Blown Mortgage » FHA

Why the increase in housing starts means trouble

Constantine von Hoffman — Tue, 21 Jul 2009 16:08:06 +0000

Last week the Commerce Department announced an unexpected 3.6% increase in housing starts in June. The 582,000 units started last month is a solid gain from May’s 562,000 and much more than the 532,000 analysts had been expecting. The increases were concentrated in single-family homes which were up 14% — the biggest rise since December 2004. Housing permits were also up; the 8.75% increase was the largest gain in a year.

This would seem to be good news. A sign that more people are buying or commissioning homes and that developers expect this trend to continue. However, developers have guessed very wrong in the very recent past. (See Florida, Phoenix, Las Vegas and the Case/Schiller index for examples.)

Many economic indicators suggest developers haven’t suddenly become a lot better in predicting the economy:

The nation currently has more housing stock than it needs. That is why the price of existing houses is going down. More stock continues to be placed on the market at lower prices each month by investors desperate to get anything back on their investments.
While the increase in the number of people claiming unemployment benefits nationally has slowed slightly (up only .1% in June) it is difficult to see that as a reason to build more homes.
Mortgage delinquencies have continued to increase. The most recent FHA numbers showed approximately 71,700 more loans became 60 days or more delinquent in April. Loans 60-plus-days delinquent increased approximately 7% that month to 1.2 million.
Commercial real estate prices dropped 7.6% in May. So it hardly seems that businesses are about to expand or staff back up.
Companies that sell to the construction trade are not optimistic about the coming year. Caterpillar announced dealer inventories had been cut $1.5 billion in the first half of 2009 and the company expects that to continue. The reasons: “Factors depressing construction included high inventories of unsold homes, lower selling prices and continued stringent standards for mortgage qualification.”

So why the increase? As with so much economic activity these days the cause seems to be wishful thinking. Developers think first time home buyers are going to flood the market before the Dec. 1 end to a federal program offering first-timers an $8,000 tax credit.

While there are undoubtedly a number of wise families who have kept their financial powder dry and will be able to take advantage of the federal aid, why would they buy a house that has either just been completed or is about to be? They are understandably going to want to get the most for their money. Why would they choose brand new construction over very recently brand new – for less money?

Housing starts are frequently referred to as a leading economic indicator. Perhaps we should change that to a leading economic prayer.

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Unintended Conquences: Housing Discrimination Spikes as Crisis Continues

Jay Hammond — Tue, 05 May 2009 22:00:38 +0000

“Fair housing advocates have been warning the federal government for a decade, to no avail, about the damage that abusive lending would bring,” said Shanna L. Smith, President and CEO of the National Fair Housing Alliance (NFHA). “For too long, HUD and the Justice Department have stood by while people and neighborhoods of color have been targeted for predatory loans and stripped of equity. As we look forward to working with the new Administration to bring in an era of change, the change must begin with HUD’s and Justice’s fair housing enforcement programs..”

On Friday, May 1, the NFHA released the 2009 Trends Report indicating that fair housing complaints handled by private groups increased 17 percent to 20,173 in 2008. This represents 66 percent of all national complaints. The 93 fair housing organizations processed almost twice as many cases last year as U.S. Department of Housing and Urban Development or HUD (2,123 cases), the U.S. Department of Justice (33 cases), and 107 state and local government agencies (8,429 cases) combined.

Private fair housing centers reported seeing more cases of discrimination in mortgage lending than ever before, as well. HUD handled only 60 fair lending complaints compared to the 1,500 reported by private fair housing organizations. The DOJ (Department of Justice) brought just one fair mortgage lending case.

Results of the 2009 Annual Survey of Consumer Financial Services Law, published in the February 2009 edition of Business Lawyer, also indicates that several new housing finance lawsuits and criminal cases have bee filed recently. These include a variety of class action suits alleging racial discrimination under both the Equal Credit Opportunity and Fair Housing Acts. In addition, two of these cases have utilized information collected under Home Mortgage Disclosure Act (HMDA) to support claims of discrimination in mortgage lending, indicating HMDA could be a useful tool for fair housing advocates. According to the report published in Business Lawyer “It is notable in light of current concerns about predatory lending practices that some of the new cases combine allegations of mortgage fraud with racial discrimination claims under several different theories of liability, a feature that was absent in the previous auto finance class action litigation and the DOJ mortgage practices cases.”

The NFHA findings reveal that housing discrimination has spiked during the mortgage crisis for two reasons:

the worsening foreclosure crisis
Internet advertising that violates fair housing laws

The mortgage crisis has put HUD and government agencies like Fannie Mae and Freddie Mac in the position of having to oversee a growing number of programs and organizations at a time when desperation is leading many home and property owners to do everything they can to hang onto property and maintain occupancy levels.

“HUD is in the awkward position of policing its own programs and partners for fair housing violations,” said Henry Cisneros, former secretary of HUD, calling for the creation of a new and independent fair housing enforcement agency published in the December 10, 2008 issue of American Banker. “It depends on various entities to carry out its policies ad at the same time is also responsible when acting as a fair housing enforcers to investigate the very same entities for their housing discrimination…There’s a built-in conflict of interest.”

The Internet has long posed a problem for fair housing, in part because of the Communications Decency Act (CDA) of 1996 shields Internet service providers (ISPs) and web sites from the laws that prohibit discriminatory advertising for housing in newspapers and magazines. Just a quick search this week by Elizabeth Razzi of the Washington Post yielded multiple examples of discriminatory advertising. The situation persists despite the recognition by at least one court, the Ninth Circuit, that “there is no reason inherent in the technological features of cyberspace why First Amendment and defamation law should apply different in cyberspace that in the brink and mortar world.” That opinion was quoted in the article Rethinking the Communications Decency Act: eliminating statutory protections of discriminatory housing advertisements on the Internet” published in the Federal Communications Law Journal back in December 2007.

“Ads that we have seen like ‘Indoor pets ok, no kids’ are a clear violation of federal law and are simply unacceptable,” said Smith, explaining that the majority of ads discriminate against families with children. “As more and more people turn to the Internet for information, we anticipate hundreds more complaints from around the country.”

It is difficult to say whether the upsurge in discrimination in housing and housing finance is the result of intentional efforts to discriminate, the inevitable outcome predatory lending practices and mortgage fraud or simply the effect of uninformed advertisers, real estate agents, mortgage brokers and consumers. In an effort to combat unintentional discrimination the National Association of Realtors (NAR) launched the FHA Toolkit to educate consumer about FHA-insured loans, as well as offering realtors a free strategic planning workshop, Leading with Diversity, and the At Home with Diversity certification. Fair housing workshops have also been offered by a variety of sponsors in increasing numbers across the country. They were especially prevalent during April which was National Fair Housing Month in the U.S.

The Fair Housing Act prohibits housing discrimination on the basis of race, color, national origin, religion, sex, family status and disability. It also covers all housing transactions and services including advertising, rentals, sales, lending and insurance as well as harassment.

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Push-Pull at Fannie Mae and Freddie Mac

phillenbrand — Thu, 02 Apr 2009 13:01:38 +0000

Ever since Fannie and Freddie were taken over by Uncle Sam, both consumers and politicians alike have been wondering what exactly the future holds for the two firms. Certainly from a pragmatic perspective they’ll be eventually released back into the wild once they’re “stable” enough for the task, but what will their functionality be? Will Freddie and Fannie expand their lending duties even as they struggle to eat billions of dollars in loan losses and streamline their operations?

The answer right now seems to be maybe. Fannie Mae recently came out and said that it shrank its gross mortgage portfolio in February. The company’s holdings dropped 1.3 percent annually to about $784.7 billion. Late payments on loans that the firm guarantees continued to go up in January, where the “seriously delinquent” rate on conventional single-family homes. The company has been pretty tight lipped about the portfolio, and their spokesman Terence O’Hara declined to comment on it. Still, the government has been using both mortgage firms to buy up mortgage assets and help to stabilize a housing market here in the U.S. that can’t seem to find a floor.

Both Fannie and Freddie, despite rising delinquencies, are being considered for new roles in the U.S. housing market. A spokeswoman for the Federal Housing Finance Agency, for example, recently stated that it will consider letting the two firms help to finance small mortgage banks. The thinking is that currently the surviving giant banks like Wells Fargo and Bank of America are increasing their dominance of the mortgage market. If smaller mortgage banks are going to be able to compete they’ll need more credit. As you might expect, credit isn’t really readily available right now. So, the FHFA has asked the Mortgage Bankers Association to come up with a new plan to help Fannie and Freddie provide said mortgage banks with credit. Even more interesting is that the regulator may bypass getting congressional approval, with the argument that it isn’t necessary to do so. As we’ve heard so often, time is of the essence…again: “We just don’t have the luxury of time for going through the legislative meat grinder.” said John Courson of the Mortgage Bankers Association.

Ultimately the question is whether we really want to give Freddie and Fannie an even larger role in the U.S. housing market even as they currently stand as the poster children for everything that went wrong. Will the government be able to cut out the bad and put in the good for these companies? Or are we just setting the stage for additional problems down the line?

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Goal: Saving 10,000 homes in 2009

Jay Hammond — Tue, 17 Mar 2009 14:56:59 +0000

Leading residential mortgage banker Lend America has set a company-wide goal to save a minimum of 10,000 homes for owners facing foreclosure during 2009.

“Bearing in mind the nightmare of foreclosure confronting homeowners across the country, our ‘homes saved’ goal is not altruistic; its an absolute necessity,” said Nicholas Bratsafolis, Senior Managing Director – Structured Refinance of Latin America and a veteran of the mortgage industry. “Delivering on our goal is a win-win for everyone. It keeps homeowners in their homes at mortgage repayments they can afford, turns non-performing loans back into revenue streams for institutional holders, and avoids further stresses on the economy.”

As a first step towards achieving their goal, Lend America, one of New York’s largest privately owned direct lenders, has been using informative television advertising to establish their position as a leader in the national initiative to save homes. In fact, Lend America, one of very few mortgage banks approved by the FHA as well as a GNMA Issuer/Servicer to offer the Hope for Homeowners program. They have been closing these loans since the beginning of the year and has the highest closing volume to date of Hope for Homeowners loans in the nation. Lend America primarily uses all FHA and Fannie Mae loan products, including the government initiated Hope for Homeowners program.

Lend America is also working with some of the country’s largest institutional holders of mortgage portfolios, including hedge funds, banks and loan servicers to identify individual mortgages within the bundled loans that are in or close to foreclosure. Prospective loans are identified using Lend America’s proprietary residential loan analytics technology prior to initiating contact with the homeowner and beginning the refinancing process.

“It’s important to understand that Hope for Homeowners’ key differentiator is that it’s not a loan modification program. The loan is available to absolutely everyone, even if borrowers are behind on their mortgage payments,” said Bratsafolis. “Hope for Homeowners is a complete refinancing in which we work with the mortgage holders and borrowers to insure that a new loan when closed is affordable to the borrower and returns to the mortgage holder the maximum principal recapture. At the end of the process, the homeowner has a mortgage balance and monthly payment they can afford, and participating institutions have revenue streams where none previous existed.”

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Stop the FHA Subprime End Run

Morgan — Sat, 20 Dec 2008 00:09:06 +0000

Our Friends over at the Mortgage Lender Implode-O-Meter have issed a statement regarding the fishy-smelling goings-on regarding the uncertain future of FHA seller-funded downpayment assistance. Here’s a bit of their press release for a synopsis on the problem:

The SFDPA practice was completely banned by the July 2008 housing bill, effective October 1st. However, new legislation (HR 6694) is pending to re-enable this form of lending. Bill sponsors claim the loosened rules will help first-time home buyers and the housing market. SFDPA companies, builders, and Realtors have launched a major PR and lobbying campaign to generate support for HR 6694.

The ML-Implode statement warns of the risks of creating large amounts of new loans with a negative equity position, which are much more likely to default. It also draws alarming parallels between SFDPA loans (particularly as provided in HR 6694) and zero-down subprime lending.

ML-Implode warns that such lending is likely to cause even more damage to the economy than in the recent past, given the current environment of generally-falling home prices. While SFDPA loans may appear to help slow the decline, the site argues they will likely lead to a larger crash in the near future, as the underwater borrowers will default and foreclose at high rates.

The program, which was banned earlier this year, is getting funding and lobbying from the usual suspects, Realtors, home builders, etc. And why? Because they stand to gain financially by increasing the pool of eligible home buyers. This is recklessly myopic.

The problems with the housing market stem from the endless stream of unqualified buyers and easy credit which artificially inflated demand driving up prices and building massive systemic risk. The ongoing collapse is a testament to the dangers of this type of loose lending.

Now, with taxpayers shelling out $700 billion to “save” our economy special interests are trying to make an end run and loosen up FHA. Once again, a government (read: taxpayer) institution is being put at risk by greedy and short-sighted people who feel that under some clouded judgement that 100% subprime financing is fine as long as it is subsidized by the taxpayers and the the other households paying in to the FHA mortgage insurance fund.

I hope you’ll join me and ML-Implode in saying NO! to FHA subprime and the seller-funded downpayment assistance programs. The programs are a cancer to our housing market and promote:

Subsidizing poor credit risks with taxpayer money
Fraudulent real estate transactions including inflated housing values
Foreclosure
Greed and malfeasance by lenders and participants in the program

It’s time to recognize the underlying causes of the current calamity. A calamity which threatens to erase a decade or more of economic prosperity due to the greed of the leaders in Wall Street, Capitol Hill and the banks. FHA should not become the lender of last resort to subprime borrowers everywhere. Protect our tax dollars, protect our financial institutions from being hijacked by these obtuse special interest leaders and say no to FHA subprime.