FOXTONS PULLS OUT
Saturday, February 24, 2007
Foxtons has moved out of Connecticut and the mid-Hudson. The discount real estate company laid off between 20 and 30 agents Saturday and has stopped taking new listings in Orange, Ulster, Sullivan, Rockland and Putnam counties. The company plans to concentrate its efforts on its "most favorable market areas," including New York City, southern Westchester County and most of New Jersey, according to a statement yesterday afternoon.
Foxtons will maintain its current listings in the mid-Hudson, according to the statement. It wasn't immediately clear who would service those listings. "I feel bad for all those people who have their homes listed and don't know where their agent is," said one of the laid-off agents, who asked not to be named.
Roughly two dozen agents were summoned to an office meeting Saturday morning where they were asked to turn in their cell phones, laptops and company cars, according to the unnamed agent and other sources aware of the meeting. "They had arranged to have a cab service there, and that's what took everybody home," the agent said. Foxtons built what local following it had, on its cut-rate commissions and its promise to leave more money in sellers' pockets.
But the company's level of service left something to be desired, customers and agents with other firms said. In the end, the company's low commissions might have been its undoing, because there wasn't enough money to attract buyers' agents. "The bottom line, if there are five bi-levels on the market and they're all priced at the same price, the majority of the working real estate agents are going to look for the best incentive," said Chris Scibelli, broker/owner of Keller Williams Realty's Orange County operations.
Scibelli acknowledged that Realtors aren't supposed to shop for commissions, then added, "what happens in practice is a lot different than what happens in theory." As if to prove Scibelli's point, Foxtons is recommending that sellers increase their commissions to 4 percent from 3 percent, and offer the additional money to buyers' agents.
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Convenants and Restrictions
Archived Friday, July 06, 2007
May Restrict Options For Your Castle Sunday, April 08, 2007 Just because your home is your castle doesn't mean you can build a moat! Before purchasing raw land, a home, or a condo check what you can and cannot do with it. Virtually every piece of real property has some type of restriction or covenant that may limit development or usage. Many of these are restrictions imposed by local government. For example, most communities have zoning or building regulations for setbacks, i.e. the distance that must be maintained between any structure and the property lines. If this could spell the end of your dream to add a sunroom off the side or an attached garage, better you know this up front. Communities often restrict home businesses. It is doubtful you would ever get in trouble running a website out of the family room, but a home beauty shop, real estate office, or any business that would generate unusual traffic are verboten in many areas that are residentially zoned. While it isn't common, some communities limit lot coverage or floor area ratio (FAR). This has generally been a restriction on commercial building in order to alleviate congestion and improve street level light and ventilation. However a type of FAR has been invoked recently in an attempt to control mansionization in residential areas. You might want to know this if you envision a big addition or plan to tear down an old structure and rebuilt. These types of restrictions are generally found in local government publications such as the building code or zoning ordinance and a good real estate attorney should be very knowledgeable about them. However, the attorney you hire to review your real estate contracts and certify the title on your new property may not suspect that you plan to add a wing to or open a doggy day care in your home and thus should not be expected to warn you that you can't. Ask specifically if your plans can be accomplished without extensive and expensive legal expense or even at all. Any towns with historic districts the district commissions can be both powerful and vicious. Their mandates may allow them to control all exterior changes to the structure including new windows, siding, even paint color. Sometimes these restrictions apply beyond the actual district to homes that are visible from it. Another type of covenant may be found in your deed. Developers often put in protective covenants when building a subdivision or condominium project. People buying condos are generally aware that there will be restrictions on ownership and these are generally contained in the master deed, individual unit deeds, or both. But subsequent actions by the homeowners association (HOA) might have added others so it is important to check HOA minutes. Condo restrictions commonly include what can be done to or on the exterior of individual units but they may also impact on usage. For example balconies are a frequent target and grills, birdfeeders, or any kind of storage such as for bicycles or strollers may be forbidden. Putting in a greenhouse window or skylight, parking a boat or an RV, or buying a dog may run an owner afoul of the HOA and the latter example can be devastating if the condo owning pet owner is caught off guard. Buyers may not be aware, however, that individual subdivisions often have covenants put in place by the developer. Architectural covenants are common, perhaps requiring minimum square footage for new building or limiting new homes or renovations to a certain style or requiring that all exterior changes be reviewed by an architectural committee. Subdivision covenants can require a timeline for trash barrels to be brought in from the curb or for garage doors can be open, or the kind of fences that can be erected. This is also a place where usage can be regulated, from allowable businesses to the number and type of animals that can be kept, to what can be parked in the driveway and for how long. Developers move on, and in the case of single family developments, the HOA may do the same, no longer enforcing covenants or the additional rules and regulations they may have adopted when the subdivision was young. Under certain conditions a totally dormant HOA can arise from the dead to the dismay and sometimes financial detriment of persons who bought into the area with no knowledge there had been such an entity. True story. In 2004 a woman bought a small vacant lot, one of the last remaining, in a 1960's development of 400 homes. No one seemed to notice the cinderblock foundation being built on the land but everyone noticed when two flatbeds moved down the street, each carrying half of a manufactured home. What ensued must have been worthy of U-Tube. It was the middle of the day but there were enough neighbors around to physically block the flatbeds, the police were called and settled everyone down, and the HOA, last heard from in the 1980s, was reestablished in less than a week. It is now an organized and highly efficient group which has made enormous improvements to the appearance and cohesiveness of the neighborhood. But one new homeowner who had bought property weeks before this happened was told he could not build a home for his sister on a second, non-conforming lot included in his purchase. He subsequently sold at a loss and moved on. The manufactured home violated several town restrictions as well as the subdivision covenants, but once in place it is doubtful anything would have been done. These covenants and restrictions are largely a good thing. They were enacted in the first place to keep communities and neighborhoods attractive and livable (what could be worse than having your new neighbor hauling an engine at 7 a.m. in his make-shift driveway auto repair business). But before you buy, you need to make sure that what you want to do with your property can be done. If you have a plan for immediate changes, even if it seems straightforward, make it a condition of your offer so that you and your attorney have time to check out its permissibility on the site. Make sure your attorney reviews not only town ordinances (a local real estate attorney should know them by heart) but also your deed, any master deed that may apply to your condo or subdivision. As to the HOA that arises like Lazarus, there may be nothing you can do but accept it for its virtues and take the hit.
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How To Get The Best Price In A Slowing Market
Archived Friday, July 06, 2007
Reports across the country suggest that real estate in most areas of the country is no longer appreciating at the rates seen in the past few years. In fact, the National Association of Realtors reports that nationwide August existing home prices were actually down 1.7 percent from a year earlier. None of this is terrible or awful unless you bought last year and must now sell. Those who have owned for a few years are well ahead in most communities. Consider that in 2000, according to the National Association of Realtors, the typical existing home sold for $111,800 versus $225,000 in August. So, what's the best approach to selling in today's market? Consider these five core points. 1. Buyers are scarce relative to home supply. While sellers have called the shots for the past few years, that's no longer the case in most markets. No problem -- adjust. Make your home the most attractive, best priced property in the neighborhood. While pre-market prep could have been ignored in the recent past, today you have to paint, clean-up and repair before offering a home for sale. An MLS photo that shows a home with a lousy roof is evidence of a property that likely will not sell quickly or at full price. 2. Remember that cash is still an issue. While home prices may have slipped a touch, real estate continues to be hugely expensive for most buyers, especially first-timers who lack equity from a prior sale. Rather than reducing prices, offer to pay for buyer closing costs, thus lowering out-of-pocket purchaser cash requirements. 3. Choose the right broker. When comparing local brokers, look for such markers as recent success in your neighborhood, a high level of local activity and professional education. In a slow market picking the right listing broker becomes especially important. Why? Because a broker with a strong local history is known and respected: If he or she offers a property at a given price that value is likely to be accepted as at least within the realm of reason. As an example, last year we sold a property that was unlike virtually all nearby properties in terms of size (smaller house), lot (much bigger) and age (older than most). In other words, not an easy house to sell because there were no practical comparables. The broker -- who had sold properties worth some $200 million in neighborhood real estate over the years -- suggested a sale price which turned out to be exactly on target. Alternatively, let's say we used a less experienced broker, someone who was not an authority figure. The property might have sold for less because another broker might have been less credible. In effect, one of the values of using an experienced listing broker is to readily establish believable prices and terms, an important matter in a buyer's market. 4. Numbers Count. Real estate sales are a by-product of exposure. If the odds of selling a home are 100 to one, if it takes 100 inquiries and visits to sell a property, then the quicker you get those inquires the better. No less important, if you can get more than 100 inquiries the odds of getting a top price and terms improve. This means that when considering a listing broker you need to review the marketing plan with care. What, exactly is the broker going to do in terms of advertising, open houses, MLS placements, online marketing, broker relations, etc? Remember that the marketing plan which works for one property may not work for another. Plans need to be specific to local markets, to particular homes and for current market conditions. The thinking that seemed so good last year may be inappropriate this year. 5. It's a business deal. With some frequency I see homes priced for reasons that won't work: • The property must sell for this price because I need $400,000 for the next home. The truth: Prices are established by the marketplace, not seller needs. • Similar homes in a different neighborhood command a particular price, therefore my house should sell at the same price. The truth: What happens elsewhere is irrelevant. What happens in the immediate neighborhood is what counts. • The Flombacks got $800,00 for their home so I should be getting at least that much. The truth: This is not about the Flombacks and should not be about seller ego. The real issue is about bricks and mortar. The Flombacks may have an objectively better house. • The buyer's offer requires that we leave the washer and dryer -- it's an insult. The truth: Homes reflect our psychological identity, who we are, our social status, etc. But the marketplace reflects supply and demand. Leaving a washer and dryer may be a lot cheaper than not getting a sale for months on end. • This home would have sold for $500,000 last August and we will not accept a lower price. The truth: It's not last August. It's now and the marketplace reflects current supply and demand. Sellers can be successful in any market so go forth and market -- but do it right.
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Knowledge is power
Archived Friday, July 06, 2007
When it comes to choosing a home warranty provider Here are some important things to consider when comparing home warranty providers: Coverage: A good comprehensive home warranty contract will include the most important items such as: heating, cooling, plumbing, water heater, electrical and certain major built-in kitchen appliances. If you are presented with an unusually low price, odds are the contract is not including one or more of these items. In addition to the above items, HWA™ includes in certain base programs other items that have high frequency repair needs that might not be covered under other companies’ warranties, such as: Refrigerators, Washer and Dryers, Garage Door Systems, Whirlpool Bath Tubs, Exhaust & Ceiling Fans, Burglar and Fire Alarm Systems, Central Vacuums, and much more. Be wary of warranty company web sites trying to compare their coverage to other warranty providers’ coverage. Often, they only note the items that they do cover, while leaving out the items that others cover but that they themselves do not cover. Most often, the information about the competitor is incorrect. It is best to take the time and make your own comparisons. All good home warranty providers will have a simple easy to read web page illustrating all of the major items of coverage, as well as a sample contract so that you and your clients can read the fine print! Service & Service Technician Network: You want a warranty company whose core business is underwriting, selling and servicing home warranties. Be wary of warranty providers that don’t administer their own service requests. Remember, this is a “service contract”. Would your clients really want a contract from a Company that sells them a service contract, but does not administer and approve its customers’ service requests? We’ve all been saddled with call centers where the people answering your clients’ calls have no vested interest in retaining them as a customer. A home warranty company needs to have developed a reliable service technician network. The service network should be supported by best practices contracts, verification of certificates of insurance, assurance of the necessary and applicable licenses, etc. If a warranty company uses a 3rd party administrator, then it is likely utilizing the 3rd party administrator’s service technician network. How can you find out if a home warranty company administers its own service request? First, call and ask. If you suspect they are not being truthful, it may note in its contract if it out sources its service to a 3rd Party Administrator. HWA administers its own contracts. HWA also has developed a reliable service technician network, requiring the service companies to commit to a “best practices contract”, provide proof of insurance, and proper licensing where applicable. HWA tries to provide technicians local to your area. These technicians service you with the intent of earning your future business and keeping your clients as a customer for as long as they live in the area. HWA always provides your clients with the name, address, and phone number of the chosen service technician. We also provide them with an email description of the service request so that they and the technician receive the same consistent information. HWA also sends each customer an email survey for each service request. We utilize that information to make sure our customer service personnel are treating them right, and that the service technicians are performing to their satisfaction. Cost: Please remember - You get what you pay for. If a home warranty price seems extremely low, there’s usually a reason behind the low ball pricing. Check the coverage, check the service fee, check the limitations, and ask about how service requests will be handled. A good home warranty provider will allow payment by check, credit card, and/or automatic checking account debit. A good warranty provider will also allow the option of paying the balance all at once or in equal installments over 3 months. Multiple pay period fees should be accurately and prominently represented. Replacements: Like-replacements of appliances should be provided directly from major brand-name manufacturers such as GE, Carrier, etc. HWA™ purchases replacement equipment directly from such major manufacturers. Rust & Corrosion Limitations: Rust & Corrosion limitations should be no more than the first 30 days of the contract period (this often helps to minimize pre-existing/proper working order disputes). Be wary of a company that excludes rust & corrosion during the entire contract period. Less reliable warranty companies utilize this to reject claims during the entire warranty period.

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American Home Recinds Earnings Guidance In Wake Of Loan Losses
Friday, July 06, 2007
Another big mortgage corporation has sent out early warning signals about its financial health in the wake of the virtual collapse of the subprime mortgage market. American Home Mortgage Investment Corporation announced late last week that it will take substantial charges for credit-related expenses in the second quarter and it is likely it will experience a second quarter loss. American Home also withdrew its previously issued earnings guidance for 2007 in which it had projected earnings of $3.25 to $3.75 per share. According to BusinessWeek Online A.G. Edwards projects the company's earnings this year at $1.67 and has cut its earnings forecast to $2.89 from $4.50 for FY 2008 American Home hopes to reinstate earnings guidance toward year-end. So what? Subprime lenders have been falling under the bus for months; at least a dozen have shuttered offices, had warehouse lines closed by big banks, or stopped accepting loan applications and started auctioning portfolios. But American Home is not a subprime company. In fact in March the company issued a press release to clear up any "confusion" about the type of loans it offers: at that point subprime mortgage represented less than 1% of its total loan portfolio. The company specializes in so called Alt-A loans. These are loans where the homeowner borrows a relatively high portion of the value of a property and simply states an income, rather than documenting it. They tend to be adjustable rate mortgages and have been particularly prone to rising delinquencies. American Home's problems arose primarily because these Alt-A mortgages were sold to investors with a so-called "timely payment" warranty wherein the company agreed to repurchase loans within a three month period if borrowers did not make mortgage payments on time. These warranties are common in the industry but many more borrowers than anticipated fell behind on their payments quickly and the company has had to buy those loans back. (It seems appropriate to note that these were not necessarily brand new loans where borrowers almost immediately defaulted. They may have been held by American Home in its own portfolio or assigned to banks to secure warehouse loans for many months before being packaged and sold to investors.) Repurchase demands reached a high in April at which time the company announced they would no longer write the high loan to value/stated income products. Repurchases have declined substantially since that time and are now believed to be about 53 percent below April levels and are expected to continue to decline. However, according to MarketWatch, Paul Miller, an analyst for Friedman Billings Ramsey downgraded American Home to underperforming on Friday and cut the stock's target price from $25 to $15. "We are unconvinced that the worst of the credit issues are behind the company," Miller said. He also explained that the company's tighter underwriting standards will cut the number of loans the company will originate, further affecting future earnings. By its own description American Home Mortgage Investment Corp. is a mortgage real estate investment trust (REIT) focused on earning net interest income from self-originated loans and mortgage-backed securities, and, through its taxable subsidiaries, from originating and selling mortgage loans and servicing mortgage loans for institutional investors. Mortgages are originated through a network of loan production offices and mortgage brokers as well as purchased from correspondent lenders, and are serviced at the Company's Irving, Texas servicing center. While second quarter earnings are expected to be substantially impacted, the company has confirmed it will pay the expected $0.70 quarterly dividend. The company had cut its dividend earlier this year from $1.12 per share. Michael Strauss, American Home's Chief Executive Officer, commented, "Our company's goal is to put the impact from the discontinued products behind us. A benefit of the substantial reserves we are establishing in the second quarter is that the discontinued product's impact on our future financial results is likely to diminish. As we put the impact from the discontinued products behind us, the positive contributions from our portfolio, mortgage origination franchise and loan servicing business will again drive our results. Altogether, the second quarter will be a period of "clean-up" as the impact from the discontinued products continues to wind down." Shares of American Home which are listed on the New York Stock Exchange as AHM fell 12 percent on Friday closing at $18.38 after falling as low at $17.40 earlier in the day. Shares were trading at $18.22 at mid-day on Tuesday, July 3.

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Mortgage Rates Curbed By Housing Recession
July 7, 2007

Mortgage rates decreased for the second week in a row according to the results of Freddie Mac's Primary Mortgage Market Survey for the previous week. The 30-year fixed-rate mortgage (FRM) decreased from 6.69 percent with 0.5 point to 6.67 percent with 0.4 point. One year ago the 30-year FRM averaged 6.78 percent. The 15-year FRM saw a similar decline, from 6.37 percent and 0.5 point to 6.34 percent with 0.4 point. The interest rate for the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) declined one basis point from the previous week to 6.30 percent while fees and points also dropped from 0.6 to 0.5. The one-year Treasury indexed ARM lost one basis point to average 5.65 percent and fees and points declined from 0.7 to 0.5.
According to Frank Nothaft, Freddie Mac vice president and chief economist, "Mortgage rates edged down slightly for the second week in a row after having risen over the previous month and a half, and as financial markets prepared for the June 28th Federal Open Market Committee's announcement on monetary policy."
"This week we saw further effects of the current housing recession. May's existing home sales (including condominiums and co-ops) fell 0.3 percent to the slowest pace since June 2003, and the number of months houses were available for sale rose to 8.9, the longest since June 1992. In addition, home prices fell 2.1 percent in twenty metropolitan areas for the year ending April 2007, according to the S&P/Case Shiller? composite index, the largest year-over-year drop since the data began in January 2001."
Rates also dropped according to the Mortgage Bankers Association Weekly Mortgage Applications Survey for the week ending June 29. The results, delayed because of the Independence Day holiday, reported that the 30-year FRM had an average contract interest rate of 6.50 percent with 1.69 in points, including the origination fee. The previous week the 30-year averaged 6.60 percent with 1.54 points.
The average contract interest rate for a 15-year FRM decreased to 6.20 from 6.24 percent with points increasing from 1.41 to 1.43, and the one-year ARM averaged 5.49 with 1.17 points compared to 5.51 percent with 1.14 points a week earlier.
Application volume was virtually unchanged, increasing 0.1 percent on a seasonally adjusted basis and decreasing 0.1 percent unadjusted from the previous week. The volume, however, was 9.7 percent higher when compared to the same week in 2006.
Refinancing represented 37.8 percent of total applications compared to 38.7 percent the previous week. Adjustable rate mortgages had an increased market share; 21 percent compared to 20.4 percent a week earlier.

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Two MBA Surveys Paint Picture of Mortgage Market in 2006
July 10, 2007
The Mortgage Bankers Association released the results of two surveys covering the mortgage world in the second half of 2006 on Tuesday. While we can't resist being a little snarky and asking why they so push the envelope of relevance by coming out with these figures a full six months after the survey period ended, there is some interesting information in the two surveys. 84 lenders participated in the Mortgage Originations Survey, including almost all of the top 30 mortgage originators. During the survey period these respondents originated $681 billion in first mortgages and $163 billion in second mortgages. The survey found that fixed rate loans, including those with an interest only component, represented 46.2 percent of the dollar volume and 60.5 percent of the actual number of first mortgage loans during the second half of 2006 compared to 43.3 percent and 54 percent of loans originated during the first two quarters of the year. First-time home buyers accounted for 26.9 percent of home purchases, identical to the figure for the first half of the year. As might be expected, first timers borrowed much less than repeat purchasers; the average first timer mortgage was $197,044 compared to an average of $228,547 for experienced borrowers. By dollar volume, 19.9 percent of the mortgages were for single family attached homes, 75.1 percent were for single-family detached homes, 1 percent was used for manufactured or mobile homes and 4 percent financed 2-4 family homes. Reverse mortgages increased 9.5 percent by dollar volume during the second half of the year while the actual number of reverse loans increased 19.1 percent. Loans originated under FHA's Home Equity Conversion Mortgages (HECMs) program represented 87.8 percent of reverse mortgages by dollar amount. Second mortgages decreased by 5.8 percent from the first half of the year and borrowers were tending to move toward fixed rate, closed end second mortgages which increased by 6.3 percent while open-end second or home equity lines of credit decreased 11.6 percent. The second study, the Subprime Mortgage Originations Survey, collected information from 13 subprime companies including many of the top 10. Respondents were companies where at least 50 percent of originations are subprime or ones that could break out subprime originations from their total product. The percentage of subprime loans, by dollar volume, used by first-time home buyers increased from 12 percent to 15 percent in the second half of 2006. 32 percent of the total number of subprime purchase loans was made to a first time buyer as compared to 25 percent in the first half of the year. The percentage of subprime loans used for repeat and first-time home purchase increased from 46 percent to 47 percent. (This is an exact quote from the report; we assume it means that subprime loans represented 47 percent of all loans used for home purchases). According to survey results, during both halves of 2006 55 percent of subprime originations by dollar volume were for refinance purposes. 87 percent were cash out in the second half of the year compared with 75 percent in the first half of 2006. However, data for the first half classified 12 percent of refinances as "unknown" or "other purposes" so it is possible that first half cash-out refinances were much higher than presumed. 93 percent of subprime borrowers were owner-occupants, up 1 percent from the first half of the year. The average dollar amount of a subprime loan in the second half of 2006 was $202,295 compared to $200,167 in the first half. Borrowers used a mortgage broker for 72 percent of subprime originations in the second half of the year, an increase of 3 percent from the first half of 2006. ARMs (including Interest Only ARM Loans) comprised 75 percent of subprime originations in the second half of 2006, versus 67 percent of subprime originations in the first half of 2006. Second mortgages averaged $35,506 compared to $33,555 in the first half of 2006. The increase in the average loan amount along with the rise in the number of second mortgage originations was driven largely by a sharp increase in closed-end loans.

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Pros and Cons of the Various Housing Indicators
July 11, 2007
The Office of the Chief Economist of Freddie Mac issued its monthly economic outlook for July on Monday and, in the narrative provided a helpful analysis of the reasons for the confusing messages emerging from various reports on current house prices. The outlook states the obvious; the housing market has cooled abruptly after several years of superheated activity and the slowdown in sales and increasing backlogs of unsold houses are threatening to undermine not only property values but also sectors of the broader economy. Yet various economic indicators are pointing in different directions when it comes to housing prices. Each of the reports that the housing industry, the stock market, and the media relies on has advantages. One example is the timeliness of the data. The two reports that come out monthly, shortly after the books are closed on the previous month's sales are summaries of new home sales issued by the U.S. Census Bureau and the report on existing homes from the National Association of Realtors®. While timely, capturing the previous month's activity within weeks, the numbers are easily influenced by where the sales took place. A sudden surge of sales in Indiana, for example, will cause the median price of a home to drop while a strong month in the Boston area will have the opposite effect. An influx of first-time buyers into the market in a given month will also cause median prices to trend downward. Most recently (May) these two monthly reports showed a 0.9 percent decline in the sale price of new homes and 2.1 percent in the median price of existing homes. Other reports overcome this problem by reporting on same house sales. This would include the quarterly report by the Office of Federal Housing Enterprise Oversight (OFHEO) which uses data collected from Freddie Mac and Fannie Mae to track houses across the years as they are sold or refinanced and Freddie Mac's Conventional Mortgage Home Price Index (CMHPI) which does not include refinancing in its analysis of same home purchases over time. While these studies yield more apples-to-apples comparisons the OFHEO report tends to miss trends because appraisal values upon which refinances are based tend to lag behind actual prices and both OFHEO and CMHPI exclude a large portion of the market which falls outside of Freddie Mac and Fannie Mae maximum loan limits. The most recent of these studies for the first quarter shows a slight increase in prices from the same period a year earlier with the CMHPI posting a gain of 2.8 percent. The other major study is the Standard & Poors/Case-Shiller® National Home Price Index. This is also a repeat sale comparison but it covers the higher priced loans, government insured loans and privately financed purchases that are outside the purview of the two secondary market reports. But nobody is perfect and Case-Shiller is limited geographically because many areas, even whole states are not included because of limited home sale data. This index may also reflect trends in top-end housing markets that diverge from conventional financing and may give more weight to higher priced regions. The most recent Case-Shiller reported 1.4 percent decline in housing prices in the first quarter of 2007 compared to the same period in 2006. The July Economic Outlook, however, concludes that the differences among the various studies should not make people overlook the similarities. "All (the studies) show that national price growth has shifted down from the double digit gains of 2004-2005 to something near zero with several markets down from a year ago." The studies have magnified regional disparities but property values in most areas are still well above the levels or two or three years ago. The narrative concludes by saying that "while a steady job market and growing national economy may help limit the downside risks to housing prices, several risks - the elevated levels of homes for sale, recent increases in mortgage rates, and rising foreclosures of subprime borrowers - point to continued weakness in the months ahead." Where the particulars of the statistical portion of the outlook are changed this month they are changed dramatically from the forecast for June. Major deviations from the last outlook include the predictions for home sales which are now projected at 6.23 million units (annualized) for the second half of the year and 6.28 million for the entire year. The year long figure was estimated at 6.41 million units one month ago. Predictions for national home price appreciation for the year, projected at 1.5 percent last month is now at 1 percent and the growth estimate for next year has decreased from 2.5 percent to 1.8 percent. Mortgage activity has dropped from a forecast of $2.79 trillion in June to $2.75 trillion based on fewer home sales, slower growth in home prices, and rising interest rates. Refinancing is expected to represent 42 percent of total mortgage activity this year, the lowest percentage in seven years and outstanding mortgage debt is projected to grow by 5.9 percent this year, the slowest growth in over a decade.

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Subprime Disaster Continues To Unfold
July 13, 2007
It seems that nary a week can pass without a subprime disaster of some type. This week is no exception although there was at least a bit of variety due to bad news coming from other parts of the housing industry. Here is the rundown. On Tuesday Moody's Investors Service announced it was downgrading its ratings on 399 bonds backed by subprime mortgages because of higher than expected delinquencies in the loans. These residential mortgage-backed securities (RMBS) were largely underwritten by loans issued in 2006 and over 60 percent of the underlying loans were sold by GE, Washington Mutual (now known as WaMu), Fremont General Corporation, and New Century Mortgage which filed for bankruptcy several months ago. Moody's said it may add another 32 bonds to the list. At about the same time Standard & Poors (S&P) said it would probably follow suit before the end of the week, downgrading about $12 billion of subprime RMBS. Most of the S&P targets are also tied to the four lenders downgraded by Moody's although S&P is also looking at other players such as Merrill Lynch & Company. Several analysts said that they expected the big rating services would soon start looking at those lenders that deal in so-called Alt-A mortgages which are tailored to borrowers who lack the documentation to obtain conventional or prime mortgages or may have slightly damaged credit. As we reported earlier, American Home Mortgage (AHM) one of the larger Alt-A lenders announced it was withdrawing earlier estimates of second quarter performance because of a contractual necessity to redeem many of the mortgages it had sold to investors because of elevated delinquencies. The price of stocks of Alt-A lenders such as AHM and IMPAC Mortgage Holdings fell on Wednesday and Thursday with AHM reaching the mid-$14 range from recent highs in the mid-$30s. Rex Nutting, in a strongly worded commentary for MarketWatch accused S&P of having been among the enablers of the wildly active subprime market but said that "S&P isn't going along with the charade anymore." Nutting predicted that a lot of subprime debt will be downgraded to junk status. "A lot of that debt will have to be sold at fire-sale prices. A lot of pension funds and hedge funds that once thrived on the high returns they could get from investing in subprime junk will now lose a lot of money." He predicted that the S&P notice that they were re-evaluating the bonds "is a death warrant for the subprime industry. No longer will mortgage brokers be able to help buyers lie their way into a home" and fewer homeowners will be able to refinance themselves out of trouble, thus extending and exacerbating housing problems. In related news, two major builders announced that they expected to post quarterly losses. Ryland Group and D.H. Horton both announced that heavy cancellations of home-building contracts and the necessity of opting out of agreements to buy land would cause their most recent quarterly figures to slip into the red zone. Ryland expects to book charges of $145 to $155 million and Horton said quarterly orders for new homes fell 40% from a year earlier A smaller Ohio based builder, M/I Homes, also backed off of earlier earnings projections saying its orders for new homes and deliveries both fell in the second quarter; new contracts by 10 percent year-over-year and deliveries 24 percent to a total of 755 homes. Another sector beginning to feel the pinch from the declining housing market is home improvement stores. Home Depot said that it is lowering its year-long profit forecast because the weakening housing market is dampening earnings more than anticipated. HD executives said they expect adjusted earnings per share to drop 15 to 18 percent to a range of $2.30 to 2.36. Two months ago the corporation said it anticipated a drop in income of 15% but that things would pick up in the second half of the year. The monthly forecast by the National Association of Realtors? issued on Wednesday was among the more pessimistic we have seen. It projected that new home sales will total 865,000 this year and 878,000 next year compared to 1.05 million in 2006. In more bad news for builders, the forecast projected housing starts at 1.43 million units this year and 1.44 million next. This is a substantial drop from the 1.80 million starts last year. Lawrence Yun, NAR senior economist projected that existing home sales will pick up late this year and will total 6.11 million in 2007 and 6.37 million in 2008. If the projections hold this would bring the 2008 figures back close to the 6.48 million sales recorded in 2006. Existing home prices are also expected to recover, rising 1.8 percent to a median price of $222,700 next year, offsetting the 1.4 percent decline expected this year. The median new-home price should rise 2.2 percent to $245,400 in 2008 following a 2.6 percent drop this year. Finally, Thursday the NAACP filed a class action suit against 14 of the nation's largest subprime lenders to stop these lenders from engaging in systematic, institutionalized racism in making home mortgage loans. We will have more information on this suit in the next few days.

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NAACP Subprime Discrimination Suit
July 16, 2007
We mentioned briefly last week that the National Association for the Advancement of Colored People (the NAACP) has filed a class action suit against more than a dozen subprime lenders in an effort to stop those lenders from engaging in what the suit calls "systematic, institutionalized racism in making home mortgage loans." The suit is based primarily on the results of two studies. One was a report from the Center for Responsible Lending (CRL) that found that African-Americans were more likely - 31 to 34 percent - to be issued more expensive subprime loans than were Caucasians with equal creditworthiness and credit risk. Then earlier this week, the National Community Reinvestment Coalition (NCRC) published a study that stated than lenders made high-cost subprime loans to higher-qualified African-Americans 54 percent of the time compared to 23 percent of the time to Caucasians, even when the latter group was less qualified. The NAACP suit specifically names 14 lenders; Ameriquest, Wells Fargo, Fremont Investment, Option One Mortgage (H&R Block,) WMC Mortgage, Countrywide, Long Beach Mortgage, CitiGroup, BNC Mortgage, Accredited Home Lenders, Encore Credit (Bear Stearns,) First Franklin, HSBC, and Washington Mutual. While much of the suit is based on the 2006 CRL study, the NAACP does make reference to the NCRC study which was released only days earlier. That study found that income levels did not protect minority borrowers from being disproportionally targeted by high-cost loans. In fact the study indicates that racial differences in lending increase with income levels. In other words, middle-and upper-income minorities are more likely to receive high priced loans than their similar white counterparts than are low-and-moderate-income minorities compared to their white counterparts. African Americans of all income levels were twice as likely or more than twice as likely to receive high-cost loans as were whites in 171 metropolitan statistical areas (MSAs) in data collected in 2005; middle-to-upper income African-Americans had the same probability in 167 MSAs. However, lower-to-middle-income African Americans were twice or more than twice as likely to receive those high cost loans in only 70 MSAs. Hispanics also suffered the same disparities; low-to-middle-income Hispanics were two or more times more likely than comparable whites to receive high-cost loans in 10 MSAs while middle-to-upper income Hispanics were twice as likely to receive high-cost loans in 75 MSAs The study found some disparities in lending to Asian Americans as opposed to Caucasians, but they were much less significant that with the other minority groups. African-Americans experienced the largest lending disparities in Southern and mid-west MSAs and in New England while Hispanics were more likely to receive high-priced loans in New England, the West, and Midwest. The study found that the five worst MSAs for lending to African-Americans are Charleston, SC; Bridgeport, CT; Omaha, NR; Milwaukee, WI; and Springfield, MA. In court documents filed in the U.S. District Court for the Central District of California the NAACP charged that the lending industry has a long history of discrimination in connection with mortgage loans made to African-Americans and that the Federal Reserve Board had recently concluded that African Americans were more likely to pay higher prices for mortgages than their Caucasian peers. In addition to higher interest rates the suit alleged that subprime loans to African-Americans are "typically laden with improperly disclosed fees, including excessive prepayment penalties which effectively prohibit borrowers from refinancing at a fairer rate." The suit quotes the Center for Responsible Lending estimates that families lose 2.3 billion each year from their home equity wealth because of prepayment penalties in subprime mortgage loans and that African-Americans are more than three times as likely as Caucasians to be placed into one of these subprime loans. The NAACP claims that "These statistical disparities are not mere happenstance, but instead result from a systematic and predatory targeting of African Americans." The Association states that it is bringing the lawsuit to enjoin the Defendants from continuing their discriminatory practices and to compel their compliance with applicable federal law and to ensure compliance with the same.

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More Action RE: Subprime Lending and Mortgage Regulation
July 17, 2007

At the end of June the five agencies that regulate federally chartered banks and their subsidiary lending corporations issued final guidance to those institutions regarding subprime lending, particularly the so-called exotic or non-traditional loans that are threatening to bring down those lenders who haven't already filed bankruptcy or shut their doors. While they were called "guidelines," compliance with the new underwriting rules is, if not mandatory, at least highly recommended on the part of institutions under the supervision of the five agencies.** The problem is that federally regulated institutions represent only a portion of mortgage lenders and maybe an even smaller share of those that are involved in writing subprime mortgages. Now the Office of Federal Housing Enterprise Oversight (OFHEO) has widened the applicability of these guidelines significantly. The agency, which has responsibility for overseeing the operations of the two privately owned but government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae made the guidance applicable to the loans they are permitted to purchase. On Friday the two GSEs issued letters to their lender customers setting forth a program to insure that they were buying only mortgages that conformed to the Interagency Guidance standards. In a press release regarding the GSE letters OFHEO said that Fannie Mae and Freddie Mac have taken proactive steps to assure that (loan) sellers are clear as to what mortgages they will accept and reject. All mortgages sold to Freddie and Fannie with an application date on or after September 13 of this year must conform to the guidance but lenders are urged to put the new rules in place as soon as possible. The GSEs also said that their automated underwriting systems will soon be updated to support adherence to the Interagency Guidance. OFHEO Director James B. Lockhart said, "These initiatives by the Enterprises support the guidance issued by federal and state financial regulators and will address most originators of mortgages, both regulated and unregulated. This is a significant step. OFHEO will continue to work with federal and state regulators and the Enterprises to assure conformance with both the Interagency Guidance and (and a more recently finalized guidance regarding subprime lending) the Subprime Statement. These actions reinforce the necessity for safe and sound underwriting practices, which serve the interests of lenders and borrowers in promoting sustained homeownership." Also on Friday General Electric (GE) announced that it was getting out of the subprime mortgage business and that it has already rid itself of $3.7 billion in loans, about 75 percent of its total portfolio, to reduce its exposure to the volatile market. The decision to quit underwriting in the subprime market was made during the second quarter and the loan sales resulted in a loss of $182 million for GE's WMC Mortgage unit. Earlier in the year WMC Mortgage laid off more than 460 employees and took a $500 million charge due to the sale of part of its subprime assets. WMC was one of over a dozen lenders named when Moody's Investors Services downgraded nearly 400 securities last week. Several Republican lawmakers introduced a lending reform bill on Thursday. The sponsors, Representative Spencer Bachus of Alabama, ranking member of the House Financial Services Committee and two Ohio Congresspersons, Paul Gillmor and Deborah Pryce presented The Fair Mortgage Practices Act as the culmination of a 16 month effort to find a bipartisan solution to what is perceived as unfair practices within the subprime lending industry. The bill would require mortgage lenders to be licensed and would set up a national registration system. The legislation would also prod lenders to pay closer attention to a borrower's ability to repay the loan, simplify disclosures to make them more transparent to borrowers, require preloan counseling would mandate escrow accounts for taxes and insurance and restrict prepayment penalties. Reaction to the legislation thus far is mixed. The National Association of Mortgage Brokers has endorsed the requirement for a national registration system; they have been very critical of systems which do not include federally chartered institutions. The Mortgage Brokers Association declined comment on the basis they are reviewing the legislation, and at least one consumer group called the bill too weak. It is hard to know what the mortgage world will look like when all of this shakes out in six months or a year. But at least lending, especially subprime and predatory lending is finally under the microscope. It is about time. ** The Federal Reserve, Office of Thrift Management, Federal Deposit Insurance Corporation, Office of Comptroller of the Currency, and the National Credit Union Administration.

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Builders Confidence Hits 26 Year Low as Permits and Starts Fall Again
July 20, 2007
Housing starts improved slightly in June over May figures but remain well below levels one year ago. According to a joint release from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, housing starts in June were at a seasonally adjusted annual rate of 1,467,000 units. This is 2.3 percent higher than the 1,434,000 figure for May and a whopping 25.2 percent below the revised figure of 1,819,000 for June, 2006. Single-family housing starts were substantially lower than starts as a whole with new residential construction in the 5-units-or-more category picking up the slack. SFR construction was down 0.2 percent from May but larger projects jumped up 12.9 percent from the earlier month. The scenario was even worse in the permit category. While not all areas of the country require permits for construction, where they are required those permits were down 7.5 percent from the revised May rate of 1,520,000 units to 1,406,000 units. This is 25.2 percent below the June 2006 estimate of 1,879,000. Permits issued for single family construction were down 4.1 percent while permits for two to four unit and five plus unit projects were down 18.8 percent and 14.8 percent respectively. The decline in permitting is at least allowing builders to reduce their permit backlog. In June there were 206,800 permits for construction that had not been acted upon compared to 213,800 the previous month. The homebuilding industry is obviously in distress (Pulte, one of the nation's largest residential builders announced on Tuesday it anticipated booking second-quarter impairment and land-related charges in the range of $740 million and $770 million on a pre-tax basis, about $1.85 to $1.92 a share after taxes.) But, in testimony before the House Financial Services Committee, Federal Reserve Chairman Ben Bernanke made an interesting statement about employment in the home-building industry. Remarking that there was a bit of a "puzzle" about government unemployment reports which do not indicate a significant decline in construction employment he said this anomaly might indicate that many construction workers have moved from homebuilding to commercial construction or home remodeling. If Bernanke is right about the alternate employability of construction workers, their bosses are not resting as easily. The monthly report on builders' confidence sponsored by the National Association of Home Builders (NAHB) and Wells Fargo just hit its lowest level since January, 1991. The NAHB/Wells Fargo Housing Market Index released on Tuesday showed a decline of four points since June to a recent record low of 24. This monthly survey which has been conducted for more than 20 years measures builder perceptions of the market on three scales and an overall index. Builders are asked to measure current single-family home sales and expectations for sales over the next six months each on a three point sale of good, fair, or poor. Builders are also asked to rate current buyer traffic from very low to very high. The responses are used to construct three topic indexes and an overall index. Any sector subtotal or index total over 50 indicates that more builders view sales conditions as good than poor. The three component indexes declined in July. Perceptions of current single-family sales and the index gauging sales expectations in the next six months each declined five points to 24 and 34, respectively, while the index gauging traffic of prospective buyers declined three points to 19. As stated above, the overall HMI registered 24. Likewise, all four regions of the country posted declines in the July HMI. The Northeast and South each saw five-point declines, to 31 and 26, respectively, while the Midwest slipped a single point to 19 and the West declined three points to 25. NAHB Chief Economist David Seiders, commenting on the survey said, "The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period. Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers. "In spite of these challenges, we expect to see home sales get back on an upward path late this year and we expect housing starts to begin a gradual recovery process by early next year. At that point, this market will be operating well below its long-term potential, providing plenty of room to grow in 2008 and beyond." In other housing news, Standard & Poor's downgraded an additional 418 classes of residential mortgage backed securities (RMBS) on top of the hundreds of others it downgraded earlier this month. These securities were closed end (as opposed to equity lines) second mortgage liens issued between January 2005 and January 2007. The loans underlying the securities were originally worth $3.8 million and represented 6.1 percent of that type of security rated by S&P during that time period. S&P stated that higher losses than expected on closed-end, second-lien home loans were part of the problem but that the difficulty homeowners were having and will continue to have refinancing these loans is exacerbating the situation.