No Surprise Here - Home prices fall

The New York Times reports today, December 30, 2008, that

"home values in 20 large metropolitan areas across the country dropped at a record pace in October as the fallout from the financial collapse reverberated through the housing market, according to data released Tuesday."

"The price of single-family homes fell 18 percent in October from a year earlier, according to the closely watched Standard & Poor’s/Case Shiller Housing Index. All 20 cities reported annual price declines in October; prices in 14 of the 20 metropolitan areas surveyed fell at a record rate as the financial crisis reached a critical point."

To those of us in the New Jersey real estate marketplace, the foregoing comes as no surprise. Pessimism appears to rule, so we should live by another rule, non carborundum illegitimi est!

Read Home Prices Fell at Sharper Pace in October

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JUMBO Mortgage Rates Don't Shrink

Bloomberg News reports-

Jumbo mortgage shoppers in the most expensive U.S. housing markets such as New York and San Francisco aren't getting much relief from lower borrowing costs. The average 30-year fixed-rate for home loans of more than $729,750 remains almost 2 percentage points above conforming rates and the spread between them may set a record this month, according to financial data firm BanxQuote.

Why?

Banks remain reluctant to lend. “The collapse of the private mortgage securities
market means lenders find there's little demand for jumbo loans they want to
sell.”

Good News

“If low conventional rates entice enough homeowners to refinance, jumbo home loans may become more affordable as loan payoffs add liquidity to the
banking system.”

“The average 30-year fixed jumbo loan rate was 7.32 percent on Dec. 22, compared with 5.38 percent for a conforming loan, according to BanxQuote of White Plains, New York. The difference between the two averaged 2.13 percentage points in December, 10 times the spread from 2000 to 2006 and above last month's 1.95 percentage points that was the highest on record. If current rates reflected the historical difference of 0.2 percentage points, jumbo borrowers with an $800,000 mortgage would save $913 a month.”

More Good News?

Buyers in markets that rely on jumbo loans, such as New York, San Francisco and Boston, may see rates fall in 2009 because of Federal Reserve chairman Ben Bernanke's plan to buy at least $500 billion of securities issued by Fannie Mae and Freddie Mac.

Here's the report from Bloomberg News

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LandAmerica Title Company Sale Approved by Bankruptcy Court

The Richmond Dispatch reports on Bankruptcy Court approval of the sale of LandAmerica's title insurance companies, Commonwealth and Lawyers Title to Fidelity National. See Bankruptcy judge OKs LandAmerica core sale

The U.S. Bankruptcy Court in Richmond yesterday approved the sale of LandAmerica Financial Group Inc.'s core operations to Fidelity National Financial Inc. of Jacksonville, Fla.

Stewart Title Guaranty Co. of Houston, the other suitor for the Henrico County-based company's main subsidiaries, was shut out of the deal.

Fidelity's $282 million offer includes $157 million to recapitalize the subsidiaries so they can continue operating, according to papers filed Monday with the Nebraska Department of Insurance.

Its cash offer was enough to finance LandAmerica's pension shortfall of $59 million, lawyers for LandAmerica argued. Topping off the pension fund would be a requirement of any deal, they said.

The Nebraska insurance authorities have approved the sale and it is expected that the Federal Trade Commission will do so in time to close on Monday, December 22, 2008.

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On Wall Street, Bonuses, Not Profits, Were Real

The New York Times saga of The Reckoning continues with On Wall Street, Bonuses, Not Profits, Were Real

Reports the Times, "For Dow Kim, 2006 was a very good year. While his salary at Merrill Lynch was $350,000, his total compensation was 100 times that — $35 million.The difference between the two amounts was his bonus, a rich reward for the robust earnings made by the traders he oversaw in Merrill’s mortgage business. "

As now widely recognized, Merrill’s and other company's record earnings "in 2006 turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.Unlike the earnings, however, the bonuses have not been reversed."

Tales abound of associates with six figure salaries reaping multi-million dollar bonuses. Purchases of art, homes and luxury automobiles with that money fueled an entire cottage industry. And I thought the title business was a good one!

So, where's the payback?

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306.

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Fidelity closes in on LandAmerica deal - Regulators must still approve

From Inman News-

Fidelity closes in on LandAmerica deal-Antitrust regulators must still grant approval

Fidelity National Financial Inc. has the green light from Nebraska insurance regulators and a federal bankruptcy court in Virginia to buy LandAmerica Financial Group Inc.'s two largest underwriting subsidiaries, Lawyers Title Insurance Corp. and Commonwealth Land Title Insurance Co., for $282 million.

The transaction, when completed, would make Fidelity the nation's largest title insurance company.

Roadblocks:

The sale is opposed by the two smallest of the "big five" title insurers -- Stewart Title Guaranty Co. and Old Republic International Corp -- who argue that the resulting industry consolidation could restrict competition.

Lawyers representing LandAmerica's creditors had also asked the bankruptcy court to delay the sale for seven to 10 days, saying a better offer than Fidelity's could be in the works.

What will the impact be in New Jersey? Hard to say right now. We write for Fidelity National Title Insurance Company and Chicago Title Insurance Company. Arguments have been made over the years that there is no true competition between title insurance companies because rates are governed by the so-called "Rate Manual." With the elimination of LandAmerica's presence, one more competitor has been reduced at the top level although you can say the title operations are separate.

Will Fidelity save money by consolidating different aspects of its business, e.g., underwriting and claims by blending Commonwealth and Lawyers Title operations into Fidelity and Chicago Title?
Time will tell.

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306.
Tel 201-656-9220. Fax 201-656-4506.
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LandAmerica Sale to Fidelity Not a Sure Thing

"More suitors for LandAmerica - Stewart applies to acquire LandAmerica underwriters"

From Inman News:

Fidelity National Financial Inc. is not the only suitor hoping to snatch up LandAmerica Financial Group Inc.'s title insurance underwriting subsidiaries in bankruptcy court, according to creditors seeking to derail fast-track approval of the sale.

LandAmerica says it hasn't received a better offer than the combined $298 million Fidelity is offering for Lawyers Title Insurance Corp., Commonwealth Land Title Insurance Co. and United Capital Title Insurance Co., and has asked the bankruptcy court to approve the sale next week.

Behind the newest development is LandAmerica's filing for "Chapter 11 bankruptcy protection Nov. 26, saying it planned to sell off the title insurance underwriting subsidiaries that account for up to 90 percent of its annual revenue in order to pay creditors."

LandAmerica owes more than $650 million and was having difficulty paying creditors after its 1031 property exchange subsidiary "invested proceeds in auction rate securities that had become insolvent." (Background here.)

The LandAmerica case is being heard in Richmond, Virginia, however, approval before the bankruptcy court "can approve the sale, the Nebraska Department of Insurance -- which regulates Lawyers and Commonwealth -- must sign off on the deal."

Nebraska regulators, already scheduled to hold a hearing Monday to rule on Fidelity's application to acquire Lawyers and Commonwealth has now been presented with an application by Stewart Title Guaranty Co., the nation's fourth-largest title insurer.

We've heard from at least one lender, CapitalOne, that it will not accept title insurance commitments issued on behalf of the LandAmerica title companies. We've also heard that other New Jersey title companies are quickly signing Commonwealth and Lawyers Title agents to pick up transactions where the lender has balked at accepting their title commitments.

The sale of LandAmerica's title business to Fidelity and Chicago Title is far from a done deal. Next week's hearing will add another chapter to the story.

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306.
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Uncovering the impact of TARP

Inman News reports on Uncovering the impact of TARP-- Lawmakers question plan's oversight, use in curbing foreclosures

"Lawmakers expressed concerns today about oversight of the Treasury Department's $700 billion Troubled Asset Relief Program, questioning whether the money spent so far has done much to stabilize credit markets or reduce foreclosures."

The article points out the following:

• The Treasury Department has already doled out $195 billion through TARP without a system in place to measure whether the money is actually helping relieve the credit crunch, or whether banks and other companies that receive the money are complying with restrictions on its use, according to a Government Accountability Office report to Congress.
• Instead of purchasing troubled assets as originally proposed, the Treasury Department has purchased $155 billion in preferred shares in 87 banks and financial institutions -- with no requirements that the banks track or report how they use the money -- Acting Comptroller General Gene Dodaro told members of the House Financial Services Committee at a hearing today.
• Rep. Paul Kanjorski, D-Pa., said the GAO report made clear "the dire need for improvement" in oversight of the program. The report was "full of examples of failed supervisions" and highlighted the fact that beneficiaries of the program are not required to boost lending or engage in loan modifications, he said.
• Some lawmakers want to see TARP money used directly to boost mortgage lending and help prevent foreclosures. If the Treasury Department doesn't go along, Congress has the power to cap the program at $350 billion -- all but $15 billion of which has already been allocated.

Where does that leave TARP and all of us with our livelihoods tied into the real estate industry? Not very encouraged.

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Foreclosure Follies: A rebuttal to the FDIC modification plan.

The Wall Street Journal continues its theme on the inherent weakness of the FDIC's proposed mortgage bailout plan. We commented on the FDIC's Sheila Bair's Mortgage Miracle on December 3, 2008. The FDIC responded to the WSJ in a letter to the editor "Our Foreclosure Plan" on December 7, 2008.

According to today's editorial,

The FDIC wants to pay loan servicers to restructure delinquent loans and then have taxpayers share the losses if the loans fail again after six months. The FDIC did not appreciate that we reported private data showing that more than 50% of modified loans go delinquent again. The agency suggested that 15% might be a better estimate.

That estimate just got a lot harder to defend. Comptroller John Dugan released the default numbers on loans modified in the first two quarters of 2008, based on data from institutions servicing more than 60% of all first mortgages. "What makes these quarterly reports unique is that they are not merely surveys, but instead consist of validated, loan level data," said Mr. Dugan. "We believe the reports include the most accurate and reliable data on mortgage performance that is available today."

The Journal's approach was somewhat ratified by a report issued by the Comptroller of the Currency, John Dugan, that showed high default rates following modification. "The results, I confess, were somewhat surprising, and not in a good way."

The editorial continues,

"Of mortgages modified in the early part of this year, more than 35% had gone at least 60 days delinquent again after just six months, and a full 53% were 30 days delinquent or more. By eight months, this default rate had climbed to 58%. Second quarter modifications are on track to be nearly as ugly, with more than 50% of borrowers at least 30 days delinquent at the six-month mark. Come to think of it, these stinkers are going south so quickly that perhaps the FDIC's plan actually will protect taxpayers -- there won't be much left to insure after these toxic loans blow up in the first six months after modification."

Perhaps New Jersey Governor Jon Corzine should take a closer look at these numbers and accept the strong possibility that his efforts to stop foreclosures will create more havoc in the real estate market by not allowing "toxic loans" to blow up and clear the mortgage out of the market place and allow the property to get into the real estate market sooner than later.


Stephen M. Flatow

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306.
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NJ Governor Urges Mortgage Foreclosure "Timeout"

Timeouts are not confined to sports. According to Bloomberg News Service and other outlets,

"New Jersey Gov. Jon S. Corzine urged a “timeout” on foreclosures, saying keeping people in their homes is an important step in efforts to correct a “deeply troubled” market.

A three- to six-month freeze on foreclosures is needed as the “economic dominoes are picking up speed,” Corzine said today at a housing conference hosted by the Treasury Department’s Office of Thrift Supervision in Washington. Mortgage foreclosures rose to a record high in the third quarter as one in 10 U.S. homeowners fell behind on mortgage payments or were in foreclosure, the Mortgage Bankers Association reported last week."

According to the Star-Ledger, "Corzine's remarks followed news from banking regulators, stating that more than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again."

In what direction will borrower assistance travel? Corzine would like to see the resurrection of an entity such as the Home Owners' Loan Corp. that was created in 1933 to help borrowers refinance troubled home loans during the Great Depression.

Even the FDIC admits a high rate of default after terms of modification are agreed upon. The solution will not be simple and it will be painful for lenders, especially if they are blocked from foreclosing.

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Sometimes You Just Cannot Resist

In every situation, we can often find humor.
The banking debacle is no exception.

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Fannie Mae in Bigger Trouble than Imagined?

The New York Times reports today on Airing the Depth of Troubles at Fannie Mae.

• The hole at Fannie Mae may be even deeper than feared.

• a number of analysts fear that Fannie Mae’s vast holdings of risky home mortgages, some of which they say are designated as safer loans, are deteriorating rapidly along with the housing market.

• Of particular concern is how Fannie Mae accounts for subprime mortgages and so-called Alt-A home loans, which are technically a rung above subprime. Some critics say that Fannie Mae defines these loans loosely, which could expose the company to new, gaping losses.

• In a recent statement, Fannie Mae said it classified loans as subprime if they had been originated by lenders specializing in subprime mortgages or by subprime divisions of large lenders. Amy Bonitatibus, a spokeswoman for the company, declined to comment on Monday on whether its nonsubprime categories contained subprime loans, saying only that “we believe that credit scores alone do not provide sufficient information to determine whether a loan should be classified as subprime.”

There's a lot about Fannie Mae and its sister, Freddie Mac, that will continue to be revealed in the days, weeks and months ahead. Some of it will not be pleasant.

Stephen M. Flatow

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306.
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Mortgage Delinquencies, Foreclosures Rise to Record

Bloomberg News reports that

"One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled."

The share of mortgages 30 days or more overdue rose to a seasonally adjusted 6.99 percent while loans already in foreclosure rose to 2.97 percent, both all-time highs in a survey that goes back 29 years, the Mortgage Bankers Association said in a report today. The gain in delinquencies was driven by an increase of loans with payments 90 days or more overdue.

“Until we see a turnaround in the job situation, we’re not going to see these numbers improve,” said Jay Brinkmann, chief economist of the Washington-based bankers group, in an interview. “We’re seeing more loans build up in the 90-days bucket as lenders work to modify loans and states put in place programs that delay foreclosures.”

While the number of foreclosure actions in New Jersey is readily available, it is difficult to get current figures on delinquency. The good news is that New Jersey and neighboring Pennsylvania are below the US foreclosure rate. So says the Philadelphia Inquirer.

What happens next? "Federal Reserve Chairman Ben S. Bernanke yesterday urged using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own.

"The Fed chief outlined four possible options, including buying delinquent mortgages and providing bigger incentives for refinancing loans. He called for addressing the “apparent market failure” where lenders aren’t modifying mortgages even in cases where it’s in their own economic interest to do so."

Now, that's not a surprise.

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306.

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Mortgage rates down, but can you get one? - Inman News Report

Inman News reports a rise in mortgage applications as interest rates have fallen "since the Federal Reserve said it would spend $600 billion to buy mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae, but tightened underwriting standards mean many people won't be able to take advantage of them."

"The Mortgage Bankers Association said applications for refinance loans shot up 203 percent on an adjusted basis for the holiday-shortened week ending Nov.28. Applications for purchase loans were up a more modest 38 percent."

"But," warns the report, "tightened underwriting standards will disqualify many with less-than-stellar credit scores, and an estimated 12 million homeowners who owe more than their homes are worth may also find it difficult to purchase or refinance a home."

Well, here's to anything that gets this market going. It's worth a wait and see attitude.

Reprinted with permission of Inman News.

Stephen M. Flatow

Vested Title Inc.,648 Newark Ave., P.O. Box 6453, Jersey City, NJ 07306
Tel. 201-656-9220. Fax 201-656-4506.

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From the Wall Street Journal - Sheila Blair's Mortgage Miracle

Our settlement department was busy a few years ago closing what are now called sub-prime mortgage loans. They varied from "interest only" loans to those featuring locked-low payments with interested adjusting to LIBOR ever few months and the possibility of negative amortization up to 125% of the original principal balance of the loan. If you have a problem understanding that sentence, join the borrowers who lined up to cash in on the their so-called equity. These folks were in over their head the moment they walked away with the leftover cash from their refinance.

Now comes the FDIC with a plan "to prevent an estimated 1.5 million foreclosures by the end of 2009. She plans to accomplish this feat by modifying more than two million loans at what she estimates would be a taxpayer cost of $24 billion. This may be wonderful politics, but the real-world evidence suggests it will be far more difficult and expensive."

For more details on the plan and its likelihood of success read the Wall Street Journal article Sheila Blair's Mortgage Miracle

Stephen M. Flatow

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Creative Solution - Move Homeless into Vacant Homes

A glut of empty houses in Miami, Florida, vacated because of foreclosure or abandonment, are being recycled to the homeless. This is not part of the bailout package but the work of one Max Rameau who has taken it upon himself to act as a one-man relocation program.

According to reports,

Max Rameau delivers his sales pitch like a pro. "All tile floor!" he says during a recent showing. "And the living room, wow! It has great blinds."

But in nearly every other respect, he is unlike any real estate agent you've ever met. He is unshaven, drives a beat-up car and wears grungy cut-off sweat pants. He also breaks into the homes he shows. And his clients don't have a dime for a down payment.

While Miami is struggling with the burden of homes without owners, Rameau is working to get those homes occupied. Unorthodox? Ya think? But getting people off the street, out of the weather, and encouraging them to maintain the property, might just be a good thing.

Check out the reports at FOXNews.com.

Stephen M. Flatow

Vested Title Inc., 648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306. Tel 201-656-9220. Fax 201-656-4506. E-mail vti@vested.com Sphere: Related Content