FREE Accessibility Training Federal Design and Construction Requirements under the Fair Housing Act Friday, March 23, 2012, Portland, Oregon.

FREE Accessibility Training Federal Design and Construction Requirements under the Fair Housing Act Friday, March 23, 2012, Portland, Oregon.

OIG Finds FHLBanks Corrected Foreign Credit Exposure, more Supervision Needed

The Office of the Inspector General
(OIG) of the Federal Housing Finance Agency (FHFA) issued a report this morning
that was mildly critical of the FHFA’s oversight of Federal Home Loan Banks (FHLBanks)
granting of unsecured credit to European banks.   OIG said that extensions of unsecured credit
in general increased by the FHLBanks during the 2010-2011 period, even as the
risks for doing so were intensifying.

FHFA regulates the FHLBanks and has
critical responsibilities to ensure that they operate in a safe and sound
manner.  FHFA’s OIG initiated an
evaluation to assess the regulator’s oversight of the Banks unsecured credit
risk management practices.

Unsecured credit extensions to European
institutions
and others grew from $66 billion at the end of 2008 to more than
$120 billion by early 2011 before declining to $57 billion by the end of that
year as the European sovereign debt crisis intensified.  During this period extensions of unsecured
credit to domestic borrowers remained relatively static but extensions to
foreign financial institutions fluctuated in a pattern that mirrored the
FHLBanks’ total unsecured lending.  That
is, it more than doubled from about $48 billion at the end of 2008 to $101
billion as of April 2011 before falling by 59 percent to slightly more than $41
billion by the end of 2011.

FHFA OIG also found that certain
FHLBanks had large exposures to particular financial institutions and the
increasing credit and other risks associated with such lending.   For example, one FHLBank extended more than
$1 billion to a European bank despite the fact that the bank’s credit rating
was downgraded and it later suffered a multibillion dollar loss.

During the time period in question OIG
found there was an inverse relationship between the trends in lending to
foreign financial institutions and the Banks advances to their own members.  Since mid-2011 the extensions to foreign
institutions have declined sharply but the advances have continued their
longstanding decline.  OIG said it
appears that some FHLBanks extended the unsecured credit to foreign
institutions to offset the decline in advance demand and that they curtailed
those unsecured extensions as they began to fully appreciate the associated
risks.

At the peak of the unsecured lending,
about 70 percent of the FHLBank System’s $101 billion in unsecured credit to
foreign borrowers was made to European financial institutions and 44 percent
were to institutions within the Eurozone. 
About 8 percent of unsecured debt ($6 billion) was to institutions in
Spain, considered by S&P to be even riskier than the Eurozone as a whole.

Some banks within the FHL System had
extremely high levels of unsecured credit extended to foreign borrowers.  The Seattle Bank’s exposure to foreign
borrowers as a percentage of its regulatory capital was more than 340 percent
in March 2011; Boston was at 300 percent, and Topeka 360 percent.  All three had declined substantially by the
end of 2011 but Seattle and Topeka remained above 100 percent.

OIG said that the vast majority of the
Banks’ extensions of unsecured credit appeared to be within current regulatory
limits (although OIG said these limits may be outdated and overly permissive),
some banks did exceed the limits and OIG found the three banks (which for some
reason it treated anonymously) definitely did so and blamed that on a lack of
adequate controls of systems to ensure compliance.

OIG reviewed a variety of FHFA internal
documents during the 2010-2011 period during which it found the Agency had
expressed growing concern about the Banks’ unsecured exposures to foreign
financial institutions.  But, even though
FHFA identified the unsecured credit extensions as an increasing risk in early
2010, it did not prioritize it in its examination process due to its focus on
greater financial risks then facing the FHLBank system especially their private
label mortgage-backed securities portfolios. 
In 2011, however, FHFA initiated a range of oversight measures focusing
on and prioritizing the credit extensions in the supervisory process and
increasing the frequency with which the Banks had to report on that part of
their portfolios.

OIG believes that FHFA’s recent initiatives
contributed to the significant decline in the amount of unsecured credit being
extended by the end of 2011.

The final findings issued by OIG in its
report are:

  1. Although
    FHFA did not initially prioritize FHLBank unsecured credit risks, it has
    recently developed an increasingly proactive approach to oversight in this
    area.
  2. FHFA
    did not actively pursue evidence of potential FHLBank violations of the limits
    on unsecured exposures contained in its regulations.
  3. FHFA’s
    current regulations governing unsecured lending may be outdated and overly
    permissive.

To correct
these deficiencies, OIG recommends that the Agency:

  • Follow up on any potential evidence of violations of
    the existing regulatory limits and take action as warranted;
  • Determine the extent to which inadequate systems and
    controls may compromise the Banks’ capacity to comply with regulatory limits;
  • Strengthen the regulatory framework by establishing
    maximum exposure limits; lowering existing individual counterparty limits; and
    ensuring that the unsecured exposure limits are consistent with the System’s
    housing mission.

…(read more)

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Pending Home Sales Rise; NAR Sees Tight Inventory Leading to Price Increases

Pending home sales in May bounced
back to match March numbers which were the highest seen in two years. The
improvement was broad-based, affecting every region in the country according to
the National Association of Realtors® (NAR). 

NAR’s Pending Home Sales Index (PHSI)
rose 5.9 percent in May from 95.5 in April to 101.1, equaling the index level last
March.  This was an increase of 13.3
percent from May 2001 when the index was 89.2. 
The last time the PHSI was higher than the March and May number was in
April 2010 when buyers were rushing to beat the deadline for the home buyer tax
credit.

The PHSI is a forward indicator
reflecting signed contracts for home purchases. 
The index does not include closing transactions which are generally
expected to occur within 60 to 90 days.

Lawrence Yun, NAR
chief economist, said longer term comparisons are more relevant.  “The
housing market is clearly superior this year compared with the past four
years.  The latest increase in home contract signings marks 13 consecutive
months of year-over-year gains,” he said.  “Actual closings for
existing-home sales have been notably higher since the beginning of the year
and we’re on track to see a 9 to 10 percent improvement in total sales for
2012.”

The national
median existing-home price is expected to rise 3.0 percent this year and
another 5.7 percent in 2013.

On a regional
basis, May pending sales in the Northeast increased 4.8 percent to 82.9, 19.8
percent above May 2011.  The pending sales number in the Midwest was 98.9
up 6.3 percent from April and 22.1 percent from a year ago.  The index for
the South increased 1.1 percent month over month and 11.9 percent year over
year to an index of 106.9.  In the West
the index jumped 14.5 percent in May to 108.7 and is 4.8 percent stronger than
a year ago.

Yun said that
low inventory could negatively impact some contract activity.  “If credit
conditions returned to normal and if we had more inventory, especially in the
lower price ranges, more people would become successful buyers.  In an
environment of historically favorable housing affordability conditions, it’s
frustrating to see some consumers thwarted in the process,” he said.

The low
inventory in some cases is because of the numbers of homeowners who are unwilling
to list their homes for sale because they are underwater on their mortgages.  Selling underwater homes requires that sellers
either bring cash to the table or undergo a lengthy and often frustrating short
sale process.  NAR estimates 85 percent
of homeowners have positive equity, with 15 percent in an underwater situation.

“Low inventory
can be cured by increasing new home construction,” Yun said.  He projects
housing starts to rise by 26 percent this year and another 50 percent in 2013.  “If housing starts do not rise in a meaningful
way over the next two years due to the difficulty in getting construction
loans, and barring an unexpected shift in the economy, the steady shedding of
inventory could lead to shortages where home prices could get bid up close to
10 percent in 2013,” Yun said.

…(read more)

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Case-Shiller: Seven Months of Price Declines Comes to an End

For the first time in eight months the S&P/Case-Shiller
Home Price Indices rose over levels of the previous month.  Data through April 2012 showed that on
average home prices increased 1.3 percent during the month for both the 10- and
20-City Composites.

Prices are still down 2.2 percent for
the 10-City and 1.9 percent for the 20-City over figures for one year earlier
but this is an improvement over the year-over-year losses of 2.9 and 2.6
percent recorded in March.  Improvements
in the annual figures were also recorded by 18 of the 20 cities when compared
to March with only Detroit and New York faring worse.  The 10-City Composite now has an index of
148.40 and the 20-City 135.80; the base of 100 was set in January 2000.

Nineteen of the 20 cities and both
Composites posted positive monthly returns, with Detroit being the only
exception.  Phoenix continues to lead
cities with improving trends and had a 2.5 percent increase in April and the
highest annual rate of return among all 20 cities.  Atlanta, Cleveland, Detroit, and Ls Vegas
continue to have average home prices below their January 2000 levels while both
Composites have returned to levels in the early and mid 2003 period.

David M. Blitzer, Chairman of the Index
Committee at S&P Indices said, “With April 2012 data we finally saw some
rising home prices.  While one month does
not make a trend, particularly during seasonally strong buying months, the combination
of rising positive monthly index levels and improving annual returns is a good
sign.”

 “We
were hoping to see some improvement in April,” Blitzer said.  “First, changes in home prices are very
seasonal, with the spring and early summer being the most active buying months.  Second, while not as strong, and we believe
less reliable, the seasonally adjusted data were also largely positive, a
possible sign that the increase in prices may be due to more than just the
expected surge in spring sales. 
Additionally, the last few months have seen increased sales and housing
starts amidst a lot of talk of better housing markets, so some price gains were
anticipated.”

Atlanta posted the only double-digit
negative annual return at -17.0 percent, its 22nd consecutive month
of negative annuals returns.  Ten of the
20 cities saw positive annual returns – Boston, Charlotte, Dallas, Denver,
Detroit, Miami, Minneapolis, Phoenix, Tampa, and Washington, DC.  There were no new city lows in April.”

Atlanta and Phoenix, two markets we
have followed closely in 2012 for their contrasting trends, have continued
along their opposite paths,” Blitzer said. 
“Atlanta continues to be the only city with double-digit negative annual
returns – 17.0 percent, whereas Phoenix fared the best in terms of annual
returns at +8.6 percent in April.”

Case-Shiller Home Prices

Click Here to View the Case Shiller Chart

…(read more)

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FHFA: House Prices Up 3 Percent Year-over-Year

House prices tacked on another increase
in April, bringing the annual increase to 3.0 percent according to the Federal
Housing Finance Agency’s (FHFA’s) Home Price Index (HPI) issued on
Thursday.  April’s HPI was up 0.8 percent
from March although the March increase was revised down from the 1.8 percent
increase originally reported to 1.6 percent.

The current HPI which is calculated
using purchases prices of houses backing mortgages that have been sold to or
guaranteed by Freddie Mac or Fannie Mac is 186.8.  In April 2011 I was 181.3. 

Prices were up in six of the nine census
regions with the largest increase in the Pacific and Mountain regions at 2.2
percent and 1.9 percent respectively.  The
largest decrease was in New England, down 1.2 percent.

The U.S. Index is 17.6 percent below its
peak in April 2007 and is roughly the same as in April 2004.

…(read more)

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