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Why Fannie and Freddie Are Not Going Away Anytime Soon


“WASHINGTON, April 23 (Reuters) – In considering how to fix the ailing U.S. housing market, Republicans and Democrats in Washington have found a rare point of agreement: they would prefer life without failed mortgage giants Fannie Mae and Freddie Mac.

But even with agreement that the system is broken, it is unlikely Congress will soon tackle the mammoth task of winding down two entities that have cost taxpayers more than $150 billion since their bailout in September 2008. Fannie and Freddie now support about 60 percent of all new U.S. home loans.

Already, lawmakers have taken tentative steps to scale back Fannie Mae and Freddie Mac’s involvement by reducing the size of loans that they can guarantee. Republicans and Democrats have unified behind preserving affordable homeownership.

But more dramatic actions could be politically treacherous in an election year. Home buyers still rely on the government backstop in nine of 10 new mortgages, and the fragile market must be weaned slowly from its dependence on federal programs providing financial backing.

Changing the present system might prove hard for lawmakers who are wary of risking harm to the housing recovery. Some would fear alienating the deep-pocketed housing lobby and various consumer groups rallying around the issue.

“There’s not a politician out there who is willing to take the risk of proposing something with a short transition period that would potentially be blamed for cratering the housing market,” said Douglas Elliott, a Brookings Institution fellow and former investment banker.

The Obama administration will release an updated plan in coming weeks that is expected to further define its goals for the federal government’s role in the housing finance system, according to sources familiar with the matter.

The administration in February 2011 offered three big-picture options for overhauling the mortgage market.

One would be to eliminate federal involvement altogether, but most experts say this could upend the housing market.

Another option creates a system that would help some types of low-income and veteran buyers and also provides an expanded guarantee the government would offer mostly in times of financial distress.

A third would include government reinsurance for some types of mortgages, but only if lenders first purchased a guarantee from a private insurer.

The administration has not endorsed a legislative plan at this point, but continues to consider these options, according to a U.S. Treasury official….”

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Joel Kotkin: The Great California Exodus


‘California is God’s best moment,” says Joel Kotkin. “It’s the best place in the world to live.” Or at least it used to be.

Mr. Kotkin, one of the nation’s premier demographers, left his native New York City in 1971 to enroll at the University of California, Berkeley. The state was a far-out paradise for hipsters who had grown up listening to the Mamas & the Papas’ iconic “California Dreamin'” and the Beach Boys’ “California Girls.” But it also attracted young, ambitious people “who had a lot of dreams, wanted to build big companies.” Think Intel, Apple and Hewlett-Packard.

Now, however, the Golden State’s fastest-growing entity is government and its biggest product is red tape. The first thing that comes to many American minds when you mention California isn’t Hollywood or tanned girls on a beach, but Greece. Many progressives in California take that as a compliment since Greeks are ostensibly happier. But as Mr. Kotkin notes, Californians are increasingly pursuing happiness elsewhere.

Nearly four million more people have left the Golden State in the last two decades than have come from other states. This is a sharp reversal from the 1980s, when 100,000 more Americans were settling in California each year than were leaving. According to Mr. Kotkin, most of those leaving are between the ages of 5 and 14 or 34 to 45. In other words, young families.

The scruffy-looking urban studies professor at Chapman University in Orange, Calif., has been studying and writing on demographic and geographic trends for 30 years. Part of California’s dysfunction, he says, stems from state and local government restrictions on development. These policies have artificially limited housing supply and put a premium on real estate in coastal regions.

“Basically, if you don’t own a piece of Facebook or Google and you haven’t robbed a bank and don’t have rich parents, then your chances of being able to buy a house or raise a family in the Bay Area or in most of coastal California is pretty weak,” says Mr. Kotkin.

While many middle-class families have moved inland, those regions don’t have the same allure or amenities as the coast. People might as well move to Nevada or Texas, where housing and everything else is cheaper and there’s no income tax.

And things will only get worse in the coming years as Democratic Gov. Jerry Brown and his green cadre implement their “smart growth” plans to cram the proletariat into high-density housing. “What I find reprehensible beyond belief is that the people pushing [high-density housing] themselves live in single-family homes and often drive very fancy cars, but want everyone else to live like my grandmother did in Brownsville in Brooklyn in the 1920s,” Mr. Kotkin declares.

“The new regime”—his name for progressive apparatchiks who run California’s government—”wants to destroy the essential reason why people move to California in order to protect their own lifestyles.”

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Mortgage Applications Tick Higher as Refinancing Grows


“Applications for U.S. home mortgages jumped last week as a drop in interest rates fueled demand for refinancings, though purchases tumbled, an industry group said on Wednesday.



The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 6.9 percent in the week ended April 13.


The MBA’s seasonally adjusted index of refinancing applications surged 13.5 percent, but the gauge of loan requests for home purchases dropped 11.2 percent. It was the second week in a row purchases have declined.


“Renewed concerns about sovereign debt [cnbc explains] in Europe led to a drop in rates last week, with the 30-year rate tying our survey low, reached in early February. Refinance activity picked up in response,” Jay Brinkmann, MBA’s chief economist, said in a statement….”

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Curbs In China Have Home Prices Falling in More Than Half or Their Cities

China’s home prices fell in a record 37 of 70 cities tracked by the government in March as officials pledged to keep restrictions on property purchases that have sapped buyer demand.

The eastern city of Wenzhou led declines with a 9 percent slump in values from a year earlier, while Beijing and Shanghai recorded drops of 0.8 percent, according to data released by the statistics bureau today.

Today’s release underscores forecasts for China’s economic growth to slow further this quarter after the rate reached the lowest level in almost three years in the three months through March. Momentum in the real-estate industry is “too strong to reverse” for now, according to Li Daokui, a former adviser to the nation’s central bank.

“Alternative drivers of GDP growth will have to take some time to come in, to fill in the vacuum,” Li said today in an interview with Bloomberg Television from Sydney, citing water, rail and public-housing projects as future contributors to the expansion. Policy makers are aiming to balance reining in property speculation without hobbling growth, he said….”

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NAHB: Housing Will Recover This Time In 2013

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The National Association of Home Builders today reported its first decline in homebuilders’ confidence in seven months, but that may be just a blip in the fledgling housing recovery.

“The housing crash is now over…and by this time next year, housing will no longer be a drag for the economy but a tailwind,” Mark Zandi, chief economist of Moody’s Analytics tells The Daily Ticker.

Zandi says this year’s spring selling season is off to a pretty good start, although by historic standards prices are still low. But that may not be all bad: Low prices means homes are more affordable to buy.

“House prices are now low enough relative to incomes that single family housing is about as affordable as its ever been in the data we have going back to World War II,” Zandi says.

Low prices also attract investor interest, which is helping to stabilize the housing market. “Investors can come in, buy homes, rent them, cover costs and look for a capital gain down the road,” he says.

Rising rents have been attracting those investors, but at some point they may compel consumers to buy homes.

“Another year from now if prices stay flat and rents rise another 4, 5 or 6%, then the decision to rent or buy will be firmly in favor of buying rather than renting,” Zandi says, adding that’s already the case in some parts of the country.

Demand to buy homes will also increase when potential buyers get a whiff of rising interest rates.

“At that point …. they will want to jump in and buy that home before they lose those very advantageous mortgage rates,” says Zandi. The rate on a 30-year fixed mortgage is currently 3.88%, according to Freddie Mac.

Until there is a substantive recovery, Zandi says housing will continue to be divided between a distressed market — filled with homes in foreclosure or on the verge of it — and a non-distressed market, which is holding up well. He also expects multifamily housing will continue to outpace the single-family market.

Zandi says the government could help accelerate the housing recovery by making it easier for homeowners to refinance and to reduce principal owed.

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Delays May Limit Impact of Mortgage Aid Program

“A $7.6 billion federal program to help homeowners avoid foreclosure had spent just 3% of its money almost two years after the program was announced, a government report shows.

As of Dec. 31, the “Hardest Hit” program had helped 30,640 homeowners — or 7% of the almost 475,000 homeowners it was intended to assist — says the report released today from the Office of the Special Inspector General for the Troubled Asset Relief Program.

The program, available in 18 states and the District of Columbia, suffered a “significant delay” given lack of planning by the U.S. Treasury Department and slow uptake by mortgage loan servicers and mortgage giantsFreddie Mac and Fannie Mae, the report says.

Unless changes are made, not all of the funds may be spent by the program’s end in December 2017, warns Christy Romero, deputy special inspector general.

She also says its in danger of having a “limited” impact on the foreclosure crisis, which is a criticism that’s been lobbed at other Obama administration programs.

Treasury officials say the report “misses the mark.” The program, geared toward helping the unemployed or underemployed in states hard hit by recession or home price declines, has “kept tens of thousands of families in their homes,” Treasury official Tim Massad says….”


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30 year mortgage back inside 4%

WASHINGTON (AP) — The average U.S. rate on the 30-year fixed mortgage was mostly unchanged this week, as the cost of home-buying and refinancing stayed near record lows.

Mortgage buyer Freddie Mac said Thursday that the rate on the 30-year loan fell slightly to 3.98 percent from 3.99 percent last week. In February, the rate touched 3.87 percent, the lowest since long-term mortgages began in the 1950s.

The average rate on the 15-year fixed mortgage also fell, to 3.21 percent from 3.23 percent. That’s above the record low of 3.13 percent hit last month.

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Foreclosures stall unexpectedly in February

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In an unexpected reversal, both newly started foreclosures and finalized foreclosures dropped precipitously in February.

So-called foreclosure starts fell 15.2 percent month-to-month. Foreclosure sales, the final stage of the process (not sales of already bank-owned properties) fell 19 percent month-to-month, according to a new report from Lender Processing Services.

Most had expected both starts and sales to ramp up, following the $25 billion dollar settlement between five of the nation’s largest banks and state attorneys general and federal agencies over the now infamous “robo-signing” scandal. The drop in finalized foreclosures was nationwide, in states where a judge is involved in the process as well as in non-judicial states.

“For both foreclosure starts and sales, we’re finding that so far, the sustained increase isn’t there, though we do see sporadic ‘bursts’ of activity,” says Herb Blecher of LPS Applied Analytics. “These are sometimes focused around particular investors (i.e., Fannie Mae and Freddie Mac foreclosure starts) and may reflect seasonal trends, loss-mitigation activities, legislative impacts, or other operational factors. We can’t say specifically what those bursts correlate to, because we just don’t see that in the data.”

This sudden stall, however, if prolonged, could lead to an overall drop in home sales, given that foreclosures are such a large share of the market. That has at least one well-known analyst warning of more problems ahead for housing.

“Through relentless meddling with delusions that ‘foreclosures are bad,’ they effectively destroyed the macro housing market,” says California-based mortgage analyst Mark Hanson, referring to government intervention in the housing market. “Contrary to popular thinking, the eradication of foreclosures will lead this housing market into paralysis, not recovery.”

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Investors building rental portfolios from foreclosed houses

RIVERSIDE, Calif. — At least 20 times a day, Alan Hladik walks into a fixer-upper and tries to figure out if it is worth buying.

As an inspector for the Waypoint Real Estate Group, Mr. Hladik takes about 20 minutes to walk through each home, noting worn kitchen cabinets or missing roof tiles. The blistering pace is necessary to keep up with Waypoint’s appetite: the company, which has bought about 1,200 homes since 2008 — and is now buying five to seven a day — is an early entrant in a business that some deep-pocketed investors are betting is poised to explode.

With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants. Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses. Typically, landlords tend to be individuals or small firms that own just a handful of homes.

But the new investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends. At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market.

This year, Waypoint signed a $400 million deal with GI Partners, a private equity firm in Silicon Valley. Gary Beasley, Waypoint’s managing director, says the company plans to buy 10,000 to 15,000 more homes by the end of next year. Other large private equity investors — including Colony Capital, GTIS Partners and Oaktree Capital Management, in partnership with the Carrington Holding Company — have committed millions to this new market, and Lewis Ranieri, often called the inventor of the mortgage bond, is considering it, too.

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Spain’s Home Prices Expected to Drop 12-14% This Year

“Spanish home prices are poised to fall the most on record this year, leaving one in four homeowners owing more than their properties are worth, as the government forces banks to sell real-estate holdings.

Home prices will decline 12 percent to 14 percent, according to research and advisory company R.R. de Acuna & Asociados, after Economy Minister Luis de Guindos in February gave lenders two years to make 50 billion euros ($67 billion) of additional provisions and capital charges for losses linked to real estate. That’s the most since the National Statistics Institute started tracking values in 2007. Standard & Poor’s forecasts borrowers with negative equity may rise to 25 percent this year from 8 percent in 2010, based on an analysis of 800,000 mortgages….”

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Get Ready: Taxpayers May Have to Finance Another Round for FHA

“The Federal Housing Administration won’t be able to earn its way to financial health this year, increasing the chance it will need a taxpayer bailout, based on an updated forecast from Moody’s Analytics, which provides the agency’s housing-market analysis.

The U.S. government mortgage-insurer, which guarantees $1.1 trillion in home loans, had been counting on “robust growth” in home prices to help rebuild its insurance fund after paying out $37 billion to cover defaults the past three years, according to its annual report to Congress, filed in November.

It won’t get that growth until 2014, according to the latest outlook from Moody’s Analytics. One measure of the market, the S&P Case-Shiller Home Price Index, will decline 2 percent in fiscal 2012, said Celia Chen, a Moody’s Analytics housing economist who updated her estimate after providing the housing-market forecast for the FHA’s annual actuarial report. Moody’s Analytics hasn’t taken a position on the FHA’s future solvency, said Mark Zandi, the company’s chief economist, in an e-mail.

“The FHA’s economic projections are surreal,” said Andrew Caplin, a New York University economics professor who has testified to Congress on the agency’s finances. “They must believe there will be very few readers in Congress able to critically review such a complex report.”

Actuaries’ Projections

In their annual review, the FHA’s actuaries — risk analysts who specialize in insurance — used earlier projections that called for increases of 1.2 percent in 2012 and 3.8 percent in 2013. The agency, which backs mortgages that cover as much as 96.5 percent of a home’s value, is sensitive to changes in home prices. While the insurance fund’s 2012 outlook called for net growth of about $9 billion, that will drop if home prices decline, according to the FHA’s November report.

By law, the fund is supposed to hold 2 percent of its portfolio in reserve; as of Sept. 30, it held only 0.24 percent, or $2.6 billion, according to the report….”

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