Beat And Battered

Time for another get together. Mark your calendars, cancel your trips, and tell the inlaws to buzz off.

This Saturday, August 2nd at 5pm
Shannon Rose - http://www.theshannonrose.com/
98 Kingsland Road, Clifton NJ

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From Bloomberg:

Hamptons Home Prices Fall on Wall Street Jobs, Economic Outlook

Home prices in the Hamptons, the summer haven of New York financiers and socialites, fell almost 12 percent in the second quarter from a year earlier as Wall Street firms cut jobs and the economy teetered near a recession.

Sales dropped 26 percent and the median price slid to $970,000 in the resort towns on the East End of Long Island, New York-based broker Prudential Douglas Elliman Real Estate and appraiser Miller Samuel Inc. said in a report today.

“We used to think of the Hamptons as insulated and that’s not the case,” said real estate developer Arthur Rauscher, who is trying to sell his four-bedroom custom-built East Hampton house for the second time in three years. He’s asking $1.3 million and hasn’t received any offers. “It’s not what it used to be.”

The housing slump is hitting the Hamptons as financial firms have announced more than 76,000 U.S. job cuts sparked by mortgage- related losses and writedowns. The nation’s economic expansion may slow to the weakest pace in six years in the fourth quarter, according to a Bloomberg News survey, and New York Governor David Paterson has said a 20 percent drop in securities industry bonuses this year will cut state revenue by $700 million.

Homes in the Hamptons — where billionaire Ronald Perelman, director Steven Spielberg and “Sex and the City” star Sarah Jessica Parker own — took an average of 143 days to sell in the quarter, up 18 percent from a year earlier, said closely held Miller Samuel. The company appraised more than $5 billion in property in the past year. Sellers in towns including Southampton, Quogue and Amagansett got an average of 9 percent less than their final asking price.

Time for another get together. Mark your calendars, cancel your trips, and tell the inlaws to buzz off.

This Saturday, August 2nd at 5pm
Shannon Rose - http://www.theshannonrose.com/
98 Kingsland Road, Clifton NJ

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From the WSJ:

Amid Housing Slump, Glut Eases Slightly
Rising Foreclosures, Tighter Credit Still Pushing Down Prices; Economists Don’t Expect Big Boost From Congressional Package
By JAMES R. HAGERTY
July 29, 2008; Page D1

The number of homes on the market is finally falling in much of the U.S., but tight credit and a flood of foreclosures are still pushing home prices down.

Making things worse, a sputtering economy is destroying jobs. That means even more foreclosures and fewer potential home buyers.

Mark Zandi, chief economist at Moody’s Corp. Economy.com, says he doesn’t expect a major rebound in home sales and prices before the spring of 2010. “The recovery will vary considerably across the country, with California recovering quickly and Florida much more slowly,” Mr. Zandi says.

“We have the added weight of a recessionary economy” on what was already the weakest housing market since the 1930s, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm. He says the market won’t recover fully until employment starts growing again and credit becomes more readily available.

The Wall Street Journal’s quarterly survey of housing data in 28 major metropolitan areas showed that the supply of homes listed for sale declined from a year earlier in 19 of them. (See table on the back page.) If that trend continues, it will signal an eventual rebound. For now, though, supplies remain so ample that potential buyers generally can take their time.
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Perhaps the biggest factor pushing down home prices is the growing glut of foreclosed homes that banks and mortgage investors must sell. In May, such homes accounted for nearly 22% of all sales nationwide, Barclays Capital estimates in a report released last week. In California, Arizona and Nevada, the share was around 40%.

There are about 721,000 foreclosed homes on the market nationwide, up from 112,000 two years ago, Barclays Capital estimates. Analysts at Barclays expect the total to rise 60% before peaking in late 2009.
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Many potential buyers are on the sidelines because they no longer qualify for a mortgage under today’s tougher standards. “They’re having to clean their credit up” and save for a down payment, says John Wood, who owns Re/Max Partners, which operates in the Raleigh, N.C., area. “That is certainly hurting our market.”

Those who can get a loan are finding it more expensive. Rates for 30-year fixed loans that conform with the standards of Fannie and Freddie last week averaged 6.69%, up from 6.55% a month before and about even with the year-earlier level, according to surveys by HSH Associates, a financial publisher. For “jumbo” mortgages, those too large to be purchased by Fannie or Freddie, rates last week averaged 7.70%, up from 7.65% a month earlier and 7.02% a year before, HSH says.

As always, the market varies considerably from city to city and even block to block. The most attractive neighborhoods with short commutes and excellent schools are holding up well.
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Manhattan, a market that until recently seemed immune to the housing slump, is suffering from the loss of Wall Street jobs and expected cuts in bonuses. A modest price fall in 2009 is “a distinct possibility” for Manhattan, says Jonathan Miller, chief executive officer of Miller Samuel, an appraisal firm based in New York. Jeffrey Jackson, chief economist at the appraisal firm Mitchell, Maxwell & Jackson, says prices already have fallen on mediocre Manhattan apartments — such as those that have little natural light or need repairs — and are likely to fall further. “Demand is very weak right now,” he says.

From the WSJ:

Housing Bill Relies on Banks To Take Loan Losses
Lawmakers Pressure Lenders to Pitch In To Curb Foreclosures
By DAMIAN PALETTA
July 28, 2008; Page A3

WASHINGTON — The housing rescue bill passed by the Senate Saturday hasn’t been signed into law, but top Democrats already are putting pressure on regulators and bankers to make sure a major program to prevent foreclosures doesn’t fall flat.

For struggling U.S. homeowners, the success or failure of the program — which would let roughly 400,000 owners refinance into affordable, government-backed loans — depends largely on bankers’ willingness to take a partial loss on the loans and to reduce the amount of money borrowers owe.

Bankers say they will do it, but it isn’t clear how many loans they might be willing to restructure.

“I absolutely do believe that there will be more principal reductions,” Michael Gross, Bank of America Corp.’s managing director for loss mitigation, mortgage, home-equity and insurance services, told a congressional panel Friday.
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Experts say the program’s eventual participation could rise dramatically if home prices continue to drop — which could put more pressure on lenders to offer borrowers more assistance. Lawmakers are already pressing regulators and lenders to prepare now so the program can begin without delay when it goes into effect Oct. 1.
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Taking a loss on a loan by writing down the principal owed is one of the least desirable options for loan servicers. They typically prefer to either lower the interest rate or extend the life of the loan — from 30 years, for example, to 40 years.

“The real problem is going to be, just like with every program out there, are the banks going to take this seriously?” said Rebecca Case-Grammatico, a staff attorney at the Empire Justice Center in Rochester, N.Y., who advises clients facing foreclosure. “And if they don’t, we’re in the same position we’ve been in all along.”
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The program will be run by the Federal Housing Administration, a division of HUD, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can’t be for more than 90% of a home’s newly appraised value. For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

The program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won’t be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31% as of March 1.

From Bloomberg:

Sales of U.S. Existing Homes Fell to 4.86 Million Rate in June

Sales of previously owned U.S. homes fell in June to the lowest level in a decade, signaling tumbling real-estate prices and consumer confidence are hurting demand.

Resales dropped 2.6 percent to a lower than forecast 4.86 million annual rate from a 4.99 million pace the prior month, the National Association of Realtors said today in Washington. The median home price dropped 6.1 percent from June last year.

The biggest housing recession in a generation, now being exacerbated by a tightening in credit and rising borrowing costs as financial losses spread, threatens to stall economic growth. Mounting foreclosures are depressing home prices even more, prompting some buyers to hold out for bigger bargains.

“People are waiting until prices hit bottom, and credit is still difficult to obtain,” Gus Faucher, director of macroeconomics at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “We expect to see home sales fall further.”

Economists forecast home resales would fall to a 4.94 million pace, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from a 4.79 million pace to 5.1 million rate.

From CNBC:

Existing-Home Sales Skid To 10-Year Low in June

Sales of existing homes fell a bigger-than-expected 2.6% in June to a 10-year low, an industry group said, as the housing industry continued to be bruised by the worst slump in more than two decades.

The National Association of Realtors reported sales dropped to a seasonally adjusted annual rate of 4.86 million units. That’s more than double the expected decline.

It leaves sales 15.5 percent below where they were a year ago.

The downward slide in sales is depressing prices, too. The median price for a home sold in June has dropped to $215,100, down by 6.1 percent from a year ago.

That was the fifth largest year-over-year price drop on record.

From Reuters:

Existing home sales fall 2.6 percent

The pace of existing home sales in the United States fell in June to a 4.86 million-unit annual rate, the National Association of Realtors said in a report on Thursday that saw the sales volume hit a 10-year low.

Economists polled by Reuters were expecting home resales to fall to a 4.93 million-unit pace, from the 4.99 million rate initially reported for May. The June rate was the lowest since a 4.83 million rate in early 1998, the Realtors said.

The inventory of homes for sale held steady at 4.49 million homes or an 11.1 months’ supply at the current sales pace. The median national home price declined 6.1 percent from a year ago to $215,100.

From MarketWatch:

Existing-home sales fall 2.6% to 10-year low

Resales of U.S. single-family homes and condos fell 2.6% in June to a seasonally adjusted annual rate of 4.86 million, the lowest level in 10 years, the National Association of Realtors reported Thursday.

Resales have sunk 15.5% in the past year and are down about 33% from the peak in 2005. The pace of sales has been relatively stable since last August at around a 5 million annual pace.
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The inventory of unsold homes on the market rose 0.2% to 4.49 million, an 11.1-month supply at the current sales pace, the second-highest inventory level since the mid-1980s.
The median sales price fell 6.l% in the past year to $215,100.

Sales of single-family homes fell 3.2% to a seasonally adjusted annual rate of 4.27 million, the lowest since January 1998. Sales of condos rose 1.7% to an annual rate of 590,000, the highest since November.

About a third of sales are distressed sales, either foreclosures or short-sales. Many foreclosures aren’t included in the data at all because they are not sold through the realtors’ multiple-listing service.

From the AP:

Existing home sales fall 2.6 percent in June

Existing home sales fall 2.6 percent in June, more than double the expected amount

From the WSJ:

FDIC Faces Mortgage Mess After Running Failed Bank
Subprime Lender Made Problem Loans On Regulators’ Watch
By MARK MAREMONT
July 21, 2008; Page A1

Federal officials heap much of the blame for the subprime mortgage mess on lenders, claiming they recklessly made too many high-cost home loans to borrowers who couldn’t afford them.

It turns out that the U.S. government itself was one of the lenders giving out high-interest, subprime mortgages, some of them predatory, according to government documents filed in federal court.

The unusual situation, which is still bedeviling bank regulators, stems from the 2001 seizure by federal officials of Superior Bank FSB, then a national subprime lender based in Hinsdale, Ill. Rather than immediately shuttering or selling Superior, as it normally does with failed banks, the Federal Deposit Insurance Corp. continued to run the bank’s subprime-mortgage business for months as it looked for a buyer. With FDIC people supervising day-to-day operations, Superior funded more than 6,700 new subprime loans worth more than $550 million, according to federal mortgage data.

The FDIC then sold a big chunk of the loans to another bank. That loan pool was afflicted by the same problems for which regulators have faulted the industry: lending to unqualified borrowers, inflated appraisals and poor verification of borrowers’ incomes, according to a written report from a government-hired expert. The report said that many of the loans never should have been made in the first place.
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At the time the FDIC was running Superior, subprime lending hadn’t yet emerged as the national disaster it since has become. But some lending experts already were faulting industry practices and warning about rising delinquencies. The FDIC’s problems with Superior could fuel criticism that bank regulators were slow to heed warning signs.
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In a recent court filing, the FDIC estimated that about 1,500 of the 5,315 loans it sold to Beal either have defaulted or are nonperforming. The FDIC already has bought back another 247 of the mortgages, most of them for violations of federal anti-predatory-lending laws intended to protect borrowers from unreasonably high fees or deceptive practices. Beal Bank has said in court filings that 73 of the repurchased loans were originated while the FDIC was running Superior.
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The FDIC says that was a draft report. Last month, the agency filed a final version in court, which estimated that about 19% of the loans sold to Beal contained “material” breaches of the warranties — meaning there were significant problems with close to 1,000 mortgages. This version of the report blames Beal Bank for some of the portfolio’s lost value, saying it serviced the loans in an “inferior” manner.

From the NY Times:

Given a Shovel, Americans Dig Deeper Into Debt

For decades, America’s shift from thrift could be summed up in this familiar phrase: When the going gets tough, the tough go shopping. Whether for a car, home, vacation or college degree, the nation’s lenders stood ready to assist.

Companies offered first and second mortgages and home equity lines, marketed credit cards for teenagers and helped college students to amass upward of $100,000 in debt by graduation.

Every age group up to the elderly was the target of sophisticated ad campaigns and direct mail programs. “Live Richly” was a Citibank message. “Life Takes Visa,” proclaims the nation’s largest credit card issuer.

Eliminating negative feelings about indebtedness was the idea behind MasterCard’s “Priceless” campaign, the work of McCann-Erickson Worldwide Advertising, which came out in 1997.

“One of the tricks in the credit card business is that people have an inherent guilt with spending,” Jonathan B. Cranin, executive vice president and deputy creative director at the agency, said when the commercials began. “What you want is to have people feel good about their purchases.”

Mortgage lenders took to cold-calling homeowners to persuade them to refinance. Done to reduce borrowers’ monthly payments, serial refinancings allowed lenders to charge thousands of dollars in loan processing fees, including appraisals, credit checks, title searches and document preparation fees.

Not surprisingly, such practices generated dazzling profits for the nation’s financial companies. And since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent, according to a new study by Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School.

The “2005 bankruptcy reform benefited credit card companies and hurt their customers,” Mr. Simkovic concluded in his study. He said that even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.
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Just two generations ago, America was a nation of mostly thrifty people living within their means, even setting money aside for unforeseen expenses.

Today, Americans carry $2.56 trillion in consumer debt, up 22 percent since 2000 alone, according to the Federal Reserve Board. The average household’s credit card debt is $8,565, up almost 15 percent from 2000.

College debt has more than doubled since 1995. The average student emerges from college carrying $20,000 in educational debt.

Household debt, including mortgages and credit cards, represents 19 percent of household assets, according to the Fed, compared with 13 percent in 1980.

Even as this debt was mounting, incomes stagnated for many Americans. As a result, the percentage of disposable income that consumers must set aside to service their debt — a figure that includes monthly credit card payments, car loans, mortgage interest and principal — has risen to 14.5 percent from 11 percent just 15 years ago.

By contrast, the nation’s savings rate, which exceeded 8 percent of disposable income in 1968, stood at 0.4 percent at the end of the first quarter of this year, according to the Bureau of Economic Analysis.

More ominous, as Americans have dug themselves deeper into debt, the value of their assets has started to fall. Mortgage debt stood at $10.5 trillion at the end of last year, more than double the $4.8 trillion just seven years earlier, but home prices that were rising to support increasing levels of debt, like home equity lines of credit, are now dropping.

From Bloomberg:

New 20% Down Payment Makes Savers From Profligate U.S. Spenders

The U.S. housing crisis may accomplish what years of parental hectoring couldn’t: Turn Americans from spenders into savers.

Spending will fall because homeowners can no longer use rising real estate values to borrow cash — $837.5 billion in 2006, according to a report by former Federal Reserve Chairman Alan Greenspan and James Kennedy. With mortgage lenders requiring down payments of 20 percent, the average household, which puts away less than 1 percent of after-tax pay, will have to save 10 percent for 10 years to buy a home.

The housing market shaved almost 1.6 percent off gross domestic product growth in the first quarter and cut in half the growth rate of consumer spending, which accounts for more than two-thirds of the economy, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania.

“The loss of housing wealth is the difference between a recessionary economy and a growing economy,” said Zandi, an adviser to presumptive Republican presidential nominee Senator John McCain. “Consumers have powered the global economy for the past 25 years. For the foreseeable future, maybe the next 25 years, the savings rate will move higher.”

The worst housing crisis in at least a quarter century still has a long way to go, Zandi said. It will take until 2015 for the median home price to return to its July 2006 peak of $230,200, while home sales and residential construction will never again reach the record highs of 2005 and 2006, he said.
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The residential housing decline will “change the structure” of the U.S. economy by forcing Americans to save, said Neal Soss, chief economist at Credit Suisse Group in New York.

“The days of wine and roses are over,” said Soss, who worked at the Federal Reserve for former Chairman Paul Volcker in the 1980s. “We were drunk on money. Getting sober is a painful process.”

From the LA Times:

Fed slaps new rules on mortgage lenders

The Federal Reserve clamped down hard on mortgage lenders Monday, issuing rules designed to curb the sorts of risky and deceptive lending practices that helped trigger the subprime mortgage crisis.

The Fed’s action, although criticized by some for not going far enough, was widely seen as a crucial step in reasserting control over a financial market that had been allowed to run wild.

“There’s lots more to come,” said Thomas Lawler, a former Fed official who is now a housing market consultant. “The pendulum is clearly swinging toward more regulation and more government involvement.”

The central thrust of the new rules is to restore sound underwriting practices, such as requiring lenders to verify that borrowers actually have the income and assets to make their loan payments.

The regulations adopted Monday were significantly stiffer than draft proposals issued six months ago, reflecting regulators’ intensifying concern over the fallout from the free-for-all lending that helped create the bubble in home values and led to the mortgage meltdown.
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In adopting the new rules on mortgage lending, Fed Chairman Ben S. Bernanke traced the lenders’ woes back to their own practices.

“Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower,” Bernanke said in a statement.

The new rules take effect Oct. 1 and will apply to all mortgage lenders, brokers, servicers and banks, not just those already regulated by the central bank.

“These rules are a step forward in returning common-sense business practices to the subprime lending market,” said Paul Leonard, director of the California office of the Center for Responsible Lending, a nonprofit advocacy group.
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The Fed’s final version of the regulations were much more stringent than draft proposals issued late last year. The new rules include four measures aimed at targeting abuses in the subprime mortgage market, which has been largely unregulated because the loans are securitized and held by private investors.
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Reinhart of the American Enterprise Institute said the rules also reflected an about-face from the relaxed attitude toward mortgage lending that prevailed under former Fed Chairman Alan Greenspan.

“Alan Greenspan believed in the light hand of regulation. How he put that in place was in not moving at all, and that turns out not to be desirable,” Reinhart said. “So now the government is taking an active role.”