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Housing prices decline, but home sales are rising

Peter Stone — Thu, 24 Feb 2011 00:08:22 +0000

Home sales have been increasing, but home values are declining. Image from Wikimedia Commons.

Nationwide home prices are declining, but home sales are beginning to rise. The past year has been volatile for real estate, but more people have been consulting with loan lenders to purchase a home. The low prices are thought to be the reason for the spike in purchases.

Wealthy and investors buying houses again

Figures for nationwide home sales from the National Association of Realtors indicate that an increasing number of people are purchasing homes, according to CNN. Home sales rose 2.7 percent over January 2011, to a seasonally adjusted rate of 5.36 million per year. The increase is also a 5.3 percent improvement over January 2010, marking the first time in seven months that home sales have been higher than figures from a year ago. However, the increase may be bolstered by people who don’t need to go to loan lenders to finance a home purchase. The number of cash purchases was 32 percent of all sales, up from 26 percent in January 2010. Sales to investors made up 23 percent of sales, which accounted for 17 percent of home sales in January 2010.

Foreclosures may have made up difference

The increased number of cash and investor purchases likely is due to deep discounts available on foreclosed properties. Distressed properties, according to Bloomberg, accounted for 37 percent of January 2011 home sales. More homes are available at rock bottom prices, and many a loan company is anxious to get a home off its balance sheet. There aren’t many people who have enough instant cash to pay for a home out of pocket, even one sold at half its value. The median home price has declined 3 percent since January 2010, to $158,800.

Home prices dropping

Many major metropolitan areas are still experiencing declining home values, according to USA Today. The Standard & Poor’s Case Shiller Index recorded drops in all but one of the 20 major cities it tracks. Only Washington D.C. did not see home prices decline. Areas with inflated real estate values such as Arizona, California and Florida have experienced the worst in decline, but southern states like Mississippi and Alabama are also experiencing price declines. The rise in sales may signal reversing demand, and many economists believe 2011 will be a year of dramatic recovery.

Sources

Bank profits tumble as new laws for credit cards start working

Peter Stone — Tue, 22 Feb 2011 18:20:57 +0000

Credit card issuers, such as Bank of America, have been affected by new laws regarding credit cards. Image: MoneyBlogNewz/Flickr.com/CC-BY

New regulations for credit cards on how interest rates and fees can be assessed are working. However, some loan lenders are lamenting the new rules that require greater disclosure when changing terms with customers. Outlawing guerrilla-style fee and interest raises has led Bank of America and other companies to lose value from credit card units.

Bank of America realizes loss from credit card unit

The largest loan lender in the nation, Bank of America, recently announced that it would be adjusting previously filed financial statements regarding the banks’ credit card unit, according to Bloomberg. B of A announced that it was adjusting a write down of FIA Card services, its credit card unit, for late 2009 from $10.4 billion to $20.3 billion, meaning the credit card unit is worth $20.3 billion less thank it was in 2008. In other words, the company adjusted previous filings to reflect a greater loss of value than previously thought. The write down is not a true cash loss, but an adjustment of the “goodwill” value, or the value of an asset above market value, due to the prestige of the holder of the asset. The bank cited regulatory conditions and “deteriorating credit quality” for FIA Card Services being worth $10 billion less than estimated in 2009.

CARD Act cited for losses

Some credit card loan lenders, such as Bank of America, are claiming that they are being hampered by new regulations, specifically the CARD Act, or Credit Card Accountability Responsibility and Disclosure Act. It is posited that the act means less access to advance cash for further lending, though this means that the law is working. Since the CARD Act was enacted, fewer people have been hit with late fees and stung with sudden interest rate raises, according to CNN.

New card law a smashing success

The CARD Act has yielded some great results. Since the law was passed, studies show that about 2 percent of card holders had interest rates raised, compared to 15 percent before the CARD Act was passed. Late fees, which accounted for $901 million in instant cash for card issuers in January 2010 — before the Act took effect in February 2010 — had dropped to $427 million by November 2010. That means companies from Scottsdale to Birmingham and all over the U.S. that look to seemingly surreptitious practices for revenue are having a harder time, which is what the CARD Act is supposed to do.

Sources

Mortgage delinquencies decline, but foreclosures rise

Peter Stone — Thu, 17 Feb 2011 18:47:08 +0000

Foreclosures rose during the past few months, but the number of mortgage delinquencies declined. Image: Brendel/Wikimedia Commons/CC-BY

The number of mortgage delinquencies has declined, but the number of foreclosures has risen. Though loan lenders can rejoice over more borrowers making payments, the inventory of foreclosed properties is at a record high. However, this may be a sign that foreclosures will slow in the future.

Foreclosure inventory nears all time high

The number of foreclosed properties loan lenders retain has hit an all time high, according to Bloomberg. A report was recently released by the Mortgage Bankers Association detailing the economic trends in real estate, and the number of foreclosed homes had risen to 4.63 percent of all mortgages at the end of the fourth quarter of 2010, which ended Sept. 30, 2010. The number of foreclosed properties is nearly the highest on record. That figure had risen from 4.36 percent at the end of the third quarter of 2010. At that time, nearly 14 percent of all mortgage loans, or one in seven, were in foreclosure or homeowners were behind on payments to their loan company.

Delinquencies decline

Though the number of foreclosed properties has risen, the number of delinquencies has fallen. From July to December, 2010, the number of bank loans that were one payment behind dropped from 9.13 percent to 8.22 percent, according to CNN. Mortgage delinquencies have therefore dropped to the December 2007 rate, which marked the beginning of the recession. Seriously delinquent loans, or mortgage payments at least 90 days past due, declined from 5.02 percent in March of 2010 to 3.63 percent in December, 2010. This means more people are getting payday cash, and able to make payments.

Foreclosures stalled for now

The controversy over improper foreclosure procedures, or the “robo signing” affair, has led to a temporary slowing of foreclosures, but that may reverse itself as those issues are resolved. Florida is still the state most affected by foreclosure, with more than 14 percent of all homes in foreclosure. Mississippi had the highest delinquency rate, with 13.3 percent of homes behind at least one payment.

Sources

The adjustable rate mortgage is staging a comeback

Peter Stone — Mon, 14 Feb 2011 22:53:21 +0000

The adjustable rate mortgage was blamed in part for the recession, but it is starting to make a comeback. Image from Wikimedia Commons.

One of the supposed causes of the real estate collapse and recession of the last few years was something called an adjustable rate mortgage. An adjustable rate mortgage, or ARM, can be misunderstood and, in fact, has a lot of benefits for some buyers. The ARM is starting to make a comeback.

Adjustable Rate Mortgages vilified

During the real estate crash and recession, one of the financial instruments that was blamed was the adjustable rate mortgage. Unscrupulous loan lenders would offer mortgages with a low introductory rate. The interest rate would be drastically raised, pulling the rug from under the homeowner. However, when handled by the right bank and in the right situation, the adjustable rate mortgage, or ARM, is not inherently evil. For some people, it is the perfect loan, according to CNN. That is largely why sales of ARMs have risen to 5 percent of all mortgages in 2010, up from 3 percent in 2009. It is predicted that 10 percent of all mortgages lent during 2011 will be ARM loans.

Perfect for some homeowners

The flagship of all mortgages is the 30-year fixed rate mortgage, in which the rate never changes. An ARM has a lower introductory, averaging currently about 3.5 percent. The increments at which an ARM can be raised are limited by law, and so is the final interest rate. If a person plans to live in the home for five years or fewer, it makes more sense to get an ARM, as payments will be less and payments over the minimum can net greater equity. So if a person is planning to transfer from Jackson, Mississippi, to Birmingham, Alabama only a few years from when they purchase the home, it may be better to go with an ARM.

Flipping houses

The ARM is also great for homeowners attempting to flip homes and sell them for profit. By selecting an ARM, the homeowner has more instant cash that can be put into the remodeling budget. The trade of flipping houses could also make a comeback, according to Reuters, as the Federal Housing Association is extending a program providing government backed mortgage insurance on homes that are resold within 90 days of a previous sale.

Sources

Reuters

Falling home values put record number of mortgages under water

Peter Stone — Thu, 10 Feb 2011 18:28:28 +0000

Up to 27 percent of homeowners could be under water on their mortgages. Image from Wikimedia Commons.

It is estimated that a record number of people are now under water on their mortgages because of falling home values. The value of houses nationwide has been steadily sliding downward as foreclosures, unemployment and tight credit take a toll on real estate. Values could continue to fall.

Nearly a third of all mortgages could be under water

Home prices have been falling for the past few years during the recession. Because of continuing foreclosures, high unemployment and fewer homes being sold, the value of houses has continued to trend downward. It is estimated that 27 percent of American homeowners could be under water on their mortgages, meaning payments to the loan company cost more than the home is worth, according to Bloomberg. Real estate information company Zillow released a report stating that more than 15 million home loans were under water. Home prices are estimated to have fallen by almost 6 percent in the last year and almost 3 percent since September, 2010. Values are expected to decline 5 percent more in 2011.

Deceptive decline in foreclosures

Foreclosure activity has been closely watched over the past year in the hopes that a slowing rate of foreclosure would mean a real estate market close to recovering. A decrease in foreclosures occurred in January, but that doesn’t mean that the crisis is over, according to CNN. Because of the “robo-signing” scandal, where foreclosures were initiated by banks without reviewing the paperwork, the foreclosure process has been held up. The number of homes and installment loans foreclosed on will likely increase once the backlog of foreclosure cases in courts and at loan lenders is reduced.

Areas with inflated value still reeling

Areas where real estate values are the highest are still plagued by high foreclosure and rates of negative equity. Nevada, Arizona and California still lead the nation in foreclosure-affected states. Florida, though, has started to improve, falling to ninth place nationally in foreclosure rates.

Sources

Bailout official labels mortgage modification program a failure

Peter Stone — Thu, 27 Jan 2011 20:52:24 +0000

At a recent congressional hearing, the government mortgage modification program was blasted as being a "failure." Image from Wikimedia Commons.

The Inspector General of government bailout programs has labeled the mortgage modification program a failure. Neal Barofsky, appointed to oversee the bailout programs including the Home Affordable Modification Program, blasted the program in a Congressional hearing for being ineffective. More than half a million applicants have gotten their mortgages modified.

Mortgage modification program blasted in hearing

Recently, there was a joint Congressional hearing about whether certain programs in government bailouts had been effective, including the mortgage modification program. The program, which was nicknamed Make Home Affordable, but titled the Home Affordable Modification Program or HAMP, was blasted in the hearing as “a failure,” according to USA Today. Neil Barofsky was appointed as a special Inspector General in charge of bailout programs and funding and told the Congressional oversight committee that the mortgage modification program was not working. He went on to say that an increasing number of people will continue to want the program canceled, “and understandably so.” However, some have pointed to slow moving loan lenders as being part of the cause of the program’s problems.

Call to repeal HAMP

An increasing number of people are calling for the HAMP program to be cut. On the same day that the oversight committee met, three House Republicans submitted a bill that would end the HAMP program. Doing so would cut $30 billion from unused funding for bailout emergency loans. HAMP was intended to help 3 million to 4 million people avoid foreclosure by modifying existing loans with loan companies, but only 549,620 mortgages have been successfully modified. However, the cash advances lent to banks, more than $341 billion, have been viewed as very successful.

Foreclosures still epidemic

The rate of foreclosure has started to fall in the worst hit areas, especially states like Arizona with higher than normal real estate values, according to CNN. Las Vegas, the worst hit city in the United States, has seen the rate of foreclosure fall by 7 percent over the last year, but one in nine homes there has been in some form of foreclosure activity. However, in a survey of more than 200 metro areas by RealtyTrac, the overall foreclosure rate rose by 72 percent in 2010.

Sources

More people are getting bank loans and buying houses

Peter Stone — Wed, 22 Dec 2010 22:35:24 +0000

More people got bank loans and bought houses in November, but sales are still sluggish overall. Image from Wikimedia Commons.

The number of people getting bank loans for houses is increasing. Existing home sales crept up over November for the third increase in four months. However, sales are far below the levels that were seen last year.

More homes being sold and bank loans taken out for purchases

The housing market is still struggling to recover, but there are glimmers of hope in that the number of people taking out bank loans or going to a loan company to purchase a home is increasing, according to USA Today. The seasonally adjusted rate of existing home sales increased to a rate of 4.68 million units per year. The increase for November home sales was the third increase in the rate of home sales in four months. Western states had the largest increase, as sales in the West increased by 11.7 percent, though areas like Nevada and Arizona are still struggling. The Midwest had a boost of 6.4 percent. The Northeast and the South had the smallest increases, rising by only 2.7 and 2.9 percent, respectively.

The bad news

Despite an increase in home sales and more people willing to take out personal loans to buy a home, it isn’t all good news. Home sales over the past year, as opposed to just the past few months, are still dismal. November home sales for 2010 were actually a big drop. About 30 percent fewer homes sold in November 2010 than in November 2009. It’s harder to get a loan, and few people feel safe enough to buy. Home sales are on pace to record the lowest levels in sales since 1997. Applications for mortgage loan modification and new loans dropped in November, but that may be due to few people wanting to buy so close to the holidays.

Not the greatest signs

The real estate industry is still struggling to regain its footing, and the supply of available homes, more than nine months worth, is still more than it should be in a healthy market. However, as long as gains keep getting posted consistently, it will get there eventually.

Sources

Fewer people are under water on mortgage bank loans

Peter Stone — Fri, 17 Dec 2010 00:04:38 +0000

The number of people underwater on bank loans for homes they bought is declining, but not fast enough. Image from Wikimedia Commons.

Fewer people are getting under water on the bank loans on their homes. Underwater is when a person ends up owing more to the mortgage company than the home is worth. However, part of it is thanks to the number of foreclosures.

Fewer bank loans are getting underwater

The number of people under water on their homes — owing more in bank loans than the home is worth — is diminishing, according to USA Today. Underwater mortgages have become a problem for a lot of American homeowners, who went out to get a loan for a home, only for the value to plummet. Recreational and retirement hot spots like Nevada, Arizona and Florida were hit hard, with greater numbers of foreclosures and real estate values dropping through the floor.In some urban areas, such as Chicago, the rate of foreclosures has’t been as bad as in other cities, especially in metro areas that are still heavy industrial centers.

Foreclosures played a part

The decline in underwater mortgages has been slight, only 0.5 percent. A large portion of the reduction in people paying installment loans for more than a home is worth is likely due to the sheer number of homes that have been foreclosed, taking numerous mortgages off the books. There have been some incentives offered from the government, but talking loan lenders into reducing debt when many a loan company is struggling is a tough sell.

Home values likely to stay down

It is likely that the housing market is not going to be at its best for some time. Record number of foreclosures, and fewer people confident enough to purchase a home or able to qualify for the financing due to tougher restrictions on credit, will work against the housing industry’s favor. However, growth has been slowly taking place, and a slower recovery than desired has appeared to be the most likely scenario.

Sources

Hybrid vehicle tax rebate expiring

Peter Stone — Mon, 13 Dec 2010 19:37:24 +0000

People looking for some instant money from the hybrid car tax rebate had better act fast, as the credit is expiring. Image from Wikimedia Commons.

Car buyers wanting to take advantage of instant money from the hybrid vehicle tax rebate had better act fast. The tax rebate on most hybrid cars and trucks, and on some diesels, is expiring in January 2011. Tax credits do remain for some plug-in vehicles, though.

Tax rebate for green cars to expire

In 2005, the government rolled out a new tax credit that promised instant money at tax time if a person purchased a hybrid car or certain diesel powered vehicles as part of the Energy Policy Act of 2005. The Alternative Motor Vehicle Credit, for those who could or did take advantage of it, offered a great incentive to consult a loan company to finance a greener car. However, according to USA Today, that incentive is expiring. As of January 2011, there won’t be a break on the income tax bill for buying a hybrid car like the uber-popular Toyota Prius or eligible diesel models such as a Volkswagen Jetta TDI.

Some rebates still available

Though the bulk of the rebates are expiring, there are some that will still be available. Tax rebates will still be available for plug-in electric vehicles, such as the Chevrolet Volt and the Nissan Leaf. The hitch, though, is that to get those vehicles, a person has to get a personal loan for a lot more. The Leaf lists for $32,000 or more before any instant cash off the tax bill, and the Volt goes for about $40,000 before the rebate. The Prius, by contrast, goes for less than $25,000, although the Prius is no longer eligible for a rebate. Part of the bill was that once a car maker had sold 60,000 green vehicles, the rebate would no longer be available.

Better act fast

There are still some rebates available on some hybrid or diesel models, but only two weeks remain for the credit to be used. There is a list on USA Today and Consumer Reports of which vehicles are eligible for a rebate until Jan. 1, 2011.

Sources

Consumer Reports

Repossessions by mortgage loan lenders climb

Peter Stone — Thu, 16 Sep 2010 21:47:27 +0000

The auction gavel is due to fall on more homes, as repossessions are skyrocketing. Image from Wikimedia Commons.

The dismal saga of the real estate industry in America continues, and despite the occasional bright spot, there is still plenty of bad news to go around. Sales were boosted for some time by the home buyer tax credit. Foreclosures were barely helped by the loan modification program from the government. Not only did few homeowners actually have their bank loans and homes saved by the program, but repossessions have actually increased. In fact, repossessions increased by 25 percent since last year.

Repossessions skyrocket

The number of repossessions has shot through the roof since 2009. According to a recent report by RealtyTrac, repossessions are higher than have been recorded since the recession began. The number of repossessions in August 2010 was up to 95,364, according to Bloomberg. RealtyTrac has never recorded that large a number of repossessed homes in its existence. The number of repossessed homes, where a homeowner has to vacate the premises and the loan company tries to resell it, have only increased. Since August of 2009, repossessions increased 25 percent.

Foreclosures decrease

However, there is some good news. Overall foreclosure and default notices decreased by 5 percent since July of this year. That being said, there is a difference between foreclosures and repossessions. A foreclosure is when mortgage holders have fallen into default, and the bank begins a legal process to get them out of the homes. There also are ramifications, such as the mortgage holder being responsible for any lost revenue when the home sells. Repossessions are just when the bank or finance company kicks a delinquent homeowner out but doesn’t start any legal proceedings, and just resell the home.

Foreclosure inventory increasing

There is an incredible stockpile of available homes, some at discount prices. It isn’t as if you can buy a home with a small cash advance, but if you can get the financing, a good home can be acquired at a great price. As it stands today, one in every 381 homes in America has received a foreclosure notice.

Sources

Bad bank loans to Fannie and Freddie not being bought back

Peter Stone — Wed, 15 Sep 2010 21:42:37 +0000

Selling bank loans as securities is not like selling used cars; if securities are defective, the seller must buy them back. Image from Wikimedia commons.

Part of what caused the collapse of the housing market was toxic mortgages. A loan lender or bank would lend a mortgage to a customer and sell the debt as an asset. Sometimes the mortgage went bad because of circumstances, and some were lent to people who shouldn’t have been lent bank loans in the first place. Many of these loans were sold to Fannie Mae and Freddie Mac, and when the assets went bad, Fannie and Freddie went into freefall. Few of these bad loans are being bought back by the banks that sold them.

Bad loans can be repurchased

It seems fair that if bad mortgages were sold on the market and seriously damaging the companies that bought the bad finance loans, those loans should be bought back. In fact, laws were passed that guaranteed loans had to be bought back by the seller if the loans in question went bad. Freddie Mac and Fannie Mae bought a lot of these mortgages. Because both of those companies are seriously in trouble, and the law is on their side, those toxic assets should be getting repurchased.

No redress of defective assets

However, the toxic assets are not being repurchased. In fact, according to USA Today, more than $11 billion in defective loans were returned by Fannie and Freddie to the institutions that sold them, only for the bank or loan company to refuse to purchase them. Of those defective loans, a third have been waiting to be addressed for at least 90 days. The backing for mortgage loans also was provided for by the Federal Housing Administration and the Veterans Administration.

Banks hurting themselves

A bank or loan company that refuses to buy back these loans is only hurting itself. Fannie and Freddie are being propped up with taxpayer dollars, and businesses as well as individuals pay taxes. That means that the longer the mess drags on, the more everyone has to pay, including bank executives and shareholders.

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