California’s median home price increases, home sales decrease in April
California’s median home price for existing, single-family homes rose 2.5 percent in April to $293,570, while home sales declined 2.9 percent, compared with March, according to C.A.R.’s latest sales and price report.

In year-to-year comparisons, sales of existing, single-family detached homes rose 5 percent and the median price fell 4.4 percent.

C.A.R.’s Unsold Inventory Index stood at 5.4 months in April, up from 5.3 months in March, and up compared with April 2010’s 4.9-month supply. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

The median number of days it took to sell a single-family home in California was 53 days in April 2011, compared with 37.4 days for the same period a year ago.

Proposal to Raise FHA Loan Down Payment
Republicans on the House Financial Services Committee have drafted a bill to raise the minimum down payment for Federal Housing Administration-backed loans to 5 percent as well as cut FHA loan limits in many markets. FHA-backed loans are a main source of mortgages for first-time home buyers.

Currently, home owners who take out FHA-backed loans are required to have a minimum down payment of 3.5 percent; the GOP bill seeks to raise that to 5 percent. The GOP says it wants to protect home owners against default and improve FHA’s finances.

The bill has not yet been introduced but remains in draft form. However, the draft legislation is expected to be discussed on Wednesday by the subcommittee.

The draft legislation also calls for lowering FHA loan limits in several areas.

As of now, the maximum size of FHA-backed loans in expensive areas of the country is set to drop to $625,500 from $729,750 as of Oct. 1. In less expensive areas, the limit may drop to $271,050. The GOP draft bill wants to drop the limits even more to 125 percent of a county’s median home price, Dow Jones reports.

“While we support reforms to strengthen the program, changes should not be made at consumers’ expense by drastically impacting the affordability and availability of mortgage capital,” Ron Phipps, the National Association of REALTORS®’ president, said in a statement.

Source: “House Republicans Aim to Raise Money Down for FHA Loans,” Dow Jones International

Will REOs Hamper a Housing Recovery?
The nation’s largest banks and mortgage lenders currently own more than 872,000 homes — properties in which they repossessed from foreclosure, according to RealtyTrac. That is nearly twice the amount they repossessed in 2007, when the financial crisis began.

But the problem may get even worse: Banks are ready to repossess another 1 million homes in foreclosure, RealtyTrac reports.

The swelling number of lender-owned homes has economists concerned because higher inventories of distressed homes can depress overall home values. Economists say that it could take lenders three years to sell their foreclosed home inventory.

“It remains a heavy weight on the banking system,” says Mark Zandi, the chief economist of Moody’s Analytics.

Indeed, the high number of lender-owned homes stands to cost banks $40 billion in additional losses as they’re forced to sell these homes at sharp discounts over the next two years, according to Trepp, a real estate research firm.

Real estate professionals told The New York Times that lenders seem overwhelmed by the huge inventory of homes. They also say these lender-owned listings are often out of date and overpriced by as much as 10 percent, and that lenders take too long to accept an offer.

These homes also can sit in limbo for nearly two years. It can take 400 days just for lenders to foreclose on the home and then 176 days, on average, to sell it.

Source: “As Lenders Hold Homes in Foreclosure, Sales Are Hurt,” The New York Times (May 23, 2011)

Mortgage Rates Reach Another Low for 2011
For the fifth straight week, mortgage rates inched down again–this time reaching the lowest level of the year as well as lowest year-to-date. The 30-year fixed-rate mortgage averaged 4.61 percent this week, while the 15-year rate averaged 3.80 percent, Freddie Mac reports in its weekly mortgage market survey.

The 30-year mortgage hasn’t reached 4.61 percent or below since December 2010. Last year at this time, it averaged 4.84 percent while the 15-year fixed-rate mortgage averaged 4.24 percent.

The falling rates may be yet another lure to buyers during real estate’s traditionally prime home buying season. Owning a home has also recently been found to be more affordable than renting in 78 percent of the major U.S. cities, according to the latest data from Trulia.

Mortgage applications, meanwhile, are increasing as interest rates continue to fall. Mortgage loan application volume increased 7.8 percent this week when compared to the week prior, according to the Mortgage Bankers Association. Refinancings hit the highest level since mid-December, increasing 13.2 percent over the prior week, while the purchase index for mortgage applications dropped 3.2 percent.

Source: “Fixed-Rate Mortgages Hit a New Year-to-Date Low,” Freddie Mac (May 19, 2011) and “Mortgage Applications Grow Again on Home Refinancings,” HousingWire (May 18, 2011)

GOP Steps Up Effort to Phase Out Fannie, Freddie
House of Representatives Republicans issued seven more bills that set out to reform Fannie Mae and Freddie Mac. That brings the total up to 15 bills since March.

The Republicans are trying to chip away at the government-sponsored enterprises, which back or guarantee more than $5 trillion worth of U.S. mortgages and securitize about 90 percent of all new mortgages. The GSEs have been under federal control since September 2008 and lawmakers in recent months have been debating about how to change its role in the mortgage market.

“We can no longer afford to sit back and allow the ongoing bailout of these failed institutions to continue,” argues Rep. Scott Garrett (R-N.J.), chairman of the GSE subcommittee. “While special interest groups and the guardians of the status quo may not want to admit it, Fannie and Freddie’s days are numbered. It’s not a matter of if, but when — the quicker we begin the process of dismantling them the better off we’ll be.”

The seven latest bills, unveiled by Republicans in the House Financial Services Committee, set out to end bailouts for Fannie and Freddie and bring private capital into the mortgage market. Among the bills, proposed legislation would require Fannie and Freddie to dispose of all non-mission critical assets; set a total dollar cap on the amount of money that can be used for the bailout of the GSEs; end the Affordable Housing Trust Fund that provides resources for affordable housing; and ensure replicas of the GSEs would not be created to replace Fannie and Freddie in the future housing finance system.

The GOP will face other competing bills. The latest, a bipartisan bill by House lawmakers John Campbell (R-Calif.) and Gary Peters (D-Mich.), seeks to wind down Fannie and Freddie within five years and create five new government agencies that would be privately funded.

Economy, Affordability to Drive Home Sales Growth
Home sales are on track to outperform last year, even though the market doesn’t have the benefit of the home buyer tax credit. This is thanks to sustained economic growth, the slowly recovering jobs picture, and historically high affordability conditions, NAR Chief Economist Lawrence Yun told a packed room on Thursday during the Residential Economic Update at the 2011 REALTORS® Midyear Legislative Meetings.

Although unemployment remains high at about 9 percent, the country is seeing steady job growth. More than 100,000 jobs are being created a month, and the U.S. could see 1.5 million net new jobs this year, Yun said.

Frank Nothaft, chief economist for secondary mortgage market company Freddie Mac, who spoke later at the same session, said he expects a bit more robust job growth, closer to 2 million, but both economists said the unemployment rate will remain high despite the new jobs because of the size of the hole that needs to be filled. More than 8 million jobs were lost during the 2008-09 recession, and new entrants to the labor force, such as recent college graduates, add another 2 million to the hole.

Both Yun and Nothaft are predicting home sales a little higher than 5 million, which would improve upon last year even though 2010 had the artificial stimulus of the tax credit, they said.

Historically high affordability is one of the key drivers of the improved sales performance. NAR’s affordability index is at its highest level ever, at nearly 170, which means households earning the national median income have 170 percent of the income needed to buy a home at the national median price.

Behind the affordable conditions are low interest rates, which today are below 5 percent, and home prices that, while rising in some areas (like booming North Dakota), remain quite a bit below their peak during the housing boom. The high number of distressed homes (those in which the value is below the amount of equity the owners have in them) is one of the main reasons values are struggling to get off the bottom.

Yun said that overly strict lending standards are holding back more robust sales: 2010-vintage mortgage originations have a lower serious delinquency rate than in 2002, when serious delinquencies were barely above 1 percent, and 2011 is shaping up to be another stellar year in delinquency rates, but lenders are still requiring extraordinarily high credit scores and putting up other hurdles to obtaining financing. “If lenders would just go back to the normal standards that were in place prior to the boom years, sales might be 20 percent higher,” Yun said.

Although he’s seeing no signs of lenders opening up on lending yet, Yun said conditions are in place for lenders to start easing up. They’re sitting on plenty of money, and they could be reaching the point at which they can earn more revenues at reasonable risk levels by making home loans than by doing other things with their money. “I’m not seeing that yet, but that is a potential upside,” he said

In some ways, the heroes of housing today are the all-cash buyers. They’re 40 percent of the market now, so they’re helping to drive sales despite the tight availability of financing. Yun thinks all-cash buyers are investors who either can’t get financing or think they can get a better return on their cash by putting it into real estate than they can in savings instruments or stocks, particularly given the rock-bottom process of so many houses. He also thinks some empty-nest baby boomers might be acting as the lender for their children, buying a home for them on an all-cash basis and taking back a note. “I’m seeing this anecdotally. I don’t know if it’s a trend,” he said.

Yun’s forecast: The U.S. economy will grow about 2.5 percent this year, with between 1.5 and 2 million new jobs added to the economy. Home sales will reach about 5.1 million, up 7-10 percent from last year, with home values staying virtually unchanged. Nothaft had a largely similar forecast.

— Robert Freedman, REALTOR® Magazine

Obama administration releases April housing scorecard
HUD and the U.S. Dept. of the Treasury have released the April edition of the Obama Administration’s Housing Scorecard – a comprehensive report on the nation’s housing market.

Highlights of the Housing Scorecard include:

• More than 4.5 million mortgage-modification arrangements were started between April 2009 and the end of March 2011 – including more than 1.5 million trial modification starts through HAMP, more than 808,000 FHA loss mitigation and early delinquency interventions, and nearly 2.2 million proprietary modifications under HOPE Now.
• Servicers reported more than 36,000 trial HAMP modifications and more than 36,000 permanent modifications with a median payment reduction of 37 percent – or more than $500 every month.
• Home prices remain weak under continued strain from foreclosures and distressed homes. However, mortgage delinquencies continued a downward trend compared with early 2010 and foreclosure starts and completions remain below peak.

REO Inventory Reaches All-Time High
The national inventory of REO properties rose in March to a record high of 2.2 million. Foreclosure starts also increased by 33 percent month-over-month, according to the March Mortgage Monitor report by Lending Processing Services Inc.

However, it’s not all doom and gloom for the housing market. The report revealed a significant increase in foreclosure sales, which is helping to chip away at the swelling inventories that are battering many markets.

Also, delinquencies continue to decline, which is a sign of fewer foreclosures brewing in the pipeline. Delinquencies fell more than 11 percent in March from February — the lowest level since 2008 and a nearly 20 percent year-over-year decline, according to Lender Processing Services Inc. The total U.S. loan delinquency rate, which is for loans 30 or more days past due (but not in foreclosure), is 7.78 percent.

States with the highest percentage of loans where home owners have fallen behind are Florida, Nevada, Mississippi, New Jersey, and Georgia.

On the other hand, states that boast the lowest percentage of delinquent loans are Montana, Wyoming, Alaska, South Dakota, and North Dakota.

Source: “Banks Build Record Foreclosure Inventory,” RISMedia (May 5, 2011)