Tuesday, September 16, 2008

Wells Fargo relaxes loan rules along Front Range

Wells Fargo relaxes loan rules along Front Range

By Jeff Smith, Tuesday, September 16, 2008
Wells Fargo Home Mortgage, one of the state's largest lenders, has relaxed its loan requirements along the Front Range in recognition of a healthier housing market.

It's unclear how many other lenders will follow suit. And with credit overall tight and consumers concerned about the national economy, home- buying activity may continue to be tepid until next spring, experts say.

Liz Brown, retail division sales manager for Wells Fargo Home Mortgage, said the company upgraded the ratings for all counties surrounding Denver and most of northern Colorado from "distressed" to "stable."

"We've basically expanded our lending guidelines, in most cases giving 5 percent more in terms of the loan amount or requiring 5 percent less down for the home," she said of guidelines that took effect Monday.

But Bryant stressed the company assesses the risk of each loan so individual cases could vary.
"I think this is great news for Denver, great news for Colorado," Bryant said. "We had challenges earlier than many of the other real-estate markets in the country, and it appears our recovery is happening before others."

Only Weld County is still considered "distressed," she said. A number of other Colorado counties, including those south of Denver, already were considered stable.
Denver's market has strengthened in part because of a 20 percent drop in home inventory over the past year, according to August data from Metrolist.

"It's about time" Wells Fargo upgraded the area, said Thomas Thibodeau, academic director for the CU Real Estate Center in Boulder. "The fact of the matter is that the housing market here is vastly different than the rest of the U.S. I think the Denver housing market has turned the corner and is on the way to recovery."

Thibodeau, professor at CU's Leeds School of Business, cited Standard & Poor's Case-Shiller home price index, which shows the Denver market to be healthier than the nation as a whole.

Tuesday, September 9, 2008

Mortgage rates drop sharply after bailout plan - Stocks & economy- msnbc.com

Mortgage rates drop sharply after bailout plan - Stocks & economy- msnbc.com

U.S. Seizes Mortgage Giants; Government Ousts CEOs of Fannie, Freddie; Promises Up to $200 Billion in Capital -- Wall Street Journal

Wall Street Journal, By James R. Hagerty, Ruth Simon and Damian Paletta
September 8, 2008
In its most dramatic market intervention in years, the U.S. government seized two of the nation's largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages.
Treasury Secretary Henry Paulson announced plans Sunday to take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies' chief executives. The Treasury will acquire $1 billion of preferred shares in each company without providing immediate cash, and has pledged to provide as much as $200 billion to the companies as they cope with heavy losses on mortgage defaults. The Treasury's plan puts the two companies under a conservatorship, giving management control to their regulator, the Federal Housing Finance Agency, or FHFA.
With that, the U.S. mortgage crisis entered a new and uncharted phase, potentially saddling American taxpayers with billions of dollars in losses from home loans made by the private sector.
Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.
Mr. Paulson noted that more than $5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide. "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Mr. Paulson said.
By taking this action, the government has seized control of the vast bulk of the secondary market for home mortgages and will have a more direct responsibility than ever for solving the housing crisis. The intervention also marks the failure of the public-private experiment that was created to boost home ownership among Americans. Fannie and Freddie were created by Congress to help prop up the housing market, and investors have long believed the government would bail the companies out in a crisis. But the companies have long been owned by private shareholders seeking to maximize profits.
The federal takeover was initially welcomed by banks and market watchers outside the U.S. who saw it as a way to dispel some of the uncertainty roiling the world's financial markets. The intervention could eventually be a boon for Wall Street, by providing a boost to the moribund mortgage industry and by perhaps diminishing the influence of Wall Street's two largest competitors in the market of packaging and reselling mortgage-backed bonds.
Markets across Asia rallied early Monday morning on the news, with financial shares leading the way.
Japan's Nikkei Stock Average of 225 companies soared more than 3%, and Hong Kong's Hang Seng Index opened 4.5% higher.
The move is also likely to nudge down mortgage rates for consumers, who are facing the worst housing bust since the 1930s. Despite steep interest-rate cuts by the Federal Reserve, the cost of a typical 30-year fixed-rate mortgage has remained well over 6% for most of the past year. To bolster the mortgage market, Treasury said it will buy, on the open market, at least $5 billion of new mortgage-backed securities issued by Fannie and Freddie.
The government rescue of Fannie and Freddie is likely to leave a trail of billions of dollars in losses for stockholders, including some major banks. But it protects the investments of bondholders, including mutual funds, foreign central banks and government investment funds that own huge amounts of debt issued by the two companies. Investors that have loaded up recently on mortgage-backed bonds -- such as Pacific Investment Management Co., the large Newport Beach, Calif., bond manager -- could benefit as Treasury purchases of such securities drive up their values.
It is unclear how much the government's intervention will ultimately cost taxpayers. In addition to its initial acquisition of preferred shares, the government receives warrants giving it the right to a stake of 79.9% of each company for a nominal sum. The Treasury's preferred shares, which carry an annual dividend yield of 10%, will be senior to those earlier issued, meaning the government will have the first right to receive dividends.
Existing shareholders won't fare so well. The new overseers will eliminate dividends on billions of dollars of common and preferred stock, moves that are expected to further drive down the price of those shares. If the government exercises its warrants, existing common shares will be drastically diluted. Common shareholders are expected to see the value of their investment, which has already fallen, shrivel further, say analysts. Even preferred stockholders are expected to see a significant decline.
That prospect is especially problematic for some of the commercial banks and thrifts that hold high concentrations of Fannie and Freddie preferred shares. The Office of Thrift Supervision, a government agency that supervises savings and loans, said that roughly 2% of the 829 companies it regulates -- or around 17 banks -- had a concentration in common or preferred shares of Fannie Mae and Freddie Mac that surpassed 10% of their Tier 1 capital. Regulators said Sunday they would work with banks that hold large exposures to Fannie and Freddie "to develop capital-restoration plans" if necessary.
The Treasury's move doesn't answer the question of what ultimately happens to Fannie and Freddie. Under the conservatorship of their regulator, the companies will still have their shares listed on the New York Stock Exchange. But management control goes to the regulator until it deems the companies financially healthy. Congress ultimately will have to decide in what form Fannie and Freddie will be relaunched or whether they will be replaced by different types of entities.
Mr. Paulson signaled that he wants to remake the U.S. housing-finance system in the longer term, ditching the "flawed business model" of government-sponsored enterprises like Fannie and Freddie. The Treasury plan limits the size of each company's mortgage portfolios to a maximum of $850 billion as of the end of 2009. (Fannie currently owns about $758 billion of mortgages and related securities, while Freddie's total is about $798 billion.) After that, the Treasury intends for the mortgage holdings to shrink about 10% a year until they reach about $250 billion at each company.
Wrangling over the future shape of Freddie and Fannie will likely be kicked to the next Congress.
Already the majority Democrats are pushing back on elements of Treasury's plan. "Good luck on that," said Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, when asked about the Treasury's plan to start reducing the firms' portfolios beginning in 2010. Mr. Frank called it "more of a sop to the right" than a real policy prescription and said it wasn't going to happen.
Many economists and analysts believe the government had to wade deeper into the mortgage market because for now "private markets are just not willing to put up the capital" for home mortgages at prices U.S. consumers could afford, said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Without government support for the mortgage market, home prices would fall much further, exposing the country as a whole to greater economic strain, Ms. Wachter says.
The turn of events for Fannie and Freddie is remarkable considering the two companies for so long shunned the riskiest type of mortgages, only to embrace those mortgages late in the game in an effort to regain market share from Wall Street rivals.
As early as 2005, Fannie executives publicly expressed concerns about growing risks in the mortgage market. In May of that year, Thomas Lund, a Fannie Mae executive vice president, said that lenders should be concerned if borrowers straining to afford homes were given loans allowing for low payments in the early years but storing up much higher ones for later. "In many cases the consumers may not understand all the risks," he said.
Yet both companies expanded their exposure to riskier loans. At both Fannie and Freddie, so-called Alt-A loans, a category between prime and subprime, accounted for roughly 50% of credit losses in the second quarter, even though such loans accounted for only about 10% of the companies' business. Alt-A mortgages include loans made with less than full documentation of borrowers' income or assets.
As these and other loans -- including many in areas such as California and Florida that are among the hardest hit by the housing crisis -- started to go bad, the companies failed to raise enough capital late last year, when investors were still fairly bullish on their prospects, to see them through the current storm. The companies have recorded combined losses totaling about $14 billion over the past four quarters, eating deeply into their meager capital holdings. Most analysts expect them to report sizable losses for at least another couple of years as the costs of foreclosures mount.
Fannie and Freddie's credit problems are largely a reflection of the overall weakness in the housing market.
Some 9.2% of mortgages on one- to four-family homes were at least a month overdue or in the foreclosure process in the second quarter, according to the latest survey of the Mortgage Bankers Association. That is the highest percentage in the 39 years that the trade group has been doing the surveys.
"Make no mistake, anybody in the mortgage business is going to see much higher losses than they thought they would a year ago because we've had the worst housing market and the largest home price declines that anybody has seen," said Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie.
Both companies are also exposed to some of the mortgage industry's most troubled players. Countrywide Financial Corp., now part of Bank of America Corp., was the largest provider of loans purchased by Fannie Mae, accounting for 29% of its business in 2007, according to Inside Mortgage Finance, and was the second largest source of loans for Freddie Mac, with a 16% share. IndyMac Financial Corp., which previously had focused its business on Alt-A loans that didn't meet Fannie and Freddie guidelines, switched to a policy of making loans that could meet their standards in 2007. IndyMac was taken over by the Federal Deposit Insurance Corp. this summer.
At Fannie, Herb Allison, who formerly served as chairman of the investment company TIAA-CREF, succeeds Daniel Mudd. Freddie's chief executive, Richard Syron, was succeeded by David Moffett, who has been vice chairman and chief financial officer of U.S. Bancorp.
Potentially, Mr. Syron could walk away with an exit package totaling as much as $15 million, said David Schmidt, a senior consultant at James F. Reda & Associates LLC, a compensation consulting concern in New York. That includes a pension and deferred compensation, about $3.7 million in severance pay and a possible payment of $8.8 million to compensate for forfeiting recent equity grants. A Freddie spokesman said Mr. Syron had said he doesn't "anticipate receiving nearly that much."
Mr. Mudd's exit package, including stock he already owns, could total $14 million, Mr. Schmidt estimates.
That includes $5 million in pension and deferred compensation, $4.2 million in severance pay and $3.4 million of restricted stock, based on Friday's closing price. The value of that stock could fall sharply, however.
Key Players
-- Henry Paulson, Treasury Secretary: Known mostly as a pragmatist when he was sworn in July 2006, the 62-year-old former chief executive of Goldman Sachs has sought, and won, authority for unprecedented government involvement in the nation's financial markets.
-- Ben Bernanke, Chairman of the U.S. Federal Reserve: A career academic focused on the interaction of the financial system and economy, especially during the Depression, Mr. Bernanke, 54, has formed close working relationship with Mr. Paulson in the last two years.
-- Daniel H. Mudd, Former Fannie Mae Chief executive: A former Marine officer, Mr. Mudd was promoted from his job as Fannie Mae's chief operating officer when predecessor Franklin Raines was ousted in December 2004.
-- Richard Syron, Former Freddie Mac Chairman and Chief executive: Mr. Syron, 64, a former senior Federal Reserve official, came to Freddie in December 2003 with a mandate to clean up after that company's accounting scandal.
-- James Lockhart, Federal Housing Finance Agency director: As head of the Office of Federal Housing Enterprise Oversight, Mr. Lockhart pushed for more power to regulate Fannie and Freddie. At the helm of the newly created FHFA, he has it.
-- Barney Frank, House Financial Services Committee chairman: With Democrats in control of Congress, the 14-term congressman from Massachusetts has an even louder voice to support a bigger role for government in solving the housing slump.
-- Herb Allison, Incoming CEO of Fannie Mae: As Merrill Lynch's president and chief operating officer, Mr. Allison presented the initial proposal for a Wall Street bailout of high-flying hedge fund Long-Term Capital Management LP in 1998. He recently retired as chief executive of pension fund TIAA-CREF.
-- David Moffett, Incoming CEO of Freddie Mac: The former chief financial officer of U.S. Bancorp, Mr. Moffett has been working in private equity for the Carlyle Group.

Friday, September 5, 2008

How's The Market September 2008

So How’s the Market? September 5, 2008. Data is from Metrolist, Inc MLS system. on 9.5.08.

Listing Inventory drops 18.733% in one year! This September shows an active listing inventory of 25,543 units for residential and condominium homes on the market. This is the lowest September inventory since 2004. The majority of homes being sold are under $500,000 with positive news coming for homes priced above $500,000, more info to follow towards the end of story.

The inventory reduction is a continuing trend that brings inventory levels down to 2004 numbers this year. This type of inventory reduction has caused a change in buying patterns from the last three years. When choices of homes are reduced, buyer behavior increases to make housing choices faster. As buyers make housing choices at a quicker pace, the number of sales will grow faster than the number of new active listings coming on the market, which will result in appreciation of homes.

We will watch this inventory number go below 22,000 by January of 2009 and remain at lower levels through 2009 over previous years.

The under contract data continues to stay at higher levels than 2007. August of 2007 was the month the marketplace turned sour in Denver, but really had been wavering for at least 20 months before that date. In September 2007 the data showed 5928 homes under contract and set to close. Just 12 months later in September of 2008, the marketplace is registering 7204 homes under contract. That is a 21.525% year over year positive growth. The lag in these properties closing is still a result of changing mortgage guidelines and processing delays.

Sold data continues to be the slower indicator of a rebounding market and as of August the number of properties closed still has not yet caught up with the lower inventory and higher under contract data lines. This fall season will start to see year over year changes where 2008 and 2009 will outperform the previous year.

The yearly figures for sold data follow a similar trend.

If we annualize these numbers we predict the Denver marketplace will expect to close 42,871 units for 2008. This number reflects a 6.015% decline from 2007 and will be the 5th year in a row of declining sold data for homes. This might sound gloomy but it actually reflects that we have already hit the bottom and 2009 will be the year of appreciation as inventories continue to decrease and home buyers have a change in their behavior to move quicker into the market. Here are actual previous years compared to our prediction for 2008.

What does this all mean to Buyers and Sellers? The average days on the market for residential and condo units has held consistent for three years. Given the facts of the foreclosure increases the last three years, the difficult mortgage guidelines since last summer and lack of buyer confidence in the housing market you would expect this number to rise, when in fact it has not.

For Buyers, the shrinking inventory will provide fewer choices. Specifically looking at the price ranges below, $500,000: The number of homes closed below this price point of $500,000 makes up 92% of all sold homes in Denver for 2008. The inventory below $500K is 19,080 as of today. This represents 75% of the total inventory in the market.

So if there are 92% of the buyers buying below $500, 000 and there are only 75% of available homes in this price point, we would conclude that the prices of homes below $500,000 will rise as the inventory continues to be reduced. The current absorption rate for homes below $500,000 is 5.985 months. If you take an annualized number of sales in the 0-$500,000 range gives you 38,251 for 2008 divided into the current available inventory of 19,080 in this price point, you get .498 X 12 = 5.98 months. We believe that 72% of the year has been past through August 2008 to annualize our numbers.

For sellers, if you own a home below $500,000 it is good news as your home will be able to stand out as there as not as much competition, but since real estate is localized to the neighborhoods, you must see where you are positioned against other properties in you sub area.

For homes above $500,000, sellers must be the first priced home the buyers will find and must be in move in condition to attract the buyers looking for homes above $500,000 in today’s market. Looking at the absorption rate for home above $500K, we have 6463 units available and 2469 units closed through August, 2008.

If we make the same calculations there is approximately a 22 month supply above
$500,000. This will start to drop fast and get more in the 13-14 month as homeowners in these price points will take their homes off the market for the holidays making a better environment for homes still on the market to find buyers.

Those that are on the market at the right time after the beginning of the New Year will be positioned well with a lot less inventory to find the early buyers. Remember these absorption rates are just a snapshot of the day, not a future trend, but are helpful if you are trying to see where a home might be positioned today.

Tuesday, September 2, 2008

The Clear Facts on FHA

What is FHA?
• A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct housing.
• Customer Benefits:
• Low down payment options and non-profit down payment assistance programs
1 No income restrictions
2 Non-traditional credit profile
3 No pre-payment penalty
4 No minimum FICO score
• Funding Fee:
• Up front mortgage insurance premium (UFMIP): 1.25- 2.25 depending on credit score & down payment amount
• Annual MI: .55% for 30 yr
• Loan Limits:
• $406,250 for Denver- Aurora area
1 For other areas refer to HUD website or ask me: http://www.hud.gov/
• Eligible Transactions:
• Purchase
1 Full refinance (rate/term, cash out) or FHA streamline refinance
• Eligible Borrowers:
• U.S. Citizens, Permanent Resident Aliens, and Non-permanent resident aliens
1 Non-Occupant Co-Borrowers allowed
• Eligible Products:
• 15, 20-30-year fixed rate terms, 3/1, 5/1 ARMs
• Property:
• 1-4 unit, FHA approved condos, PUDs allowed (do not need to be FHA approved), Manufactured homes (meeting FHA’s property requirements)
• Credit:
• Collections- case by case, buy may not be required to pay
1 Tax liens- must be paid unless on payment plan
2 Bankruptcy
• Chapter 7: minimum 2 years from discharge- with exceptions
1 Chapter 13: payments made for 1 yr. & court approval for purchase
• Foreclosure: 3 years