http://moneynews.com/StreetTalk/Fannie-Freddie-Fed-Void/2010/03/31/id/354322
Goodbye, Federal Reserve. Hello Fannie and Freddie.
With the Federal Reserve ending its 15-month $1.25 trillion mortgage bond buying binge on Wednesday, delinquent loan buyouts by Fannie Mae and Freddie Mac could serve as the saving grace for the $5 trillion agency mortgage-backed securities market.
The paydowns from these buyouts will put billions into the hands of mortgage investors for reinvestment and significantly reduce supply, mitigating the massive void the central bank will leave behind and helping keep yield spreads near record tights.
That is good news for the U.S. housing market since it should keep mortgage rates, which are linked to yields on Treasuries and yields on mortgage-backed securities, at historically low levels.
The timing is everything as the housing market enters its most important period — the spring selling season — and struggles to regain its old self as data shows growth has been anything but resurgent.
The delinquent loan buyouts of $200 billion by Fannie Mae and Freddie Mac, first announced in February, will put about $140 billion of cash into private investors' hands, according to Matthew Jozoff, managing director and head of mortgage strategy at JPMorgan in New York.
At the same time, these buyouts will remove about $200 billion of net supply from the market, his team said.
"This 'double-whammy' is powerful, and effectively extends the Fed involvement several months from their official end date," they said.
The Federal Reserve has plowed billions per week into the agency MBS market since early 2009 in an effort to bring down mortgage rates and to stimulate the battered housing sector and the overall economy.
"The (Fannie and Freddie) buyouts should help take supply out of the marketplace, so in our view, the technicals have lined up to make the Fed exit go smoother than otherwise would have been expected," said Joe Ramos, lead portfolio manager on the U.S. fixed income team at Lazard Asset Management in New York.
"While reinvestments from paydowns will not be big enough to fully offset the buying by the Fed, it should help keep prices firm," he said.
Mortgage rates play a crucial role in housing affordability. February home sales data points to a sector that has hit a lull after showing signs of a recovery late last year. New home sales fell for a fourth straight month, reaching a record low, while existing home sales fell for a third straight month.
Interest rates on 30-year fixed-rate mortgages, currently around 5 percent, will probably drift higher throughout 2010, ending the year at over 5.5 percent, according to Mark Zandi, chief economist at Moody's Economy.com, in West Chester, Pennsylvania.
"The current 5 percent fixed rate has been key to keeping the housing market together as well as it has been kept together," he said. "That the housing market is so weak despite the low rates suggests how strong the headwinds are to the housing market, including the tough job market, tougher underwriting standards, and the ongoing foreclosure crisis."
Mortgage rates will likely be buffered over the next few months as the majority of the paydowns get reinvested, but investors will also likely keep some cash as well, according to Janaki Rao, vice president of mortgage research at Morgan Stanley in New York.
"The initial reaction to the buyout news indicated a rush toward the lower coupons as investors rushed to safeguard against faster prepays," he said.
While reinvestments are certainly a strong positive for agency MBS, a confluence of other factors should keep agency MBS firm as well. A buildup of cash, solid deposits and weak loan growth should foster strong bank demand for agency MBS going forward.
Furthermore, many money managers who were underweighted the sector for much of the past year amid lofty valuations are expected to buy on even modest cheapening. That, coupled with low supply, will offset the Federal Reserve's absence from the agency MBS market.
"We do not see things changing in a major way, perhaps 10 to 20 basis points of widening without demand from the Fed," Lazard's Ramos said.
"Demand from asset managers will likely have the largest impact on prices after the Fed exit," he said.
Wednesday, March 31, 2010
Tuesday, March 30, 2010
Half of Commercial Mortgages to Be Underwater: Warren
By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, in a wide-ranging interview on Monday.
“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."
As a result, the economy will face another “very serious problem” that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010.
Meanwhile, the U.S. Treasury on Monday pledged to sell its 7.7 billion Citigroup shares this year, a step that further reduces the government's influence on the banking giant. Warren said she is having difficulty getting clarity on Citigroup’s [C 4.09 -0.09 (-2.15%) ] business plans.
“This is a cake that is still being baked,” she said of the company's plans. “[Citi's CEO] Vikram Pandit said he was going to shrink the company by 40 percent...and Citi’s numbers keep moving around so much I don’t know
Speaking on troubled mortgage lenders, Warren said it’s time for the government to "pull the plug" on mortgage lenders Fannie Mae [FNM 1.05 -0.01 (-0.94%) ] and Freddie Mac [FRE 1.28 --- UNCH (0) ].
“I’m one of those people who never liked public-private partnership to begin with. I think what they did was use public when public was useful and private when private was useful,” she said. “And I think we’ve got to rethink that whole thing.”
“There is no implicit guarantee anymore,” she added. “I don’t care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out."
http://www.cnbc.com/id/36085517
“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."
As a result, the economy will face another “very serious problem” that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010.
Meanwhile, the U.S. Treasury on Monday pledged to sell its 7.7 billion Citigroup shares this year, a step that further reduces the government's influence on the banking giant. Warren said she is having difficulty getting clarity on Citigroup’s [C 4.09 -0.09 (-2.15%) ] business plans.
“This is a cake that is still being baked,” she said of the company's plans. “[Citi's CEO] Vikram Pandit said he was going to shrink the company by 40 percent...and Citi’s numbers keep moving around so much I don’t know
Speaking on troubled mortgage lenders, Warren said it’s time for the government to "pull the plug" on mortgage lenders Fannie Mae [FNM 1.05 -0.01 (-0.94%) ] and Freddie Mac [FRE 1.28 --- UNCH (0) ].
“I’m one of those people who never liked public-private partnership to begin with. I think what they did was use public when public was useful and private when private was useful,” she said. “And I think we’ve got to rethink that whole thing.”
“There is no implicit guarantee anymore,” she added. “I don’t care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out."
http://www.cnbc.com/id/36085517
Housing Prices May Be Heading for a Double Dip
Anyone thinking housing prices have reached a bottom had better do some recalculating. Despite Tuesday's Case Schiller report showing smaller declines in January, housing prices may already be in another free fall.
Newly revised numbers are pointing to the decline.
The Federal Housing Finance Agency's (FHFA) adjusted figures show a housing price decline of 2 percent in December and 0.6 percent decline in January—reversing some regional price increases in 2009.
And more pricing dips are predicted.
"Case Schiller aside, we expect housing prices to fall another five percent in the coming months," says Paul Dales, US economist at Toronto based Capital Economics. "We've actually seen some declines in areas of the country. That's going to put a halt on any housing recovery."
Dales argues that the end of the $8,000 first time buyers tax credit on April 30th and the large amount of foreclosures in the pipeline—or on their way there—are reasons why prices will continue to fall.
"There's going to be less demand for housing when the tax credit ends," Dales says. "That leaves more home on the market for sale. And as to foreclosures, there will be more of them and that puts pressure on prices. We estimate about 2.5 million foreclosures through the rest of 2010
If tax breaks ending and more foreclosures weren't bad enough, banks and other lenders have added to the problem for prices.
"Financing has dried up," says Alan Rosenbaum, president and CEO of Guardhill Financial, a residential mortgage firm in New York City. "And with the government more or less getting out of the lending business as it stops buying mortgage backed securities (MBS), there's less incentive for lenders to make loans. We could see a drop in home prices for sure."
With the Fed ending its asset backed purchasing program on March 31st, fears of higher interest rates have caused many to fear a slowdown in housing sales and putting even more pressure on prices.
Rates have been rising, ever so slowly. But they are still at historic lows and with the ending of the tax credit, some see the move as an incentive to buy regardless of price.
"If rates go up and with the tax credit gone, I think it would spur on housing," says Diane Saatchi, senior vice president with Saunders and Associates Realty in New York. "People will see rates rise and that will stimulate them to buy now rather than wait for rates to go higher."
But interest rates aren't really considered a problem—or a cure for housing prices right now.
"It's inventory," says Walter Malony, spokesman for the National Association of Realtors. "Prices are dependent on the inventory absorbed. I think we'll see about the same amount of foreclosures this year as we had last year. That's not good."
What differences Malony does see in the foreclosures this year are the cause. Foreclosures in 2009 were mainly dominated by people who couldn't refinance because their home was 'underwater' or they owed more on it than the mortgage was worth.
This year, Malony says, foreclosures are mainly due to job losses. "I keep saying that to save housing, the job picture has to improve," adds Malony.
The Obama administration and banks like Bank of America [BAC 17.76 -0.28 (-1.55%) ] and Citigroup [C 4.09 -0.09 (-2.15%) ] have offered plans to help stop the flow of foreclosures but experts don't put much stock in them.
"Banks aren't going to do much with these programs," says Guardhill Financial's Rosenbaum. "It's too labor intensive and they don't want to spend money on it. Big banks want to get out of the mortgage business."
Read more
http://www.cnbc.com/id/36098637
Newly revised numbers are pointing to the decline.
The Federal Housing Finance Agency's (FHFA) adjusted figures show a housing price decline of 2 percent in December and 0.6 percent decline in January—reversing some regional price increases in 2009.
And more pricing dips are predicted.
"Case Schiller aside, we expect housing prices to fall another five percent in the coming months," says Paul Dales, US economist at Toronto based Capital Economics. "We've actually seen some declines in areas of the country. That's going to put a halt on any housing recovery."
Dales argues that the end of the $8,000 first time buyers tax credit on April 30th and the large amount of foreclosures in the pipeline—or on their way there—are reasons why prices will continue to fall.
"There's going to be less demand for housing when the tax credit ends," Dales says. "That leaves more home on the market for sale. And as to foreclosures, there will be more of them and that puts pressure on prices. We estimate about 2.5 million foreclosures through the rest of 2010
If tax breaks ending and more foreclosures weren't bad enough, banks and other lenders have added to the problem for prices.
"Financing has dried up," says Alan Rosenbaum, president and CEO of Guardhill Financial, a residential mortgage firm in New York City. "And with the government more or less getting out of the lending business as it stops buying mortgage backed securities (MBS), there's less incentive for lenders to make loans. We could see a drop in home prices for sure."
With the Fed ending its asset backed purchasing program on March 31st, fears of higher interest rates have caused many to fear a slowdown in housing sales and putting even more pressure on prices.
Rates have been rising, ever so slowly. But they are still at historic lows and with the ending of the tax credit, some see the move as an incentive to buy regardless of price.
"If rates go up and with the tax credit gone, I think it would spur on housing," says Diane Saatchi, senior vice president with Saunders and Associates Realty in New York. "People will see rates rise and that will stimulate them to buy now rather than wait for rates to go higher."
But interest rates aren't really considered a problem—or a cure for housing prices right now.
"It's inventory," says Walter Malony, spokesman for the National Association of Realtors. "Prices are dependent on the inventory absorbed. I think we'll see about the same amount of foreclosures this year as we had last year. That's not good."
What differences Malony does see in the foreclosures this year are the cause. Foreclosures in 2009 were mainly dominated by people who couldn't refinance because their home was 'underwater' or they owed more on it than the mortgage was worth.
This year, Malony says, foreclosures are mainly due to job losses. "I keep saying that to save housing, the job picture has to improve," adds Malony.
The Obama administration and banks like Bank of America [BAC 17.76 -0.28 (-1.55%) ] and Citigroup [C 4.09 -0.09 (-2.15%) ] have offered plans to help stop the flow of foreclosures but experts don't put much stock in them.
"Banks aren't going to do much with these programs," says Guardhill Financial's Rosenbaum. "It's too labor intensive and they don't want to spend money on it. Big banks want to get out of the mortgage business."
Read more
http://www.cnbc.com/id/36098637
Friday, March 19, 2010
Regulators shut 7 banks in 5 states; 37 in 2010
WASHINGTON (AP) -- Regulators on Friday shut down seven banks in five states, bringing to 37 the number of bank failures in the U.S. so far this year.
The closings follow the 140 that succumbed in 2009 to mounting loan defaults and the recession.
The Federal Deposit Insurance Corp. took over First Lowndes Bank, in Fort Deposit, Ala.; Appalachian Community Bank in Ellijay, Ga.; Bank of Hiawassee, in Hiawassee, Ga.; and Century Security Bank in Duluth, Ga.
The agency also closed down State Bank of Aurora, in Aurora, Minn.; Advanta Bank Corp., based in Draper, Utah; and American National Bank of Parma, Ohio.
The FDIC was unable to find a buyer for Advanta Bank, which had $1.6 billion in assets and $1.5 billion in deposits. The regulatory agency approved the payout of the bank's insured deposits and it said checks to depositors for their insured funds will be mailed on Monday.
The failure of Advanta Bank is expected to cost the federal deposit insurance fund $635.6 million.
For the other banks:
-- First Citizens Bank of Luverne, Ala., agreed to assume the deposits and assets of First Lowndes Bank. First Lowndes had $137.2 million in assets and $131.1 million in deposits. The FDIC expects that the cost to its insurance fund will be $38.3 million.
-- Community & Southern Bank of Carrollton, Ga., agreed to assume the deposits and assets of Appalachian Community Bank. The bank had $1 billion in assets and about $917.6 million in deposits. The cost to the insurance fund is expected to be $419.3 million.
-- Citizens South Bank of Gastonia, N.C., will assume the deposits and assets of Bank of Hiawassee. Bank of Hiawassee had about $377.8 million in assets and $339.6 million in deposits. The failure is expected to cost the insurance fund $137.7 million.
-- Bank of Upson, based in Thomaston, Ga., agreed to assume the assets and deposits of Century Security Bank, which had $96.5 million in assets and $94 million in deposits. It is expected to cost the insurance fund $29.9 million.
-- Northern State Bank in Ashland, Wisc., agreed to assume the deposits and assets of State Bank of Aurora. The bank had about $28.2 million in assets and $27.8 million in deposits. The FDIC expects the move will cost the insurance fund $4.2 million.
-- National Bank and Trust Co., based in Wilmington, Ohio, agreed to assume the assets and deposits of American National Bank, which had $70.3 million in assets and $66.8 million in deposits. The cost to the insurance fund is expected to total $17.1 million.
The pace of bank seizures this year is likely to accelerate in coming months, regulators have said, as losses mount on loans made for commercial property and development.
The bank failures -- the 140 last year was the highest annual tally since the height of the savings and loan crisis in 1992 -- have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.
Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks.
Banks, meanwhile, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5 percent, from 2008, the FDIC reported recently.
New Senate legislation was unveiled this week that is a blueprint for the biggest overhaul of financial regulations since the 1930s, giving the government unprecedented powers to split up large complex firms if they pose a threat to the nation's financial system. It would also create an independent consumer watchdog.
The bill crafted by Sen. Banking Committee Chairman Christopher Dodd, D-Conn., would force big, complex financial firms to pay insurance premiums in advance for a $50 billion fund to cover possible failures in their ranks. The fees levied up front would give the FDIC an immediate source of funds to resolve big failed institutions, so that taxpayer money wouldn't be used.
The costs of resolving smaller banks that fail would continue to be covered by the FDIC.
The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
AP Business Writer Tim Paradis in New York contributed to this report
http://finance.yahoo.com/news/Regulators-shut-7-banks-in-5-apf-2660571978.html?x=0&sec=topStories&pos=2&asset=&ccode=
The closings follow the 140 that succumbed in 2009 to mounting loan defaults and the recession.
The Federal Deposit Insurance Corp. took over First Lowndes Bank, in Fort Deposit, Ala.; Appalachian Community Bank in Ellijay, Ga.; Bank of Hiawassee, in Hiawassee, Ga.; and Century Security Bank in Duluth, Ga.
The agency also closed down State Bank of Aurora, in Aurora, Minn.; Advanta Bank Corp., based in Draper, Utah; and American National Bank of Parma, Ohio.
The FDIC was unable to find a buyer for Advanta Bank, which had $1.6 billion in assets and $1.5 billion in deposits. The regulatory agency approved the payout of the bank's insured deposits and it said checks to depositors for their insured funds will be mailed on Monday.
The failure of Advanta Bank is expected to cost the federal deposit insurance fund $635.6 million.
For the other banks:
-- First Citizens Bank of Luverne, Ala., agreed to assume the deposits and assets of First Lowndes Bank. First Lowndes had $137.2 million in assets and $131.1 million in deposits. The FDIC expects that the cost to its insurance fund will be $38.3 million.
-- Community & Southern Bank of Carrollton, Ga., agreed to assume the deposits and assets of Appalachian Community Bank. The bank had $1 billion in assets and about $917.6 million in deposits. The cost to the insurance fund is expected to be $419.3 million.
-- Citizens South Bank of Gastonia, N.C., will assume the deposits and assets of Bank of Hiawassee. Bank of Hiawassee had about $377.8 million in assets and $339.6 million in deposits. The failure is expected to cost the insurance fund $137.7 million.
-- Bank of Upson, based in Thomaston, Ga., agreed to assume the assets and deposits of Century Security Bank, which had $96.5 million in assets and $94 million in deposits. It is expected to cost the insurance fund $29.9 million.
-- Northern State Bank in Ashland, Wisc., agreed to assume the deposits and assets of State Bank of Aurora. The bank had about $28.2 million in assets and $27.8 million in deposits. The FDIC expects the move will cost the insurance fund $4.2 million.
-- National Bank and Trust Co., based in Wilmington, Ohio, agreed to assume the assets and deposits of American National Bank, which had $70.3 million in assets and $66.8 million in deposits. The cost to the insurance fund is expected to total $17.1 million.
The pace of bank seizures this year is likely to accelerate in coming months, regulators have said, as losses mount on loans made for commercial property and development.
The bank failures -- the 140 last year was the highest annual tally since the height of the savings and loan crisis in 1992 -- have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.
Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks.
Banks, meanwhile, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5 percent, from 2008, the FDIC reported recently.
New Senate legislation was unveiled this week that is a blueprint for the biggest overhaul of financial regulations since the 1930s, giving the government unprecedented powers to split up large complex firms if they pose a threat to the nation's financial system. It would also create an independent consumer watchdog.
The bill crafted by Sen. Banking Committee Chairman Christopher Dodd, D-Conn., would force big, complex financial firms to pay insurance premiums in advance for a $50 billion fund to cover possible failures in their ranks. The fees levied up front would give the FDIC an immediate source of funds to resolve big failed institutions, so that taxpayer money wouldn't be used.
The costs of resolving smaller banks that fail would continue to be covered by the FDIC.
The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
AP Business Writer Tim Paradis in New York contributed to this report
http://finance.yahoo.com/news/Regulators-shut-7-banks-in-5-apf-2660571978.html?x=0&sec=topStories&pos=2&asset=&ccode=
Credit scores can drop after getting loan help
WASHINGTON (AP) -- Some homeowners who sign up for the government's mortgage assistance program are getting a nasty surprise: Lower credit scores.
For borrowers who are making their payments on time but are on the verge of default, the Obama administration's loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.
Housing counselors say it's unfair, especially because the news often comes as a surprise to homeowners.
"Why should people's credit be hurt even worse when they're trying to do the right thing?" said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.
And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.
"It's a feeling of being duped," she said.
Still, the impact is far less severe than a foreclosure, where borrowers typically find their credit is in tatters for years. That's due to the cumulative impact of many months of missed payments and the foreclosure itself, which drags down a homeowner's' credit by 150 points or more on a scale of 300 to 850.
To enroll in the Obama administration's $75 billion "Making Home Affordable" program, borrowers enter a trial period in which they make at least three payments. But some are finding out that their credit score takes a dive during this trial phase. It happens once their mortgage company notifies the three big credit bureaus -- Experian, Equifax and TransUnion.
For delinquent borrowers, the damage was done when they fell behind on their loans.
But for homeowners who are having financial troubles but managing to pay their bills, a request for a loan modification is the first sign of difficulty. And that means a sharp drop in the borrower's credit score.
The credit rating industry defends the practice. People who sign up for loan modifications would not be asking for help unless they were having severe money troubles, said Norm Magnuson, spokesman for the Consumer Data Industry Association, a trade group in Washington that represents the credit bureaus.
"The consumer is going into the program because they're in a financial bind," he said. "Other lenders would need to be aware of that."
The Obama administration acknowledges that enrolling in the program can hurt credit scores. But Meg Reilly, a Treasury Department spokeswoman, said that foreclosure "brings far more serious financial consequences for borrowers and their families."
The credit score issue is an unexpected consequence of the program that has been plagued with problems and disappointing results since its launch last year. Only about 170,000 homeowners had completed the process as of February. Hundreds of thousands more are still in limbo.
Jim Owens, 46, of Harrisburg, Ore., was accepted on a trial basis for the Obama plan last year.
He and his family were in bad financial shape. They were barely able to pay the mortgage and utility bills.
The main reason: After being laid off and unemployed for six months, he took a job as maintenance director at a retirement home. But it paid only around $25,000 year, about $10,000 less than his former job in a city public works department.
He and his wife were also struggling with debt, after taking out a second mortgage four years ago to pay off debt and medical bills.
Late last year, he was searching for a used sport-utility vehicle. He got a 30-day approval for $2,000 car loan.
But that time ran out before he found a car, so he had to reapply for the loan. He was shocked to learn that, after signing up for the Obama plan, he was denied.
"I should have been told," that this might happen, Owens said. "Without credit, you can't do a whole lot in life."
A Citi spokesman, Mark Rodgers, said the company follows the Treasury Department's guidelines for reporting to credit bureaus. "We do not determine credit scores," said Rodgers, who declined to comment on Owens' case.
The impact is worse for borrowers who enroll in the Obama program and are then ruled ineligible.
If homeowners do manage to get accepted into the Obama program and have their loans permanently modified, lenders update the credit bureaus. The new status neither hurts nor helps the borrower's credit score. Over time, they can see their score increase.
"The best way to build credit back is to continue to pay bills as agreed, to use credit wisely," said Tom Quinn, vice president of scoring solutions at Fair Issac Corp., which designed the well-known FICO score system. "As time goes on, the score gradually increases."
http://finance.yahoo.com/news/Credit-scores-can-drop-after-apf-1601705094.html?x=0
For borrowers who are making their payments on time but are on the verge of default, the Obama administration's loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job.
Housing counselors say it's unfair, especially because the news often comes as a surprise to homeowners.
"Why should people's credit be hurt even worse when they're trying to do the right thing?" said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York.
And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich.
"It's a feeling of being duped," she said.
Still, the impact is far less severe than a foreclosure, where borrowers typically find their credit is in tatters for years. That's due to the cumulative impact of many months of missed payments and the foreclosure itself, which drags down a homeowner's' credit by 150 points or more on a scale of 300 to 850.
To enroll in the Obama administration's $75 billion "Making Home Affordable" program, borrowers enter a trial period in which they make at least three payments. But some are finding out that their credit score takes a dive during this trial phase. It happens once their mortgage company notifies the three big credit bureaus -- Experian, Equifax and TransUnion.
For delinquent borrowers, the damage was done when they fell behind on their loans.
But for homeowners who are having financial troubles but managing to pay their bills, a request for a loan modification is the first sign of difficulty. And that means a sharp drop in the borrower's credit score.
The credit rating industry defends the practice. People who sign up for loan modifications would not be asking for help unless they were having severe money troubles, said Norm Magnuson, spokesman for the Consumer Data Industry Association, a trade group in Washington that represents the credit bureaus.
"The consumer is going into the program because they're in a financial bind," he said. "Other lenders would need to be aware of that."
The Obama administration acknowledges that enrolling in the program can hurt credit scores. But Meg Reilly, a Treasury Department spokeswoman, said that foreclosure "brings far more serious financial consequences for borrowers and their families."
The credit score issue is an unexpected consequence of the program that has been plagued with problems and disappointing results since its launch last year. Only about 170,000 homeowners had completed the process as of February. Hundreds of thousands more are still in limbo.
Jim Owens, 46, of Harrisburg, Ore., was accepted on a trial basis for the Obama plan last year.
He and his family were in bad financial shape. They were barely able to pay the mortgage and utility bills.
The main reason: After being laid off and unemployed for six months, he took a job as maintenance director at a retirement home. But it paid only around $25,000 year, about $10,000 less than his former job in a city public works department.
He and his wife were also struggling with debt, after taking out a second mortgage four years ago to pay off debt and medical bills.
Late last year, he was searching for a used sport-utility vehicle. He got a 30-day approval for $2,000 car loan.
But that time ran out before he found a car, so he had to reapply for the loan. He was shocked to learn that, after signing up for the Obama plan, he was denied.
"I should have been told," that this might happen, Owens said. "Without credit, you can't do a whole lot in life."
A Citi spokesman, Mark Rodgers, said the company follows the Treasury Department's guidelines for reporting to credit bureaus. "We do not determine credit scores," said Rodgers, who declined to comment on Owens' case.
The impact is worse for borrowers who enroll in the Obama program and are then ruled ineligible.
If homeowners do manage to get accepted into the Obama program and have their loans permanently modified, lenders update the credit bureaus. The new status neither hurts nor helps the borrower's credit score. Over time, they can see their score increase.
"The best way to build credit back is to continue to pay bills as agreed, to use credit wisely," said Tom Quinn, vice president of scoring solutions at Fair Issac Corp., which designed the well-known FICO score system. "As time goes on, the score gradually increases."
http://finance.yahoo.com/news/Credit-scores-can-drop-after-apf-1601705094.html?x=0
Wednesday, March 3, 2010
Detroit homes sell for $1 amid mortgage and car industry crisis
Detroit homes sell for $1 amid mortgage and car industry crisis
One in five houses left empty as foreclosures mount and property prices drop by 80%
Tuesday, 02 March 2010
Some might say Jon Brumit overpaid when he stumped up $100 (£65) for a whole house. Drive through Detroit neighbourhoods once clogged with the cars that made the city the envy of America and there are homes to be had for a single dollar.
You find these houses among boarded-up, burnt-out and rotting buildings lining deserted streets, places where the population is shrinking so fast entire blocks are being demolished to make way for urban farms.
"I was living in Chicago and a friend told me that houses in Detroit could be had for $500," said Brumit, a financially strapped artist who thought he had little prospect of owning his own property. "I said if you hear of anything just a little cheaper let me know. Within a week he emails me a photo of a house for $100. I thought that's just crazy. Why not? It's a way to cut our expenses way down and kind of open up a lot of time for creative projects because we're not working to pay the rent."
Houses on sale for a few dollars are something of an urban legend in the US on the back of the mortgage crisis that drove millions of people from their homes. But in Detroit it is no myth.
One in five houses now stand empty in the city that launched the automobile age, forged America's middle-class and blessed the world with Motown.
Detroit has been in decline for decades; its falling population is now well below a million – half of its 1950 peak. But the recent mortgage crisis and the fall of the big car makers into bankruptcy has pushed the town into a realm unique among big cities in America.
A third of the population are unemployed. Property prices have fallen 80% or more in large parts of Detroit over the last three years. The average price of a home sold in the city last year has been put at $7,500 (£4,900).
The recent financial crash forced wholesale foreclosures among people unable to pay their mortgages or who walked away from houses that fell to a fraction of the value of the loans they had taken out on them.
Banks are selling off properties in the worst neighbourhoods, which are usually surrounded by empty and wrecked housing, for a few dollars each. But even better houses can be had at a fraction of their former value.
Technically, Brumit paid $95 for the land and $5 for the house on Lawley Street – which fitted what estate agents euphemistically call an opportunity.
Brumit said: "It had a big hole in the roof from the fire department putting out the last of two arson attempts. Both previous owners tried to set it on fire to get out of the mortgages. So there's a big hole about 24ft long and the plumbing had almost entirely been ripped out and most of the electrics too. It was basically a smoke damaged, structurally intact shell with a snowdrift in the attic."
Setting fire to houses to claim the insurance and kill off the mortgage is not uncommon in Detroit; a blackened, wooden corpse of a house sits at the bottom of Brumit's street. But it is more common for owners to just walk away from their homes and mortgages.
On the opposite side of Lawley Street Jim Feltner and his workers were clearing out a property seized by a bank. "I used to be a building contractor. I was buying up places and doing them up. Now I empty out foreclosures. I do one or two of these a day all over the city," he said. "I've been in Detroit 40 years and I've watched the peak up to $100,000 for houses that right now aren't worth more than $20,000 tops. I own a bunch of properties. I have 10 rentals and I can't get nothing for them, and they're beautiful homes."
Feltner's workers are dragging clothes, boots and furniture out of the bedrooms and living room, and dumping them in the front yard until a skip arrives. Kicked to one side is a box of 1970s Motown records. A teddy bear lies spreadeagled on the floor.
"You could get about five grand for this place," said Feltner. "Nice house once you clean it out. All the plumbing and electricals are in it. Roof don't leak."
Brumit said a man called Jesse lived there. "Jesse had mentioned that he was probably going to get out of there because he knew he could buy a place for so much less than he owed. That's a drag. You don't want to see people leaving," he said.
The house next door is abandoned. On the next street, one third of the properties are boarded up.
It's a story replicated across Detroit.
Joan Wilson, an estate agent in the north-west of the city, whose firm is offering a three-bedroom house on Albany street for $1, says that more than half of the houses she sells are foreclosures in the tens of thousands of dollars. "The vast majority of people that call to enquire, almost the first thing out of their mouth is that they want to buy a foreclosure. I have had telephone calls from people looking online that live, for example, in England or California, who've never set foot in the area. They're calling about one specific house they see online. I tell them they need to look at the neighbourhood. Is it the only house standing within a mile?"
But what is blight to some is proving an opportunity to remake parts of the city for others living there. The Old Redford part of Detroit has suffered its share of desolation. The police station, high school and community centre are closed. Yet the area is being revitalised, led by John George, a resident who began by boarding up an abandoned house used by drug dealers 21 years ago and who now heads the community group Blight Busters. They are pulling down housing that cannot be saved and creating community gardens with fresh vegetables free for anyone to pick.
"There's longstanding nuisance houses, been around seven, eight, nine years. We will go in without a permit and demolish them without permission," said George. "If you, as an owner, are going to leave something like that to fester in my neighbourhood, obviously you either don't care or aren't in a position to take responsibility for your property, so we're going to take care of it for you." Blight Busters has torn down more than 200 houses, including recently an entire block of abandoned housing in Old Redford. "We need to right-size this community, which means removing whole blocks, and building farms, larger gardens, putting in windmills. We want to downsize – right-size – Detroit," George said.
Houses that can be rescued are done up with grants from foundations.
"Detroit has some of the nicest housing stock in the country. Brick, marble, hardwood floors, leaded glass. These houses were built for kings," George added. "We gave a $90,000 house to a lady who was living in a car. She had four children. It didn't cost her a dime. We had over a thousand people apply for it. It's probably worth $35,000 now."
Old Redford is seeing piecemeal renewal. One abandoned block of shops has been converted to an arts centre and music venue with cafes. One of the few remaining cinemas in Detroit – and one that's among the last in the US with an original pipe organ – has been revived and is showing Breakfast at Tiffany's.
Brumit calculates that he has spent $1,500 to buy and do up his house, principally by scavenging demolition sites. He will move in with his wife and four-month-old child once it is complete, probably in the summer.
He said: "The Americans we know got ripped off by the American dream. But [the renovation] is the most like moving out of the country that we can actually do. We're the minority in terms of ethnicity and this is a rich environment … there's 30% open space in the city and that doesn't include the buildings that should be torn down. You're in a city riding your bike around and you hear birds and stuff. It's incredible."
http://www.u.tv/News/Detroit-homes-sell-for-$1-amid-mortgage-and-car-industry-crisis/eca5863e-658b-4cdf-a9cc-127b43811575
One in five houses left empty as foreclosures mount and property prices drop by 80%
Tuesday, 02 March 2010
Some might say Jon Brumit overpaid when he stumped up $100 (£65) for a whole house. Drive through Detroit neighbourhoods once clogged with the cars that made the city the envy of America and there are homes to be had for a single dollar.
You find these houses among boarded-up, burnt-out and rotting buildings lining deserted streets, places where the population is shrinking so fast entire blocks are being demolished to make way for urban farms.
"I was living in Chicago and a friend told me that houses in Detroit could be had for $500," said Brumit, a financially strapped artist who thought he had little prospect of owning his own property. "I said if you hear of anything just a little cheaper let me know. Within a week he emails me a photo of a house for $100. I thought that's just crazy. Why not? It's a way to cut our expenses way down and kind of open up a lot of time for creative projects because we're not working to pay the rent."
Houses on sale for a few dollars are something of an urban legend in the US on the back of the mortgage crisis that drove millions of people from their homes. But in Detroit it is no myth.
One in five houses now stand empty in the city that launched the automobile age, forged America's middle-class and blessed the world with Motown.
Detroit has been in decline for decades; its falling population is now well below a million – half of its 1950 peak. But the recent mortgage crisis and the fall of the big car makers into bankruptcy has pushed the town into a realm unique among big cities in America.
A third of the population are unemployed. Property prices have fallen 80% or more in large parts of Detroit over the last three years. The average price of a home sold in the city last year has been put at $7,500 (£4,900).
The recent financial crash forced wholesale foreclosures among people unable to pay their mortgages or who walked away from houses that fell to a fraction of the value of the loans they had taken out on them.
Banks are selling off properties in the worst neighbourhoods, which are usually surrounded by empty and wrecked housing, for a few dollars each. But even better houses can be had at a fraction of their former value.
Technically, Brumit paid $95 for the land and $5 for the house on Lawley Street – which fitted what estate agents euphemistically call an opportunity.
Brumit said: "It had a big hole in the roof from the fire department putting out the last of two arson attempts. Both previous owners tried to set it on fire to get out of the mortgages. So there's a big hole about 24ft long and the plumbing had almost entirely been ripped out and most of the electrics too. It was basically a smoke damaged, structurally intact shell with a snowdrift in the attic."
Setting fire to houses to claim the insurance and kill off the mortgage is not uncommon in Detroit; a blackened, wooden corpse of a house sits at the bottom of Brumit's street. But it is more common for owners to just walk away from their homes and mortgages.
On the opposite side of Lawley Street Jim Feltner and his workers were clearing out a property seized by a bank. "I used to be a building contractor. I was buying up places and doing them up. Now I empty out foreclosures. I do one or two of these a day all over the city," he said. "I've been in Detroit 40 years and I've watched the peak up to $100,000 for houses that right now aren't worth more than $20,000 tops. I own a bunch of properties. I have 10 rentals and I can't get nothing for them, and they're beautiful homes."
Feltner's workers are dragging clothes, boots and furniture out of the bedrooms and living room, and dumping them in the front yard until a skip arrives. Kicked to one side is a box of 1970s Motown records. A teddy bear lies spreadeagled on the floor.
"You could get about five grand for this place," said Feltner. "Nice house once you clean it out. All the plumbing and electricals are in it. Roof don't leak."
Brumit said a man called Jesse lived there. "Jesse had mentioned that he was probably going to get out of there because he knew he could buy a place for so much less than he owed. That's a drag. You don't want to see people leaving," he said.
The house next door is abandoned. On the next street, one third of the properties are boarded up.
It's a story replicated across Detroit.
Joan Wilson, an estate agent in the north-west of the city, whose firm is offering a three-bedroom house on Albany street for $1, says that more than half of the houses she sells are foreclosures in the tens of thousands of dollars. "The vast majority of people that call to enquire, almost the first thing out of their mouth is that they want to buy a foreclosure. I have had telephone calls from people looking online that live, for example, in England or California, who've never set foot in the area. They're calling about one specific house they see online. I tell them they need to look at the neighbourhood. Is it the only house standing within a mile?"
But what is blight to some is proving an opportunity to remake parts of the city for others living there. The Old Redford part of Detroit has suffered its share of desolation. The police station, high school and community centre are closed. Yet the area is being revitalised, led by John George, a resident who began by boarding up an abandoned house used by drug dealers 21 years ago and who now heads the community group Blight Busters. They are pulling down housing that cannot be saved and creating community gardens with fresh vegetables free for anyone to pick.
"There's longstanding nuisance houses, been around seven, eight, nine years. We will go in without a permit and demolish them without permission," said George. "If you, as an owner, are going to leave something like that to fester in my neighbourhood, obviously you either don't care or aren't in a position to take responsibility for your property, so we're going to take care of it for you." Blight Busters has torn down more than 200 houses, including recently an entire block of abandoned housing in Old Redford. "We need to right-size this community, which means removing whole blocks, and building farms, larger gardens, putting in windmills. We want to downsize – right-size – Detroit," George said.
Houses that can be rescued are done up with grants from foundations.
"Detroit has some of the nicest housing stock in the country. Brick, marble, hardwood floors, leaded glass. These houses were built for kings," George added. "We gave a $90,000 house to a lady who was living in a car. She had four children. It didn't cost her a dime. We had over a thousand people apply for it. It's probably worth $35,000 now."
Old Redford is seeing piecemeal renewal. One abandoned block of shops has been converted to an arts centre and music venue with cafes. One of the few remaining cinemas in Detroit – and one that's among the last in the US with an original pipe organ – has been revived and is showing Breakfast at Tiffany's.
Brumit calculates that he has spent $1,500 to buy and do up his house, principally by scavenging demolition sites. He will move in with his wife and four-month-old child once it is complete, probably in the summer.
He said: "The Americans we know got ripped off by the American dream. But [the renovation] is the most like moving out of the country that we can actually do. We're the minority in terms of ethnicity and this is a rich environment … there's 30% open space in the city and that doesn't include the buildings that should be torn down. You're in a city riding your bike around and you hear birds and stuff. It's incredible."
http://www.u.tv/News/Detroit-homes-sell-for-$1-amid-mortgage-and-car-industry-crisis/eca5863e-658b-4cdf-a9cc-127b43811575
Subscribe to:
Posts (Atom)
Posts
