Momentum Seen for Home Improvement Spending

Spending
on home improvements and remodeling have shown signs of a rebound and the
Remodeling Futures Program at the Harvard Joint Center for Housing Studies is
projecting that sector of the economy will end 2012 on a positive note.

The
Joint Center produces the Leading Indicator of Remodeling Activity (LIRA) each
quarter.  It is designed to estimate
national homeowner spending on improvements for the current quarter and the
following three quarters.  The indicator, measured as an annual rate-of-change
of its components, provides a short-term outlook of homeowner remodeling
activity and is intended to help identify future turning points in the business
cycle of the home improvement industry.

The
figures from the most recent quarter, the fourth quarter of 2011, showed an
estimated four-quarter moving total of $112.4 billion in home improvement
spending compared to $113.8 billion in the third quarter.  This number is expected to dip further in the
first quarter of 2012, to $108.1 billion before starting to build at mid-year.

 “Sales of existing homes have been increasing
in recent months, offering more opportunities for home improvement projects,”
says Kermit Baker, director of the Remodeling Futures Program at the Joint
Center.  “As lending institutions become less fearful of the real estate
sector, financing will become more readily available to owners looking to
undertake remodeling.”

…(read more)

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Freddie Mac: Speedy Recovery Seems Unlikely in 2012

“Perspectives on the housing market
depend on where you sit,” according to Freddie Mac’s U.S.
Economic and Housing Market Outlook

for January.  The monthly forecast noted
that existing home sales increased in November, the inventory of unsold homes
decreased to a six to seven month supply, and Freddie Mac’s economists predict
home sales will grow between 2 and 5 percent in 2012. 

But
there is “a historically large gap between sentiments of buyers and sellers.”  Nearly 80 percent of American households
believe it is a good time to buy a home, but sellers are not as happy, with
only 7.6 percent who responded to a Mortgage Bankers Association survey
believing that it is a good time to sell. 
If this gap doesn’t narrow, Freddie Mac’s economists say, the
housing-market recovery will be delayed.

The monthly report titled Toasting the New Year with a Glass Half Full
concludes that, while the economy is undoubtedly in a better place that the
same time a year ago, a speedy recovery still seems unlikely this year. 

Other highlights of the Outlook

  • Economic growth will likely
    strengthen to about 2.1 percent in the first quarter.
  • The current U.S. unemployment rate
    of 8.5 percent is likely to increase after seasonal gains are reversed.
  • Mortgage rates are projected to
    remain very low, at least in the beginning of 2012.

Frank Nothaft, Freddie Mac, vice
president and chief economist said, “With the new year comes a sense of
cautious optimism. There are some positive signs in the job market and consumer
confidence; housing is starting to raise hopes for continued gradual economic
recovery. But the economy still is giving some mixed messages.”

…(read more)

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OCC Notes Fewer Banks Tightening Underwriting Standards

The Office of Comptroller of the Currency
(OCC) recently completed its 18th annual “Survey of Credit
Underwriting Practices
.” The survey seeks to identify trends in lending
standards
and credit risks for the most common types of commercial and retail
credit offered by National Banks and Federal Savings Associations (FSA).  The latter was included for the first time in
this year’s survey.

The survey covers OCC’s examiner
assessments of underwriting standards at 87 banks with assets of three billion
dollars or more.  Examiners looked at
loan products for each company where loan volume was 2% or more of its
committed loan portfolio.  The survey covers
loans totaling $4.6 trillion as of December 31, 2011, representing 91% of total
loans in the national banking and FSA systems at that time.  The large banks discussed in the report are
the 18 largest by asset size supervised by the OCC’s large bank supervision
department; the other 69 banks are supervised by OCC’s medium size and
community bank supervision department. 
Underwriting standards refer to the terms and conditions under which
banks extend or renew credit such as financial and collateral requirements,
repayment programs, maturities, pricings, and covenants.

The results showed that underwriting
standards remain largely unchanged
from last year.  OCC examiners reported that those banks that changed
standards generally did so in response to shifts in economic outlook, the
competitive environment, or the banks risk appetite including a desire for
growth.  Loan portfolios that experienced
the most easing included indirect consumer, credit cards, large corporate,
asset base lending, and leverage loans. 
Portfolios that experienced the most tightening included high
loan-to-value (HLTV) home equity, international, commercial and residential
construction, affordable housing, and residential real estate loans.

Expectations regarding future health of
the economy
differed by bank and loan products but examiners reported that
economic outlook was one of the main reasons given for easing or tightening
standards.  Others were changes in risk
appetite and product performance. Factors contributing to eased standards were changes
in the competitive environment, increased competition and desire for growth and
increased market liquidity. 

The survey indicates that 77% of
examiner responses reflected that the overall level of credit risk will remain
either unchanged or improve over the next 12 months.  In last year’s survey 64% of the responses
showed an expectation for improvement in the level of credit risk over the
coming year. Because of the significant volume of real estate related loans,
the greatest credit risk in banks was general economic weakness and its results
and impact on real estate values.   

Eighty-four of the surveyed banks (97
percent) originate residential real estate loans.  There is a slow continued trend from
tightening to unchanged standards with 65 percent of the banks reporting
unchanged residential real estate underwriting standards.  Despite the many challenges and uncertainties
presented by the housing market, none of the banks exited the residential real
estate business during the past year however examiners reported that two banks
plan to do so in the coming year.  Additionally,
examiners indicated that quantity of risk inherent in these portfolios remained
unchanged or decreased at 81% of the banks.

Similar results were noted for
conventional home equity loans with 68% of banks keeping underwriting standards
unchanged and 18% easing standards since the 2001 survey.  Of the six banks that originated high
loan-to-value home equity loans, three banks have exited the business and one
plans to do so in the coming year

Commercial real estate (CRE) products
include residential construction, commercial construction, and all other CRE
loans.  Almost all surveyed banks offered
at least one type of CRE product and these remain a primary concern of examiners
given the current economic environment and some banks’ significant
concentrations in this product relative to their capital.  A majority of banks underwriting standards
remain unchanged for CRE; tightening continued in residential construction and
commercial (21 percent and 20 percent respectively).  Examiners site cited the distressed real
estate market, poor product performance, reduced risk appetite and changing
market strategy as the main reasons for the banks net tightening.

Nineteen banks (22 percent) offered
residential construction loan products but recent performance of these loans
has been poor and many banks have either exited the product or significantly
curtailed new originations.

Of the loan products surveyed 17% were originated
to sell, mostly large corporate loans, leveraged loans, international credits,
and asset based loans.  Examiners noted
different standards for loans originated to hold vs. loans originated to sell
in only one or two of the banks offering each product.  There has been continued improvement since
2008 in reducing the differences in hold vs. sell underwriting standards and
OCC continues to monitor and assess any differences.

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May Housing Scorecard and Q1 Servicer Assessments Released

The May
edition of the Obama administration’s Housing Scorecard released today by the
U.S.  Departments of Housing and Urban Development
(HUD) and Treasury showed a promise of growing stability in the housing market
although officials cautioned that the overall outlook remains mixed.

The monthly
scorecard is essentially a summary of data on housing and housing finance
released by public and private sources over the previous month and/or
quarter.  Most of the data such as new
and existing home sales, permits and starts, mortgage originations, and various
house price analyses have previously been covered by MND.

This month’s
scorecard is more upbeat than many of its recent predecessors.  It notes that sales of existing houses rose
2.4 percent in April and that the inventories of newly constructed houses
increased for the first time since April 2007. 
With sales up inventories dropped to a 5.1 month supply compared to 5.2
months in March and 12.2 months at the peak in January 2009. Distressed sales
are still a big factor and serious delinquencies and underwater mortgages
continue to hold back the market.

HUD Acting Assistant Secretary Erika
Poethig said, “This month’s indicators show promise – more than 180,000
borrowers took advantage of our enhanced Home Affordable Refinance Program in
the last quarter alone and foreclosure starts are declining as more homeowners
secure mortgage relief  – but with so many households still struggling to
make ends meet it’s clear that we have more work ahead.  That is why we are asking the Congress to
approve the President’s refinancing proposal so that more homeowners can
receive assistance.”

The May Housing Scorecard and the accompanying
data from the Making Home Affordable Program (HAMP) include the results of
first quarter program assessments of participating servicers.  These Servicer Assessments summarize
performance in three categories of program implementation; identifying and
contacting homeowners; evaluating homeowners for assistance, and program
reporting, management, and governance.

In the first quarter of 2012 only
three servicers were found to need minor improvement and six in need of
moderate improvement.  For the second
consecutive quarter, none was found to be in need of substantial enough improvement
to cause for Treasury to withhold program incentives as has been done in the
past.

Release of the first quarter
assessments coincides with the roll-out of the expanded eligibility criteria
for HAMP.  The new HAMP Tier II
guidelines include eligibility for homeowners with a debt-to-income ratio below
31 percent, properties occupied by a tenant, and vacant properties which the
borrower intends to rent.  Servicers began accepting applications for Tier
2 on June 1. 

The HAMP program received 122,872
requests for modifications during April and processed 84,394.  A total of 65,949 requests were denied and
18,445 were approved.  This brings the
number of requests for modifications since the inception of the program to 4.7
million, 2.03 million of which were approved. 

These HAMP statistics for May were also
broken down on a per-servicer basis as were program-to-date numbers.  These can be seen in their entirety here.

…(read more)

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OBAMA ADMINISTRATION RELEASES MAY HOUSING SCORECARD

WASHINGTON- The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury today released the Mayedition of the Obama Administration’s Housing Scorecard – a comprehensive report on the nation’s housing market. Data in the May Housing Scorecard show promise as indicators continue to show signs of stability, though officials caution that the overall outlook remains mixed. Sales of existing homes rose 2.4 percent in April, increasing in every region of the U.S. In addition, the inventory of newly constructed houses increased for the first time since April 2007. Since sales outpaced inventory levels, the supply of homes on the market dipped to 5.1 months from 5.2 months in March and a peak of 12.2 months in January 2009. Distressed sales remain a key factor, however, as the impact of serious delinquencies and underwater mortgages continue to temper market gains. The full report is available online at www.hud.gov/scorecard.