so the HomeSaver Advance is amortized over a period of 14.5 years.

A delinquent borrower can get lesser of $15,000 or fifteen percent of the original unpaid balance. This amount is directly applied to arrearage & the borrower does not receive the funds in hand. The cost for the borrower will be the $600 workout fee which is to be paid to servicer.

Proposal to ban use of appraisals arranged by brokers

In a memo distributed to lenders Fannie Mae has proposed ban on use of appraisals arranged by brokers and by a lender's employees.

What this means is that Fannie Mae will not authorize its lending partners to use any appraiser who is an employee of a wholly owned subsidiary. The restrictions will be applicable for mortgage loans which are acquired after Sept. 1. This memo also has reference to setting up of an appraisal clearinghouse to be used for assigning appraisers to any project.

This step is in response to investigations by NY's AG Andrew Cuomo in November last year when Cuomo filed lawsuit against parent company of country's largest appraisal management companies, First American. In the lawsuit they were charged with relaxing their norms under pressure from WaMu, who was a major client & used those specific appraisers who were providing property valuations acceptable by Washington Mutual.

In the original suit Washington Mutual was not included but AG demanded that the 2 GSEs (Freddie Mac & Fannie Mae) appoint independent examiners for reviewing mortgage loans (as well as the underlying appraisals) that they had purchased with emphasis on the ones purchased from Washington Mutual.

Retraining for laid-off mortgage employees

California Governor Arnold Schwarzenegger has proposed initiatives which will utilize various federal & state funds inclusive of $5.6 million federal grant for retraining banking & mortgage workers who were laid off because of mortgage subprime crisis (there has been 8,400 layoffs since last July).

Money for training will be arranged from National Emergency Grant of U.S. Department of Labor. The funds from National Emergency Grant can be used by Department Secretary when unforseen events create urgent need for assistance for unemployed workers & such assistance is beyond state's handling capacity.

Governor recently also awarded $73 million for forty housing projects to help 1,611 families rent or purchase houses in 26 California cities.

Some other projects have also been undertaken to negate the housing slump such as loans with low interest from Proposition 1C housing bonds for $69.5 million, $1.2 million public awareness campaign for homeowners on options which can be used in avoiding foreclosure, and providing assistance of $72 million to first time house buyers from funds available from federal HOME IPP (Investment Partnership Program).