Annual Review and Forecast

Please enjoy this installment of Mitch Wilcox’s annual review and forecast. Look for some helpful links at the end.


It’s time for my Annual Review and Forecast…

Before we launch into what may appear to be pretty cranky comments (only at first), please allow me to say thank you to everyone for business earned, business shared, and business done during the year. I hope in some way I might have positively impacted your business, and without question many of you have done that for me. I truly appreciate every speck of business that comes my way…thank you! Please enjoy a safe, prosperous and Happy New Year!

OK, here we go:

If you hurry, you just might be first on your block to read this year’s installment. Actually, you may be the only one on your block, other than those homes with sagging gutters and un-mowed lawns. I jest. Not really. I’m serious. We have seriously sad situations to deal with, and there are some folks in seriously sad shape. Who feel they have had the life sucked right out of them. Who feel they have gone from something and somebody to nothing and nobody.

I exaggerate, you say. Here’s a fact for you: For the last 4 years, it’s a rare day when I am not talking to someone who is literally in tears. Someone who thought it would never happen to them; not in a million years. I’m not the only one hearing these stories and I’m not unique; ask just about anybody and you’ll hear how widespread the housing crisis is.

You may not feel all warm and fuzzy by the time you’re done reading, but that’s what coats are for, so it’s time to zip up and deal with it. Be thankful you can get out of the weather. In the event you feel I’m being a bit cranky, just know that you might be cranky too if you had to say ‘no’ to more people more often than you ever dreamed was possible, and if you had to deal with the heartache of those folks you said ‘no’ to. And for those who can qualify for financing, it might make you a bit cranky dealing with crazy underwriting conditions all day; ones that no one can explain, no one has ever seen, and no one has ever heard of before.

Is there any hope out there? Sure there is. There are many folks who qualify for financing, and are able to take advantage of the times we are in. And though many lives have been forever altered, we will get past this. It may not look like we wanted it to, but it will be the best we can make it. If you’re warm at night and aren’t going to bed hungry, count your blessings. Many do not possess those fortunes.

2011 in review

It’s always such a delight to incorporate new terminology into our lives as each year unfolds. Exciting words like “robo-signing,” “shadow inventory,” “quantitative easing,” “fractional banking,” “credit swaps,” and all together now: “Occupy (fill in your favorite city).”

I know a lot of stuff is rolling around out there; at some point somebody, somewhere is going to tell us exactly what it all means. In the meantime, I’ll do my best to add some clarity, vision, hope, and did I say clarity?

2011 was Gumby, damn it (Google Eddie Murphy-SNL)! Bendable, moveable, elusive, rubbery, cranky, without substance and well, just Gumby. It seemed like we couldn’t put our finger on anything that wasn’t jiggling around; like trying to eat jello with chop sticks.

A never-ending concoction of heartache, guidelines, rules, disclosures, and regulations all designed to provide consumer protection, almost none of which has. Banks that have accumulated record levels of deposits, but are scared to death to let any of it go.

Why are the big banks so scared? There is still significant concern over what the mortgage mess will ultimately cost them, in additional regulations and potential lawsuits. This recently from Bloomberg: DZ Bank, the central bank for German cooperative banks, is suing Bank of America and Ally Financial (formerly GMAC) over the sale of residential mortgage-backed securities. DZ alleges that Ally and B of A were "actively involved" in all aspects of the securitizations, and that the offering misrepresented the underwriting standards of the underlying mortgages. "The offering materials also contained material misrepresentations and omissions regarding key statistical characteristics of the mortgage loans," DZ said in a story from Bloomberg & Business Week.

Given the circumstances, an expected year of transition you say? I hope you’re right. Will housing need to recover to positively impact the unemployment picture, or will job creation have to happen before the housing market improves? If a tree falls in the forest…yes; it depends who you ask.

Lender underwriting, credit guidelines, appraised values, and real estate inventories continued to dominate the 2011 lending and real estate landscapes.

If you’re reading this you survived another year. Again. Congratulations! We will continue learning these new norms and figure out ways to continue helping folks do what we believe is in their best interest. Because as Ringo Starr said: “And here we are; we’re still doing it. Because this is what we do.” Those remaining Beatles can get away with anything.

2012 Forecast

Housing

Once again we tackle the elephant in the room first. From my 2010 forecast:

“Housing is lagging while the economy rebounds. Declines in home values are a constraint on consumer spending. ‘The housing sector continues to be depressed,’ Fed officials said in a statement after the 12-14-10 meeting, at which they reiterated a plan to expand record monetary stimulus and said economic growth is “insufficient to bring down unemployment.”

Can you say ditto? While we have seen some economic gains, we didn’t see much gain in housing. 2012 may bring some housing relief to certain parts of the country that were negatively impacted, as we work through our distressed inventories, but many areas will continue the struggle. It’s all about that tree falling and if it makes a sound….what version do you believe?

From the National Association of Realtors (NAR):

Here are the latest NAR take-aways regarding the outlook for 2012:

• No economic recession in sight. The GDP is expected to rise 2.5 percent in 2012. That is, the income of everyone combined in the U.S. will rise by 2.5 percent.

• The net job creation is expected to be 1.5 to 2 million. The national unemployment rate will slide to 8.4 percent by this time next year.

• The baseline forecast for existing home sales is a rise of 5 percent, while home prices will finally turn positive, albeit by only 2 percent. The total industry commission revenue, therefore, can be expected to rise by around 7 percent.

• New home sales will rise by 16 percent. A stronger comeback is in the cards, after brutal declines during the housing bust years.

And from Barclay’s via Reuters:

“(Reuters) - Barclays Capital upgraded homebuilder D.R. Horton Inc to "overweight" and pointed to a potential recovery in the U.S. housing sector in 2012, encouraged by stabilizing prices in non-distressed home sales.

The brokerage also raised 2012 earnings estimates and price targets for a host of other U.S. homebuilders, including Toll Brothers Inc., Lennar Corp and Meritage Homes Corp.

"It has become increasingly apparent to us that the pieces for a rebound next year are beginning to fall into place - chief among them being stabilization in prices for non-distressed home transactions," the brokerage said in a note.

In addition, Barclays, which initiated coverage on the sector about two months back, said economic indicators--including job creation, delinquencies, housing starts, homebuyer traffic and consumer sentiment--also showed that the housing industry was stabilizing.

Separately, brokerage Susquehanna expressed a note of caution over new home sales and said tripling of insurance in force since 2007, falling home prices, and a recent up-tick in Federal Housing Administration delinquencies could increase headwinds in an already "low delivery environment."

Meanwhile, another brokerage (Guggenheim) downgraded homebuilders such as Toll Brothers, Lennar Corp, Meritage Homes Corp and Ryland Group to "neutral" from "buy," citing absence of any positive new catalyst. The brokerage, however, maintained its "Cautiously Optimistic" view of the sector.

The homebuilding stocks have taken a breather since their big October rally, which saw DR Horton and Toll Brothers touch the valuation peaks they achieved during last year's winter trading rally.”

So there is mixed-news, and some optimism out there….but there’s also this, from Forbes:

11/29/2011 @ 4:32PM

Every Day Is Black Friday In Housing As Prices Tank, Case-Shiller Shows

“Foreclosed homes continue to weigh on the market.

Housing markets remain deeply depressed, as the latest S&P/Case-Shiller Home Price Indices show. September data, released Tuesday, show that prices continue to drift lower, with three cities posting new index lows, as real estate markets remain unable to shrug off a massive inventory of foreclosed homes and a weak economy.

National home prices fell at an annual rate of 3.9% in the third quarter, as real estate markets tread even lower. The decline appears to be decelerating, as Q2 prices fell 5.8% on an annual basis while Q3 inched up sequentially 0.1%.

“Housing remains stuck in the proverbial mud,” explained Gluskin Sheff’s Dave Rosenberg. Despite the annual index appearing to decelerate its decline, both the 10- and 20-city composites fell more than expected. In September, the 10-city fell 3.3% while the 20-city was down 3.6% over the same month in 2010; 18 of the 20 cities surveyed registered negative annual rates in September.

Six of the 20 cities fell on a monthly basis, with Atlanta, Las Vegas, San Francisco, LA, Seattle, and Tampa down in September over August. Even more “disturbing,” as Case-Shiller Index Chairman David Blitzer put it, was the fact that three markets — Atlanta, Las Vegas, and Phoenix — posted “new crisis lows.”

“Over the last year home prices in most cities drifted lower. The plunging collapse of prices seen in 2007-2009 seems to be behind us,” explained Blitzer, who added “markets are fairly thin, and the relative lack of closed transactions might be exacerbating the downside. The problem continues to be the massive backlog in the foreclosure pipeline. According to RealtyTrac, new foreclosures jumped 7.4% in October on a monthly basis to 230,678, while the number of foreclosed homes sold tanked 25% to 75,243 in September from the prior month, according to the most recent data.

As Blitzer explained, the problem is the low levels of transactions. Fed Chairman Ben Bernanke has explained on numerous occasions that housing, along with employment, is among the most important prerequisites for any economic recovery. After a real estate bubble-induced financial crisis that brought the global economy to its knees, the Fed has done all it can to support housing prices, to no avail.

Interest rates have fallen to record lows, with 10-year Treasuries frequently trading below 2%. The Fed has engaged in two rounds of quantitative easing and is currently in the process of extending the maturity of its balance sheet, providing further support for housing markets by pushing long-term rates lower and allowing cheaper mortgage refinancing. The Fed is also currently reinvesting the proceeds of its agency securities portfolio into residential mortgage backed securities.

But, as Rosenberg said, prices remain depressed because in housing, “every day is Black Friday.” Major Banks like JPMorgan Chase, Citi, and Bank of America still hold massive amounts of foreclosed and distressed properties on their balance sheets. Blitzer notes that “any chance for a sustained recovery will probably need a stronger economy,” but his comment begs the question, as the economic recovery is in part conditional on stronger housing markets. Analysts at Barclays put it more clearly, writing in a note “we expect prices to begin to stabilize as distressed sales gradually decline as a proportion of total sales, but this process will take some time.”

Housing markets have yet to recover. On an absolute level, home prices hit a bottom after the crisis, and have bounced around that bottom, drifting even lower. On a rate-of-change basis, there was a clear bounce from the bottom and a substantial second dip.

Any sort of self-sustaining recovery, at this point, appears unfathomable.”

Yikes. Did that tree falling in the forest make a sound? Possibly. Is your cup half full or half empty?

Comerica Bank takes a stab at it: "Residential real estate markets are looking a little better as both construction of new homes and sales of existing homes ticked up in November. Improving consumer confidence and gradually tightening labor markets look like they are helping to build a foundation under housing. Of course the firmest support to the foundation would be improving sales prices and that has not happened yet. Prices still look soft for most market areas, sagging under the weight of bloated inventories of distressed homes for sale."

Going forward, it often seems government is often frozen until the next election. Continuing to sit on the sidelines is not spurring activity beyond bank-owned homes, short sales and those that have to move. The economy cannot recover without housing, unemployment cannot recover without hiring, and consumers will not spend until the economy improves. It’s a vicious circle. Bold steps are needed that may involve banks taking a haircut to their asset value. (How many would shed crocodile tears for institutions that have failed their customer base?) Our politicians and civil servants appear to lack the business acumen to successfully steer us out of this, and too many bad decisions were made according to political expediency. Constantly aiming recovery efforts at those under water or likely to foreclose will only be a band aid. We need to boldly go where no politician has gone before... more wasted billions thrown at the situation from the bottom up instead of the top down clearly has not worked. Refinance programs must be realistic, aggressive and effective. So far, this has not been the case.

So, what's my forecast? I’m a cup half-full guy. I note there are some parts of the country that never did see a bubble, and some areas have already experienced the stirrings of home appreciation. That being said, I believe we will continue to see slight retraction in housing values to some degree in Q1-2-3 12 as we continue to work through the new rules in lending and appraisal, and based on how quickly distressed inventory goes away.

Last year, I forecasted a 2012 new construction shortage and I’m sort of sticking to my guns on that. Homebuilders are more optimistic than they've been about single-family home sales in a year and a half, according to a report released by the National Association of Home Builders. It didn’t skyrocket, but the moderate pick up is nice to see. According to the National Association of Homebuilders/Wells Fargo Housing Market Index (HMI), builder confidence continued to show gains in December, the third consecutive monthly increase and the highest level since May 2010. Starts and permits have also perked up, with single-family starts up 4.6 percent on a year-ago basis in November and permits up 3.6 percent over the same period. The increases mirror improvement in construction outlays and sales, which have also seen gains in the past few months. While the increases are promising, I do not believe a 'genuine' recovery in housing activity has begun. Indeed, the major obstacles that have troubled the housing market over the past few years still remain intact, including the oversupply of single-family homes and continued distressed transactions.

We may see the beginning of what our new norm will be by year’s end 2012. I believe we will struggle to move out of the up-down-bouncing on the bottom conditions we have experienced lately. However, lower values, combined with low mortgage rates (increased affordability), may continue to turn the “buy now” light bulb on for many.

The GDP

We’ve been stumbling along fairly well, all things considered…..

The consensus for 2012 among many economists is better based on various surveys. Economists surveyed by Bloomberg and Reuters are expecting GDP growth in 2012 at +2.4%, up from 2011 amounts that are under 2.00%.

Of course, most forecasts include the caveat that Europe could drag the world back into recession, and at worst a global credit crisis if banks in the region fail or sovereign debt defaults occur. 2012, like 2011, may be held captive by Europe's continuing inability to accomplish much.

My GDP forecast? I concur that if the European markets experience a lengthy struggle, the US GDP will continue to struggle. I am hoping we see upwards of 4.000% by Q4 2012.

Inflation

The Fed’s efforts at driving inflation up have had mixed results. The Q4 2011 annual average rate is 3.4%.
This is a key driver of the overall effect on housing; I believe we will see about 2.00% by Q3-Q4 12.

Unemployment

At the time of publication, weekly jobless claims were expected to have increased by 14K based on surveys of economists and analysts; claims as reported fell 4K to 364K, the lowest weekly filings since April 2008. Continuing claims fell 79K to 3.55 mil; the continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. Those who’ve used up their traditional benefits and are now collecting emergency and extended payments decreased by about 136,300 to 3.51 million in the week ended Dec. 3. Three weeks now where claims have declined may be evidence that firings are declining and in turn might foreshadow an increase in employment and possible consumer spending.

My best guess is we will see slight improvement up to Q3 12, but will we will end the year slightly below 9.0%. There just doesn’t appear to be long-term sustainability in sight. So goes the GDP, so goes unemployment and wages:

Mortgage Interest Rates and The Fed

For Q4 2011 I forecasted 30 year fixed rates in the mid 5.000% range. I couldn’t have been more wrong…we currently reside at about 4.000% at publication. The US and global markets have really played havoc with rates, credit, and overall world economies. No excuses…just fact. Or, I’m not nearly as smart as I thought I was…your choice.

The Fed is / has been determined to keep rates low, anticipating that low mortgage rates will (eventually) assist in turning the housing market around. It’s now a given that it will take more than low rates to get housing moving.

I believe that the Fed actions, combined with the overall effect of the US and world global markets, will contribute to keeping mortgage rates low for at least all of 2012. How low? I will be surprised if we exceed 5.000% for the 30 year fixed rate by Q4 2012. I anticipate 30 year fixed mortgage rates will remain below 6.000% for what could be several years, which would likely delay moves to longer loan terms (40 & 50 years) that address lower monthly payment needs.

The Fed Funds Rate, currently at the historical low of .09%, will likely finish 2012 below .25%.

Putting this in perspective, since 1954 can you guess the highest Fed Funds Rate? If you said it occurred in 1974….nope. Must have been in 1980? Nah. How about this: On June 1, 1981 the Fed Funds Rate was 19.10%, 19.01% higher than the current rate. Of course you & I were much too young to remember those times.

Housing Affordability

Here’s the 100 watt bulb (non-incandescent of course) in a sea of 40 watt bulbs. Housing is more affordable now than it has been in at least 40 years. The combination of lower home prices, record low mortgage rates, and a slight rise in family income are contributing to a rise in housing affordability.

Is that a glimmer of hope on the horizon? Well, sure; there’s always reason for hope. Some folks out there had great years, and some had pretty good years. Many others were wondering if it will ever return to normal, however.

There can be no doubt that attitude is more of a stimulus than the facts at hand. I say we must continue thinking positive; we must help those in need as much as we are able. What is working and what is right will defeat what isn’t working and what is wrong. Many of you and many before us have faced much harder challenges than these.

It’s often hard to believe that another year has passed. If ever there was a reason to want to see the years behind us, it’s what we have experienced in the last several we have seen. While I never want to miss a single thing, and truly enjoy life’s daily challenges, treasures, sorrows and delights…I am truly looking forward to what surely must be better times for all.

What we all will no doubt continue to do is provide the very best of what we have and what we are, and that’s what will ultimately make it go forward; because that’s just what we do in this great country.

Have a safe New Year!


Helpful links:

Unlimited LTV refinance/HARP 2.0 loan lookup and application process:

1) Look up your loan to see if Fannie or Freddie owns it:

http://www.fanniemae.com/loanlookup  https://ww3.freddiemac.com/corporate

2) If your loan is owned by Fannie or Freddie, apply for an unlimited LTV refinance lower than your current rate:

https://0990471896.secure-loancenter.com/WebApp/FullAppLogin.aspx  

Loan video library; short videos of all you need to know about mortgages:

http://mijoymortgage55.blogspot.com/p/video-library.html  

Getting a mortgage loan after negative credit events…how long does it take?

http://mijoymortgage55.blogspot.com/2011/12/putting-time-frames-on-borrowers.html  

Want “Daily Rates” delivered to your in-box? E-mail with “Rates” in the subject line:

mitch.wilcox@bankoforegon.net  

Investment & 2nd Home Refinances to 105%

Effective immediately, I am pleased to announce that in addition to primary residences, second home and investment properties are now eligible for refinance loans on the current HARP Program. The maximum 1st mortgage loan-to-value is 105%, with no maximum CLTV.

CLTV is "Combined Loan-To-Value;" meaning the total owed on both a 1st & 2nd mortgage as a percent of the home's value. For this program, we can refinance a 1st mortgage to 105% of the appraised value, regardless of the balance on an existing 2nd (if a 2nd mortgage is in place), subject to the ordinary qualifiers.

Your existing 1st mortgage must be owned by Fannie or Freddie. To find out if Fannie or Freddie owns your loan, you can look it up here:

http://www.fanniemae.com/loanlookup

https://ww3.freddiemac.com/corporate

If you are interested, to estimate a rate and payment for you I will need the estimated appraised value of the home, current loan balance and interest rate, 2 years' income/job history, monthly debt, and the aprox. credit strength.

Once you have determined that Fannie or Freddie owns your loan, if you wish to apply immediately, you can do so here: https://0990471896.secure-loancenter.com/WebApp/FullAppLogin.aspx

Putting Time Frames on Borrowers Returning After a Foreclosure or Short Sale

We are hard-pressed to pick up a newspaper or listen to a newscast without seeing or hearing something about bankruptcies, foreclosures, or the credit crisis in general. Millions of Americans who over-extended themselves in the last decade are now paying “the price,” and the impact of the “shadow inventory” that hangs over the housing market will last for years. But looking at things from a granular perspective will help to keep things in perspective. In the past, borrowers who had declared bankruptcy, or turned in their keys (“deed in lieu of foreclosure,” similar to a defendant pleading “no contest” in a court case) usually moved into the “subprime” category. And with that sector of the market came higher rates. Now, millions of Americans are going through bankruptcies, or mailing in their keys – how long will it be until they regain “A-paper” status with the agencies or large lenders?
It is not an easy question to answer. Is any underwriting question easy to answer, now or in the past? Basic information for the agencies: Fannie Mae (FNMA) and Freddie Mac (FHLMC) can be found at:

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1005.pdf
or
http://www.freddiemac.com/learn/service/foreclosure.html.

Fannie Mae, for example, requires 5 years from the completion date for foreclosures. “From the fifth to seventh year following the foreclosure completion date, the purchase of a principal residence is permitted with a minimum 10% down and 680 FICO score. The purchase of a second or investment property is not permitted for 7 years. Limited cash out refinances are permitted for all occupancy types. Pre-foreclosure (Short Sale) minimum is 2 years from the completion date (no exceptions or extenuating circumstances).”

For Fannie, a situation involving a Deed-in-Lieu of Foreclosure “requires a 4 year period from the date the deed-in-lieu is executed. From the fifth to the seventh year following the execution date the borrower may purchase a property secured by a principal residence, second home or investment property with the greater of 10 percent minimum down payment or the minimum down payment required for the transaction. Limited cash out and cash out refinance transactions secured by a principal residence, second home or investment property are permitted pursuant to the eligibility requirements in effect at that time.” And under a Chapter 7 Bankruptcy “A borrower is eligible for an A paper loan program 4 years after discharge or dismissal, provided they have reestablished credit and have maintained perfect credit after the bankruptcy.” Chapter 13 Bankruptcy: 2 years from the discharge date or 4 years from the dismissal date.

In summary, for Fannie, strategic defaulters have to wait 7 years after a foreclosure, but 2 or 4 years after a deed in lieu (depending on LTV of 80 or 90%). In a case where the home was not lost through a strategic default, but due to extenuating circumstances beyond a borrower's control, such as job loss, death, divorce, medical issues, etc., then the waiting period is reduced to 3 years on a foreclosure (90 LTV, cash-out refis are not allowed, and purchases must be owner occupied) and is reduced to 2 years on a deed-in-lieu (maximum of 90% LTV). The intention is to provide incentive for deeds-in-lieu vs. foreclosures, and not to punish borrowers who lost their home through events beyond their control. Strategic defaulters via foreclosure have to wait 7 years, and homes lost through extenuating circumstances are eligible in 2 years for deeds-in lieu and 3 years for foreclosures (90%LTV). The selling guide lists how lenders are required to document extenuating circumstances (section B3-5.3-08) and also the foreclosure and re-established credit.

Freddie Mac’s time lines and requirements are very well spelled out in its on-line guides. “Recovery Time Periods for Reestablishment of Credit” vary based on a number of criteria. With “Extenuating Circumstances” for example, a foreclosure requires 36 months from the completion date as reported on the credit report. Deed-in-lieu is 24 months from the execution date, and a short sale is 24 months from the completion date. “Whenever a Borrower has had a previous foreclosure, deed-in-lieu of foreclosure or a short sale within the last seven years, the Mortgage must either be: a purchase transaction Mortgage secured by a Primary Residence with a maximum loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit TLTV (HTLTV) ratio of the lesser of 90% or the maximum LTV/TLTV/HTLTV ratio for the transaction, or a "no cash-out" refinance Mortgage that meets the requirements of Chapter 24.

By the way, “extenuating circumstances” are created by “non-recurring events that are beyond the borrower's control, which result in a sudden, significant, and prolonged reduction in income, or a catastrophic increase in financial obligations. However, extenuating circumstances cannot be solely defined by the event; they must take into consideration the interrelationship between the event, the severity of the resulting hardship, and the extent of the borrower's efforts to resolve the situation.”

Government Loans

Turning to government loans, for Wells Fargo, per a source in the wholesale channel, VA loans require a 2 year wait for both foreclosures and short sales and if the original loan was serviced by Wells Fargo an automated approval is required.

For FHA insured loans, 3 years for both and an automated approval is required if the loan was Wells Fargo. Generally speaking, for conventional agency loans it is 4 years for both, with the usual automatic approval requirement. (In all cases if the loan was Wells Fargo and there is no automatic approval the wait is 7 years.)

Watch out for specific lender guidelines, as other lenders require a 2 year wait only for FHA or VA, subject of course to the full borrower profile.

What does all this mean? First, remember that non-agency lenders do exist who often offer programs tailored to borrowers who have lost their homes due to foreclosures or short sales. And not all borrowers are out of the “potential homeowner pool” for seven years. If there are extenuating circumstances, if MI or low LTV’s are involved, etc., borrowers may be eligible for an A-paper home loan sooner - which is certainly good news for the housing market in the near future.

Need to know how the entire loan process works? Go here: http://www.mijoymortgage.com/Loan_20_Process1.html

Need more info or wish to apply for HARP II (unlimited LTV refinance)? Go here: http://www.mijoymortgage.com/.