New-home sales hit a wall

New-home sales fell 2.2% in December, compared with a month earlier, to an annual rate of 307,000, the government said Thursday.

40 Wall Rises Again

Donald Trump has avoided what could have been a big problem for one of his most valuable office buildings in New York, partly by taking advantage of the downtown’s transformation away from finance.

FHA Stepping up Bulk Sales Volume

Acting
Federal Housing Finance Agency (FHA) Commissioner Carol Galante and Housing and
Urban Development (HUD) Secretary Shawn Donovan announced late Friday afternoon
a new bulk sale program to liquidate some of the reported 700,000 delinquent loans
backed by FHA insurance
.  The Distressed Asset Stabilization Program is an outgrown of a pilot program that
allows private investors to purchase pools of mortgages headed for foreclosure.  The pilot has resulted in sales of more than
2,100 single family loans to date.

Beginning with the September 2012
scheduled sale, FHA will increase the number of loans available for purchase
from approximately 1,800 each year to a quarterly rate of up to 5,000, and add
a new neighborhood stabilization pool to encourage investment in communities
hardest hit by the foreclosure crisis.

According to an article in the Wall Street Journal published before the sale was officially announced, FHA is undertaking
bulk sales in an effort to reduce its growing portfolio of distressed loans and
to avoid the costly process of foreclosure, but also because its own rules
limit ways in which the mortgages can be modified, leaving little room for aggressive
loan modifications like those done by Freddie Mac, Fannie Mae, and proprietary
lenders.  Once sold these strictures
disappear, the new servicer can take more drastic steps to bring the loans back
on line.

Under the new program, the current servicer
can place a loan into the bulk sale loan pool if the borrower is at least six
months delinquent on his mortgage and has exhausted all steps in the FHA loss
mitigation process.  The servicer must
also have initiated foreclosure proceedings and the borrower cannot be in bankruptcy.

Once
accepted from the servicers, the notes are sold competitively at a
market-determined price generally below the outstanding principal balance. To
minimize the chance “vulture investors” will take advantage of the program, potential
investors must agree to hold off foreclosure for a minimum of six months and
work with the borrowers to help find an affordable solution to keep them in
their homes. FHA also seeks to provide some protection to the market by
requiring purchasers to hold back from sale at least 50 percent of the homes
backing the loans for at least three years.

“The Distressed Asset Stabilization
Program offers a better shot for the struggling homeowner and lower losses to
the FHA,” Galante said. “By addressing the growing back log of distressed
mortgages, FHA is helping to mitigate the negative effects of the foreclosure
process as part of the Administration’s broader commitment to community
stabilization.”

“While our housing market has
momentum we haven’t seen since before the crisis, there are still thousands of
FHA borrowers who are severely delinquent today – who have exhausted their
options and could lose their homes in a matter of months,” said HUD Secretary
Shaun Donovan. “With this program, we will increase by as much as ten times the
number of loans available for purchase while making it easier for borrowers to
avoid foreclosure. Finding ways to bring these loans out of default not only
helps the borrower, but helps the entire neighborhood avoid the disinvestment
and decline in value that accompanies a distressed property.”

 “Currently, FHA’s inventory of REO properties
available for sale is at its lowest level since FY 2009,” added Galante. “At
the same time, the inventory of seriously delinquent loans is near an all time
high. With many neighborhoods still fighting to recover from the housing
crisis, going upstream will allow us to help more borrowers before they go
through foreclosure and their homes ever come into the REO portfolio.” 

…(read more)

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FHA Expected to Announce New Bulk Sales Agenda

The Federal Housing Finance Agency (FHA)
is expected to announce before the close of business today a new bulk sale
program
to liquidate some of the reported 700,000 delinquent loans they
insure
.  According to The Wall Street Journal, the agency may
be planning on selling as many as 5,000 distressed loans each quarter over an
unspecified period of time.

Bulk sales were used on a large scale by
the Resolution Trust Corporation and the Federal Deposit Insurance Corporation
during the savings and loan and banking crises of the 80s and 90s and FDIC
continues to use this mechanism to clear the assets of failed banks.  Lenders and guarantors such as Freddie Mac
and Fannie Mae generally shy away from these sales because of the deep
discounts needed to move the loans.  Even
the “good” loans such as are sold by the FDIC because they are too costly and time
consuming for the institution to manage are discounted substantially; seriously
delinquent loans go for pennies on the dollar. 
 

The Journal
states that FHA is considering bulk sales in an effort to reduce its growing
portfolio of distressed loans
and to avoid the costly process of foreclosure,
but also because its own rules limit ways in which the mortgages can be
modified, leaving little room for aggressive loan modifications like those done
by Freddie Mac, Fannie Mae, and proprietary lenders.  Once sold these strictures disappear and the
investor can take more drastic steps to bring the loans back on line.

Bulk sales can be hugely profitable for
investors, but in this case the sales may also allow some homeowners to stave
off foreclosure by cutting better deals than would have been possible with FHA.  The Journal
quotes FHA’s acting commissioner Carol Galante as saying “There will be an incentive for a modification that isn’t able
to be done under the current system. It will be cost-effective for the
FHA….It will be better for the communities.”

Investors
also face some restrictions that work for the benefit of homeowners and the
marketplace.  They can’t foreclose for
six months after buying the loans and must agree to hold back from sale at
least 50 percent of the homes backing the loans for at least three years.

Galante
told the Journal that FHA was trying to minimize the impact of any vulture
investors who buy hoping for a quick foreclosure, eviction, and resale.  “We are trying to change, frankly, the
behavior of who’s interested in buying these notes,” she said.

…(read more)

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Community Lenders want Smaller GSEs Retained in Secondary Market Role

The Community Mortgage Lenders of
America
(CMLA) is urging policy makers to consider retaining the positive aspects
of Fannie Mae and Freddie Mac
in any future secondary market design.  CMLA is asking that a smaller Fannie and
Freddie be configured to serve 30-35 percent of the overall secondary mortgage
market while being barred from securitizing or investing in anything but plain “vanilla”
mortgages.

The trade association stated its
preferences in a letter to the secretaries of Housing and Urban Development
(HUD), Treasury, and the Acting Director of the Federal Housing Finance Agency
(FHFA) as well as the chairs and ranking members of two congressional
committees which will be involved in the future definition of the market.    

CML said
the two government sponsored enterprises (GSEs) have benefited from the strong
oversight and leadership they have received from FHFA and that has been
reflected in the housing market where credit has remained available primarily
because of their presence.  While the
housing industry, Congress, Treasury, HUD, and the FHFA are seeking clarity on
how the GSEs should perform going forward, CMLA “believes that the housing
industry and the public at large are best served through a sensible and calculated
reformation of the GSEs that reduces their footprint in the industry while at
the same time allowing them to serve their historically critical functions.”

The CMLA endorses a future whereby Fannie and
Freddie shrink to serve 30-35 percent of the overall secondary mortgage market,
and are barred from securitizing or investing in anything but plain
“vanilla” mortgages.

While the FHFA’s October 2011 projections shows
that the balance sheets of the GSE’s are improving, FHFA has also expressed
doubt that they will ever be able to repay the government its investment during
the crisis.  CMLA believes that the
taxpayer can be repaid through creative and thoughtful planning and through
tailoring an increase in guarantee fees to more accurately price risk. 

There are a number of principles that should
inform creation of a fair and effective secondary mortgage market according to
CMLA:

1.  
Standardization reduces
costs

2.  
Liquidity is needed

3.  
Conventional lending
should be protected

4.  
Loss mitigation
procedures should be retained and further enhanced

5.  
Risk must be made
explicit

6.  
Market concentration
should be reduced

7.  
Portfolio flexibility
should be increased

8.  
Proper use of
Guarantee Fees must be required

9.  
Reform must include
standards for the non-GSE Secondary Market.

The letter states that a sensible and calculated
reformation of the GSEs will result in continued liquidity and stability
without an unnecessary disruption
to the secondary market, “or worse, a
concentration of the secondary market within a limited number of large
banks/servicers.”  CMLA sets out the
following steps for the GSEs to complete within a transition time and
recognizing market realities.

  • Pay an explicit
    backstop fee to the federal government;
  • Be prevented by
    statute from securitizing or investing risky mortgages as defined by the
    Qualified Residential Mortgage Rule;
  • Be shrunk and
    normalized to sustain roughly 30 to 35 percent of the secondary market
  • Continue to be required
    to serve lenders of all sizes and to nurture smaller markets in areas of market
    concentration;
  • Continue to provide
    standardization of origination documentation, servicing practices,
    securitization terms and modification/foreclosure strategies as a policy of
    consumer protection;
  • Reduce and maintain
    portfolios over time, but only as transitional market pricing reduces the
    portfolios. Given that the portfolios
    provide a stabilizing influence of mortgage pricing and that the FHFA has said
    the portfolios will only cause 9 percent of overall losses “any forced downsizing
    seems politically motivated to benefit large banks and Wall Street.”
  • Establish a governing
    board to maintain and set a competitive guarantee fee following the public
    utility model with funds generated to be retained in the housing industry for
    the benefit of taxpayers;
  • Regulate
    post-conservatorship executive compensation through a governing board to
    prevent excessive risk-taking.

CMLA says it is the first trade group to call for
the GSEs to remain intact.  Mark
McDougald, Chairman of the organization said, “Our plan is forward-looking
and will result in distinct changes in the secondary market. However, we call
on Washington to move expeditiously and to avoid
drastic, politically-driven changes that will harm small lenders and the small
communities in which they serve,”

…(read more)

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