The recession is over…technically.

Californians who consider the condition of the state’s economy today will generally agree we are in the throes of an ongoing real estate recession. To those who are unemployed or delinquent on their mortgage — millions of Californians — the term recession is synonymous with personal financial hardship.

The media laughed in the face of the National Bureau of Economic Research (NBER) when they recently announced the Great Recession officially ended in June 2009. Consumer confidence remains desperately low as the weak employment numbers that began in 2007 still plague almost every California industry, indicating to society that we have a long way to go before we stabilize.

Almost two years after the supposed “end” of the recession, the public remains flooded with stories emphasizing the plight of the common man who has not yet escaped the clutches of economic depression. Yet, even so, most economists agree June 2009 properly marks the official end of the economic cycle that reared its ugly head in December 2007.

Obviously, there is a major disconnect between market analysts and the unemployed (and underwater) constituency. Over 1.5 million Californians are still struggling to find replacement jobs and pay their bills, making it nearly impossible for any of them to believe the economy is approaching recovery.

So are we or aren’t we done with the Great Recession? To fully and accurately answer such a question, we must first conclude what exactly a recession is and who decides when one begins or ends.
What is a recession?

The NBER defines a recession as a period of at least three quarters when “a significant decline in economic activity spreads across the economy,” taking multiple economic factors into account, such as employment and gross domestic product (GDP).

The precipitating event of a recessionary period is the money-tightening activity of the Federal Reserve (the Fed). The Fed directly influences the three-month Treasury bill (T-Bill), which represents the short-term interest rate and determines the base price of borrowing money for the short-term.

This apolitical entity can stimulate business and economic growth to stave off price deflation and job losses by lowering short-term interest rates. Conversely, the Fed fights inflation and overheated employment by continually raising short-term interest rates until the correction is achieved.

Further, the three-month T-Bill is juxtaposed with the ten-year Treasury note (T-note) rate. It is the bond market investors, not the Fed, who set the rate for returns on their ten-year investments in government notes. Bond market investors take into account the Fed’s management of the short-term rate (called monetary policy) to forecast the future rate of inflation, future demand for money and the desired fixed rate of return needed on their investment.

The T-bill and T-note rates form the yield spread.

In tandem, the T-bill and T-note rates form the yield spread, the difference between the three-month T-bill controlled by the Fed and the ten-year T-note controlled by market investors.

When bond market investors forecast less future growth as a result of the Fed’s upward short-term rate activity, they accept a lower long-term rate. Thus, the yield spread narrows, forecasting a less vigorous economy in the near future. On the other hand, a widening yield spread indicates much less danger of a future decline in business activity and demand for money.

When a yield curve goes negative — short-term rates exceed long-term rates — one can be confident we will be in a recession within 12 months. This held true for the 1989 recession, the 2001 recession, the 2008 Great Recession and all prior recessions back to World War II.

Why does the Fed “create” a recession?

The Fed decides to raise short-term interest rates when certain red-flag conditions indicate the economy must be slowed. An excess demand for labor indicates business is booming, prices are up and job salaries are increasing too quickly for the market to remain stable. If consumer price inflation climbs beyond 2%, the Fed considers action to correct it.

In 2004, at the height of the Millennium Boom, the Fed began to raise short-term interest rates in an effort to slow the economy and thus tame price inflation and an overheated job market. Eventually, the yield curve inverted in mid-2006 as short-term rates exceeded the long-term rates. Just over one year later, in December of 2007, an official recession was declared after the NBER recorded three consecutive quarters of economic downturn. By then the Fed had already begun dropping the short-term rates, as the correction they sought was underway.

Who decides when a recession begins or ends?

June 2009 marked the third consecutive quarter of economic upturn, making it the officially end of the Great Recession.

The everyday homeowner reads the NBER’s declaration and looks for a fully stabilized housing market and employment rate. Those conditions were certainly not marked by that date. The NBER merely recorded June 2009 as the official moment in which their definition of a recession no longer applied to the current economy. They did not intend to imply the economy had fully recovered, but rather that the economy was not getting worse.

The NBER did not intend to imply the economy had fully recovered, but rather it was not getting worse.

As the creation of jobs continues to push California toward eventual upturn, agents and brokers can expect the momentum of sales to experience a slight deceleration around 2013-2014. By then, the Fed will likely need to raise interest rates to stabilize the recovery so it doesn’t expand too quickly. Employment levels will return to prior 2007 peak levels by 2016 if all goes according to the Fed’s plan.
Congress and the Administration also have a hand in the performance of the economy, and their agenda continues to influence market growth.

Delusions of grandeur

Common misconceptions about recessions only serve to make them more mysterious. The media’s coverage of the burst housing bubble and economic crash is largely responsible for the delusions of uncontrollable, unpredictable economic chaos which have inculcated the minds of the masses who know little about the science of economics or the operations of the Fed. Likewise, whispers of the dollar failing and noise about the return of a gold standard have no basis in reality.

In the spirit of spreading rational truth, first tuesday would like to address and refute some commonly misguided assumptions regarding this Great Recession.

Myth #1: Recessions are random.
The current economic cycle is a product of the difficult but necessary decisions made by the Fed in order to keep inflation at bay and quell the overindulgence of the Millennium Boom. A recession cannot strike at any time, but in fact follows a pattern we have seen throughout history time and time again. It is because of the consistent historical precedent of past recessions that first tuesday can confidently predict when employment rates and housing prices will return to prior levels.

Myth #2: The end of a recession means the economy has recovered.
Three quarters is not enough time to distinguish whether an actual real estate recovery is underway, or if we are just experiencing a “dead cat bounce” followed by a double-dip recession. Optimists, proceed with caution.

Myth #3: Recessions cannot be anticipated.
Use of the yield spread to predict what the economy will look like one year forward is an excellent tool for agents to use when discussing the likelihood of a recession with their buyers or sellers. You can assure them the coming year will foster recovery by explaining how to read and apply the wisdom built into the yield spread.

Copyright © 2011 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with credit given to the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

The New York Times recently reported that “high value” homes are going to lose government support in the secondary mortgage market – and that that loss will likely further deteriorate the real estate recovery. It was right.

“By summer’s end,” it reported “buyers and sellers in some of the country’s most upscale housing markets are slated to lose their biggest benefactor of the economic downturn: the deep pockets of the federal government. In [Monterrey, CA, a] seaside community of pricey homes, the dread of yet another housing shock is already spreading.

‘We’re looking at more price drops, more foreclosures,’ said Rick Del Pozzo, a loan broker. ‘This snowball that’s been rolling downhill is going to pick up some speed.’

For the past three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to an unprecedented degree.

But Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. Michael Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities.

‘There’s always going to be a line, and for the person just over it, it’s always going to be an arbitrary line,’ said Barr, who teaches at the University of Michigan Law School. ‘But there is no entitlement to living in a home that costs $750,000.’

As the housing market braces for the trouble, homeowners everywhere have been reduced to hoping things will some day stop getting worse. In some areas, foreclosures are the only thing selling. New-home construction is nearly nonexistent. And CoreLogic, a data company, said Tuesday that house prices fell 7.5 percent over the past year. Each month, the number of faltering cities rises.

Federal agencies last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week that it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.

Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third, to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region. Sellers worry that the pool of potential buyers will shrink. ‘I’m glad to see they’re trying to rein in Fannie Mae, but I think I’m being disproportionately penalized,’ said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.

The National Association of Realtors is making an extension of the loan guarantees a top lobbying priority.

‘Reducing the limits will put more downward pressure on prices,’ said president Ron Phipps. ‘I just don’t think it makes a lot of sense.’ But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, ‘there’s more resistance.’
Federal regulators acknowledge that mortgages will get more expensive in upscale neighborhoods but say the effect of the smaller guarantees on the overall housing market will be muted.”

Really? No “entitlement” to live in an expensive house? Let Wall Street come up with a private secondary market for expensive (i.e. anything over $500,000?) homes? Who are they kidding? Especially in CA, CT, NT, VT.

This “sock it to the ‘rich’” business is a bunch of baloney.

Oh how I do LOVE first tuesday. Here’s their latest take on Bank of America’s “new and improved” loan modification centers. (And, while they don’t use the word ‘bullshit’ – which I would – they come pretty darn close!)

“Six new Bank of America (BofA) mortgage help centers will be opened in Los Angeles, San Diego, Riverside/San Bernardino, Antelope Valley, Modesto and Bakersfield by early summer. These new mortgage help centers will provide homeowners in danger of foreclosure on a BofA loan the ability to discuss their individual loan situations with BofA staff in hopes of obtaining the near-mythical permanent loan modification.

This newly-announced move comes in response to a scathing critique (full of bark, but oddly bite-less) of the Big Banks’ loose lending and servicing procedures which precipitated the Great Recession.

The housing counselors staffing these new mortgage help centers will be comprised largely of existing BofA employees the Big Bank is looking to redistribute during the current slowdown in loan originations.

But will these six new mortgage help centers actually help? The critics are skeptical. Like many Americans, the pundits have taken a “we’ll-believe-it-when-we-see-it” attitude to the multitude of reform promises made by the Big Banks. These centers, after all, aren’t changing BofA’s modus operandi; they merely provide friendlier faces for their refusals.

first tuesday Take: Count us as one of the critics, but don’t believe the modifications will somehow magically flow forth. Viewed in the best light, BofA is 1) providing its homeowners with a more reliable way of reaching someone who will deny their loan modification requests, and 2) giving its under-employed employees something to do. But we are talking about a bank here, so the likelihood that this move will live up to the best possible interpretation is pretty darned miniscule.

It’s been clear for awhile that marking all these loans to market will hugely undermine (and that’s a nice way of saying “topple”) BofA’s claim to solvency. And even if you believe BofA cares for its customers, it doesn’t care enough for them to go out of business. [For more on mark-to-market vs. mark-to-management accounting, see the October 2010 first tuesday article, Deflation’s push on the real estate recovery.]

So, we’ll say this for BofA: they can be congratulated on their ability to get press coverage on their staffing acuity while they avoid increasing the swollen ranks of California’s unemployed. But mortgage assistance? Don’t count on it.”

From first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516

The Ney Work Times reported on teh story May 5. Some of its commentary:

“Just over two million homes are in foreclosure nationwide, according to LPS Mortgage Monitor, and another two million borrowers are severely delinquent.

Additional centers may open later this year, the bank said. Counselors fluent in languages including Spanish, Korean, Vietnamese and Russian will be available for non-English speaking customers.

‘There are some people that prefer a face-to-face experience,’ said Rebecca Mairone, national mortgage outreach executive for Bank of America. ‘They prefer telling their story face to face or need additional information about documents or other counseling. We’re committed to helping distressed customers.’

Most of the counselors in the new centers will be transferred from other areas of the mortgage business, like sales and originations, which have slowed with the decline in mortgage demand.

Bank of America officials said their internal foreclosure procedures had changed in the wake of public criticism, and that the centers were being opened partly in response to customer feedback.”

“THERE ARE SOME PEOPLE THAT PREFER THE FACE TO FACE EXPERIENCE”?

“WE’RE COMMITTED TO HELPING DISTRESSED CUSTOMERS”

“MOST OF THE COUNSELORS WILL BE TRANSFERRED FROM OTHER AREAS OF THE MORTGAGE BUSINESS”

What a crock.

It would have been more honest to say: “We don’t want any more bad press so we’re not going to announce layoffs of our mortgage staff, and it’s better public relations to give our customers a face to face denial.”

Senator Dodd and Congressman Frank, the people who were key players in allowing the financial collapse, have brought us legislation to “fix the problem”.

 The Dodd-Frank Act is 2,314 pages of disjointed and wide spread enabling legislation that will impact all areas of the financial structure.  To see the briefest summary I have been able to locate, 16 pages, go to http://banking.senate.gov/public/_files/070110_Dodd_Frank_Wall_Street_Reform_comprehensive_summary_Final.pdf.

Among other things the Act creates a new federal agency, the Consumer Financial Protection Bureau (CPF), funded by the Federal Reserve system.  The CPF, which comes into existence on July 21, 2011 unless delayed for up to one year, will have broad sweeping enforcement powers in all areas of consumer finance including home loans, car loans, student loans, payday loans, credit cards, all mortgage related businesses and credit reports. It will also oversee banks and credit unions with assets in excess of $10 billion.  And the CFP has the authority to write its own regulations and then enforce them.

It is the most far reaching intrusion of government into the financial lives of its citizens in the history of the world. Many of the regulations they will be charged with enforcing have not even been written or finalized yet so the true scope of the CPF is not known, and it comes into existence in a few days.

In the area of real estate CPF will take over the power of enforcing RESPA from HUD. To bring about this transfer HUD has withdrawn all previously issued informal opinion letters. If your business is pursuing a business model in reliance on an informal opinion letter from HUD that it does not violate their rules you will need to be looking at the rules from the new Bureau to see if you are still ok.

CPF will take over enforcement of MARS from the FTC.  The FTC had been working with NAR to fine tune the regulation to remove real estate brokers from most of the regulatory requirements.  In early May the FTC advised NAR that they will not be revising the rule as promised, presumably because the CPF will now be responsible for the rule.

Part of the Act creates the Qualified Residential Mortgage (QRM) standards which generally will require that all buyers put 20% or more down for a conventional loan and meet fairly conservative qualifying ratios. And the lender will need to insure that the borrower has the ability to repay the loan.  Will non-QRM loans be available?  Potentially.  But if the borrower gets a non-QRM loan and then runs into trouble making the payments the borrower will have the ability to prevent foreclosure at any time during the life of the loan by claiming that the lender had no reasonable belief that the borrower could repay the loan at the time it was made.  Do you think you will see many of those loans?

What risk does Dodd-Frank bring to a real estate professional?  Any violation of CFP regulations can result in a fine of $5,000 per day.  A reckless violation can result in a fine of $25,000 per day.  A knowing or willful violation can result in a flat fee fine of $1 million.

So why have you not heard more about this in the industry or in the media? As I mentioned earlier, the regulations to implement much of this are still under development. No one is sure yet what the rules will be in order to advise you accordingly. In the future you will need to be diligent in watching for any news about Dodd-Frank and determining how it may impact you personally or professionally.

Strictly speaking…

Defining the qualified residential mortgage (QRM) is testing the mettle of the government’s commitment to stability in the real estate market.

QRMs, established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), are loans meeting low-risk standards which exempt lenders from having to retain any part of these loans in their portfolios.

New proposals by federal agencies and the administration restrict the designation of QRM to loans in which homebuyers put down at least 20% of the purchase price of a home as down payment, colloquialized as “having skin in the game.”

The proposed down payment requirement alone has sparked fierce debate in real estate circles and the media, but it’s far from the only proposed restriction on what qualifies as a QRM. The designation of QRM is restricted to:

. first-lien mortgages to purchase or refinance a one-to-four unit principal residence;
. mortgages amortizing over 30 years or less;
. borrowers who are not currently 30 or more days past due on any debt;
. borrowers who have not been 60 or more days past due on any debt within the last 24 months;
. borrowers who have not, in the past 36 months:
– filed for bankruptcy;
– had property repossessed or foreclosed on;
– engaged in a short sale or deed-in-lieu of foreclosure; or
– been subject to a federal or state judgment for the collection of a debt;
. loans with interest rates adjusting no more than two percent in any 12-month period, and no more than six percent over the life of the loan, if the loan is an adjustable rate mortgage (ARM);
. mortgages which do not contain prepayment penalties;
. loan-to-value ratios of 70% for rate-and-term refinances and 75% for cash-out refinances;
. debt-to-income ratios of 28% for all mortgage debt, called the front-end ratio, and 36% for all debt, called back-end ratio;
. standard documentation loans;
. loans with points and fees of 3% of the loan amount or less; and
. non-assumable loans.

Any loans not meeting all the above requirements would require lenders and securitizers to hold in reserve an amount equal to 5% of the loan balance in their portfolios, as recovery funds in case of default. This means any borrower who does not qualify for a QRM — i.e., the vast majority of borrowers — would be subject to higher interest rates to cover the increased risk a non-QRM would pose to lenders.

Federal Housing Administration (FHA)- and Veterans Administration (VA)-insured loans, as well as loans sold to Fannie Mae or Freddie Mac (while they remain under government control) are not subject to the QRM requirements under the proposal.

If passed, the rules outlined in the proposal will not be implemented until mid-2012.

The zero-sum game lenders will play.

Ah, lenders. The idea of retaining any risk for the loans they originate has them running a bit scared. At this point, we can only speculate on what tricks lenders will devise to get around the rules that borrowers and the rest of the consuming public have to play by — and make no mistake, lenders will do so.

Many of the proposed QRM requirements would set groundwork for a stable housing policy (down payment requirements, strict DTI ratios), separating those who are truly financially able to take on the burden of homeownership from those who are tenants-by-nature. However, it’s important to note the distinction between QRM and a non-QRM are not prohibitive; lenders can still lend to non-QRM-eligible borrowers.

And Americans still have a huge appetite for homeownership in spite of the unmanageable financial risks it poses to most homeowners. A recent study shows Americans are still very willing to glut themselves on housing and mortgage debt, regardless of the financial malaise which follows. Thus, the strict definition of the QRM will only lead to more marginalized types of borrowing — the non-QRM-eligible borrowers will almost certainly be charged higher interest rates, thus perpetuating the cycle of non-QRM-eligible borrowers being more likely to default.

Likewise, the three-year restriction against borrowers who participated in a short sale or deed-in-lieu of foreclosure carries the weight of punitiveness by classification, not ability to pay. Borrowers may have taken it upon themselves to buy (or refinance) when the market value of their properties were worth more than fundamentals dictated, but lenders had no qualms about originating these loans at the time, knowing quite well their conduct was a financial accelerator recklessly driving home prices up. Will restricting short-sale participants from being eligible for a QRM really lead to fewer people overpaying for their homes or defaulting?

Solution or punishment?

The importance of a stable housing policy promoting stable homeownership is paramount, but the strictness of the QRM may be based on reactions to the most recent housing crisis rather than truly crafting a stable housing policy. The strict differentiation between QRMs and non-QRMs merely gives lenders the ability to pawn off their 5% risk-retention onto underqualified homebuyers and homeowners; it’s a zero-sum risk reduction for lenders.

Brokers and agents would do well to be aware of how this proposal fares in the coming months. The proposal is open for comment through June 10, 2011. Comment can be submitted to any of the participating agencies via methods outlined on pages two and three of the proposal, which can be read in its entirety on the Federal Deposit Insurance Corporation (FDIC)’s website.

From: the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

Lance Churchull writes:
“One thing I have wondered about in the past is why the two government-sponsored entities, Fannie Mae and Freddie Mac, found it necessary to have different rules for short sales, but then I remembered that the “G” in GSE stood for government and, of course, the government usually makes things more complicated than they should be. Well, on April 28, 2011, the Federal Housing Financing Agency (FHFA), which has been overseeing Fannie Mae and Freddie Mac since their near financial collapse, decided it would be better if they had uniform rules for delinquent mortgages. The FHFA has directed that Fannie Mae and Freddie Mac align their guidelines for servicing delinquent mortgages they own or guarantee with the stated purpose of creating an updated framework that will establish uniform servicing requirements for how delinquent mortgages are handled, including the short sale process. The director of FHFA said, “Once fully implemented, the enterprises’ aligned policies will require earlier contact, more frequent communication and prompt decisions.”

The aligned guidelines will also govern the “dual track” foreclosure process by requiring the servicers to immediately contact delinquent borrowers in an effort to resolve a delinquency. The foreclosure process may not commence if the borrower and the servicer are engaged in a good faith effort to solve the delinquency. In the event that the property is referred to foreclosure, financial incentives would be provided to encourage the servicers to help continue the borrowers pursue a foreclosure alternative such as a short sale.

Freddie Mac and Fannie Mae must issue the new guidelines to their servicers on or before September 30, 2011. Having reviewed the actual and very detailed servicing announcements by both Fannie Mae and Freddie Mac that seems like an awfully long time to implement the new rules. However, given the fact it took Fannie Mae and Freddie Mac eight months to implement a HAFA program that was nearly the same as the Treasury Department’s program, I guess it is reasonable for them to take five months to align their loss mitigation rules.

One of the new policies that agents will like is that Fannie Mae and Freddie Mac will have the same borrower package for borrowers to be considered for all workout and foreclosure avoidance solutions, including HAMP modifications and short sales. When the borrower’s package is received, it is required that at the beginning of the process there be a simultaneous evaluation of borrowers for both the HAMP and HAFA programs. An additional new standard that agents will applaud is that there will be a uniform case escalation process which requires acknowledgement of an escalation request within three business days after receipt and adherence to a 30-day maximum total time to resolve an escalated case.

Since Fannie Mae and Freddie Mac short sales constitute a large portion of the short sale market, new uniform short sale guidelines and procedures for non-HAFA short sales would certainly be welcomed by the real estate industry. Let’s hope that the new guidelines, when they are issued, will actually simplify and expedite the process, and that the servicers will effectively implement the new rules. Stay tuned for updates on this topic, but don’t hold your breath in anticipation of seeing the newly aligned Fannie Mae and Freddie Mac short sale rules very soon.”

I couldn’t agree more.

April 11, 2011 … Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corp (FDIC), Office of Thrift Supervision (OTS) and Federal Housing Finance Agency (FHFA) all ganged up on Mortgage Electronic Registration System MERS. And I mean ganged up on it.

A consent decree was issued this Tuesday telling MERS it had 30, 60 and 90 days (respectively) to get all kinds of things done – all boiling down to:

GET YOUR ACT TOGETHER!

Seems the Government doesn’t like the way the foreclosure process is working out. Oh, and it’s costing everyone a LOT of money to clean up.

It appears that the nutty court cases across the country – and maybe the recent 60 Minutes segment – all have gotten the attention of our “leaders” in Washington.

But Wait; There’s More!

April 13, 2011 … In the ever increasing number of cases impacting MERS, the Federal Bankruptcy Court (Southern District – California) came out roaring – again. The case: In re Salazar . The holding: A MERS membership agreement is not the same as an assignment of the Deed of Trust. So, bye, bye, US Bank. It didn’t get the right to foreclose on Ms. Salavar. Why? Because no assignment of the beneficial interest in the Deed of Trust was recorded to US Bank before the foreclosure.

Ah, those pesky little details. They’ll getcha every time.

The Wall Street Journal recently reported that the oprices of houses are Up, and Down. Depending on where.

Seems like everyone jusst wants to ad their own shpin on a story that has no right, wrong, left or middle.

“With the National Association of Realtors reporting that home prices rose in about half of U.S. metropolitan areas in the last three months of 2010, it’s easy to think that that the housing market is showing some signs of recovery. “Home sales clearly recovered in the latter part of 2010,” Lawrence Yun, the NAR’s ever-optimistic economist says in a statement.

But the proverbial grain of salt is in order, given many other sources report prices continue falling. The Journal recently reported that home values declined in all of the 28 major metropolitan areas tracked during the fourth quarter when compared to a year earlier, and repeat-sales indexes such as the S&P/Case Shiller index have shown that prices declined in October and November.

The Realtors are looking at a different measure, median prices, which show that prices for home resales rose in about half of the nation’s 152 metro areas during the October-December quarter. Prices rose in 78 cities, fell in 71 and were unchanged in three. The group says the national median price for single-family homes was $170,600 in the fourth quarter of 2010, up 0.2% from $170,300 a year earlier.
The Washington, DC, area gained 8.1%. There were decliners: Portland, Ore., came in down 3.8% and Seattle dipped 3.9%.
Data from Zillow, however, show bigger declines in those three markets. Washington fell 5.8%, Portland declined 12.1% and Seattle tumbled 11.9%.

Why the difference? When comparing the fourth quarter of 2010 to the prior-year period, the Realtors use median price, the point where half of sales fall above and half fall below. Last year’s data still include buyers tapping a tax credit of up to $8,000. Many of those sales were first-time buyers, who typically buy lower-priced houses. The expired credit isn’t in this year’s numbers, so median prices in some markets could be higher from a year ago because the more higher-priced sales were added to the “mix” of sales.

Most industry watchers agree that the housing market must endure more pain before it can fully recover. Lending standards are tight, preventing would-be buyers from inking deals. The foreclosure crisis, meanwhile, continues with no end in sight. Many economists and housing analysts expect home prices to fall an additional 5% to 10% before prices hit the long-awaited bottom later this year or early next year.

By Alan Zibel, WSJ.com; Dawn Wotapka and Nick Timiraos contributed to this article.

Freddie Mac bulleting 2011-05 states No More MERS foreclosures.
MERS must transfer the interest it holds as indentured trustee (or whatever) to the actual loan services.

I wonder how much money MERS just lost on all those fees it was generating?

And how will the true servicers will feel about having to foreclose the old way?

Mortgage borrowers who are turned down for loan modifications may now get additional information that could help them understand why they didn’t qualify under the so-called “HAMP test.”

Until recently, borrowers weren’t privy to the data used to perform the Home Affordable Modification Program’s, or HAMP’s, “net present value” test. But as of Feb. 1, loan servicers are required to send letters disclosing up to 33 data points to some borrowers who were rejected for HAMP loan modifications. Not all loans are covered by this requirement, which is part of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, so not all borrowers will receive letters.

HAMP test required

The data points focus on the borrower’s financial situation, home, existing loan and proposed modification, according to Tom Goyda, a spokesman for Wells Fargo in St. Louis. Borrowers who believe they have found mistakes in the data may file appeals with their servicers. Final decisions are up to the servicers.

“If they think there are any errors in terms of the inputs used, they have 30 days during which they can provide, in writing, what their evidence is to support what they believe the correct value should be,” Goyda says.

HAMP’s net present value, or NPV, test measures whether a loan modification makes financial sense for the lender. If so, the servicer must offer the borrower a trial modification. If a modification isn’t in the lender’s financial interest, and the borrower hasn’t made the payments, the servicer may foreclose on the loan.

HAMP test website

Borrowers who want to see the inputs in action will soon be able to run their own practice HAMP tests on a website being developed by the U.S. Treasury. The website is expected to be ready in late spring and will include definitions of terms and icons to explain the inputs, according to Treasury spokeswoman Andrea Risotto. The system will have security features, but it will be open to anyone who wants to use it.

The chief benefit should be greater transparency in the HAMP process. Borrowers will be able to evaluate whether their situation might pass the HAMP test and see how changes in the data could affect the results, Risotto says. For example, a borrower who believes the loan servicer’s opinion of the home’s value was incorrect can see whether a more accurate valuation, perhaps based on an appraisal obtained by the borrower, would affect the outcome of the test.

The website will perform only HAMP calculations, not tests based on servicers’ proprietary non-HAMP loan modification models.

Inputs determine outcome

Besides the disclosed inputs, the results of a HAMP test depend on other factors controlled by the servicer, such as the estimated cost of the loan modification, the perceived likelihood that the borrower will default on the loan and cost of a foreclosure. HAMP’s guidebook for servicers lists 51 recommended inputs for the NPV test.

The design of the HAMP test is critical, a point that was well-explained in a Congressional Oversight Panel’s December 2010 review of federal foreclosure prevention programs.

“If the NPV model is calibrated correctly,” the report states, “it will get the correct homeowners into HAMP to prevent avoidable foreclosures. However, an incorrect calibration could either act as a means to delay inevitable foreclosures or grant subsidies to those who would otherwise cure (a loan default) and therefore do not need the extra help.”

Borrowers won’t be able to test the model’s accuracy, and they won’t be able to test their servicers’ assumptions. But the new data should clear up some of the mystery about what goes into the HAMP test.

By Marcie Geffner