US Mortgage Purchase Applications at 15-Year Low

US Mortgage Purchase Applications at 15-Year Low

U.S. home mortgage applications for purchases fell to a nearly
15-year low last week as resurgent worries about the strength of
the economy kept buyers at bay, 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, fell 2.4 percent in
the week ended Aug.19. The seasonally adjusted gauge of loan
requests for home purchases tumbled 5.7 percent to its lowest
level since December 1996, the MBA said. Refinance demand also
sagged as interest rates rose, with the refinance index slipping
1.7 percent. "Another week of volatile markets and rampant
uncertainty regarding the economy kept prospective homebuyers on
the sidelines, with purchase applications falling to a 15-year
low," Mike Fratantoni, MBA's vice president of research and
economics, said in a statement. Fixed 30-year mortgage rates
averaged 4.39 percent, up from 4.32 percent.

The Speech that Could Rattle Markets

All those unprecedented monetary policies from Federal Reserve
have conditioned the markets to be treated with kid gloves,
whenever the going gets tough.  So what Ben Bernanke, the central
bank's chairman might end up rattling the markets, by whatever he
says on Friday, at the Fed's annual symposium in Jackson Hole,
Wyoming. With the stock market mired in a month-long slump and
both the U.S. and euro zone economies in danger of sliding into
recession, investors are bracing for a possible repeat of last
year’s performance when Bernanke hinted the Fed would act if
conditions deteriorated.  Two months later, the central bank
began pumping $600 billion into the financial system through
direct purchases of Treasury debt, a second round of stimulus
that markets dubbed "QE2," or quantitative easing  While the
jury's still out on how effective these purchases have been, few
are ready to rule out QE3 entirely. More stock market gains could
be in store if Bernanke gives a strong hint of future action.
After Bernanke's speech last August, the S&P 500 began a rally
that took it up nearly 25 percent by May 2011.

Realtors: White House can Host Housing Summit

A housing recovery is seen as key to America’s economic
strength, and National Association of Realtors wants to make sure
that proposed legislation and regulatory rules or changes to
current programs and incentives don’t further exacerbate
problems within fragile real estate markets across the country.
To help develop policies that will stabilize the nation’s
housing market and support an economic recovery, the NAR had
urged the White House to host a summit of policy makers, industry
leaders and government stake holders focused on revitalizing the
nation’s housing.   “Housing and home ownership issues affect
all Americans, which is why we need strong policies that will
help stabilize the housing market and lead the way out of
today’s economic struggles.” said NAR President Ron Phipps,
broker-president of Phipps Realty in Warwick, R.I. A broad
discussion among all stakeholders about what needs to be done to
put the housing market and economy on a path to recovery could
provide valuable recommendations and solutions to promote
responsible, sustainable home ownership and stabilize and
revitalize the housing industry and economy.

Diana Olick: Best Builder Bets for 2012

Sales of newly built homes are on track to set a new record low
for this year... The street was expecting a flat to slightly down
reading in July, and while the number came in at -0.7%, that
figures in a very large downward revision for June. New homes
aren't selling, new delinquencies are rising, and inventories of
existing homes are way too high. So why am I titling this blog,
Best Builder Bets? Because some analysts out there think that
some builders are well-positioned to profit going forward. Jeff
Meli of Barclay's Capital is naming names and markets. "A couple
of the names that look appealing to us include, Meritage,
Standard Pacific and DR Horton,” says Meli.

He is looking at areas of the country that are seeing some price
appreciation and seeing which builders already have a substantial
base of operations there, because it takes builders up to two
years to get established in a new area. He's bullish on Atlanta,
Washington, DC and, Believe it or not, Phoenix. Phoenix?? He
believes that “Phoenix has a large number of foreclosures to go
through the system; however, looking forward 6-9 months, we think
that a lot of that distressed overhang will be worked through,
and it will actually reach an equilibrium and potentially provide
a robust place for homebuilders to be operating."  While Meli is
looking ahead to which builders are well positioned, Dan
Oppenheim at Credit Suisse is busy revising down estimates on the
big public builders. "We are lowering target prices by an average
of 30%, on the expectation of lower sales, greater pricing
pressure, and increased risk of impairments," he says, while
upgrading Ryland to "neutral" from "underperform."  As we've
suggested before, the housing recovery will be extremely
regional. While all real estate has always been local, factors in
today's housing market, like judicial versus non judicial
foreclosure states, and in today's economy, like unemployment,
make it even more so.

'Surrogate' signing scandal rock LPS and DocX

Lender Processing Services Inc. and its DocX affiliate allegedly
caused American Home Mortgage Servicing Inc. to lose millions
from the surrogate signing of mortgage documents, a lawsuit filed
Tuesday contends. Coppell, Texas-based AHMSI filed suit in a
Dallas district court against Jacksonville, Fla.-based LPS
alleging more than 30,000 residential mortgages across the
country were affected by  "improper execution, notarization and
recording of assignments of mortgage."  The lawsuit comes on the
heels of what AHMSI claims was an unsuccessful attempt to recover
its losses during more than a year of talks with LPS. AHMSI said
that LPS first promised to indemnify AHMSI, and then later
claimed no duty to do so because the contract involved with the
faulty assignments had already expired. Certain DocX and LPS
employees were apparently appointed by AHMSI's board of directors
as "special officers" of AHMSI with powers limited to executing
mortgage-related documents, according to the mortgage servicer.

In October, LPS said varying signature styles from its
subsidiary, DocX, resulted from a DocX practice that has been
discontinued and only affected two lenders/servicers, but did not
identify those servicers. The servicer said it terminated its
contract with DocX after the revelation and conducted a 50-state
remediation effort to correct affected assignments. Also in
April, LPS signed a consent order with the Federal Reserve to
settle a federal investigation into foreclosure practices at the
firm and major mortgage servicers. LPS was required to boost
oversight of its processes.

DSNews.com: Median Home Prices Revert to Years Past

Home prices figured out the secret to time travel while no one
was looking. The research firm John Burns Real Estate Consulting
(JBRE) says if you’re looking to find a comparable point of
reference for current median home prices then prepare to take a
trip back in time. JBRE manager   A bevy of Texas markets fall
into this group, including Dallas, Houston, Austin, and San
Antonio, with median prices ranging from $148,000 to $193,000.
Baltimore, with a median of $235,000, and Indianapolis, at
$121,874, also fall into their 2006 price brackets. The firm says
elevated levels of distress, heavy employment losses, and large
booms of sprawling development are common themes among markets
that have lost the most ground. Falling in between the two
extremes of price deterioration, you’ll find Washington, D.C.
(2004 at $311,104), Los Angeles (2003 at $335,000), and Fort
Lauderdale (2002 at $150,000).

Short Sales Surged in Second Quater.

Short sales surged in second quarter: RealtyTrac

Second-quarter pre-foreclosure sales jumped 19% from the previous
quarter, suggesting more banks and distressed borrowers are
searching for efficient ways to offload properties that are near
foreclosure, RealtyTrac said. Third parties acquired 102,407
pre-foreclosures in the second quarter, while 162,680 bank-owned
homes were sold in the same period. Pre-foreclosure sales are
generally short sales and properties sold within the foreclosure
process. As for who is nabbing up distressed and bank-owned
properties, RealtyTrac said third parties acquired 265,087 homes
classified as in foreclosure or bank-owned in the second quarter.
That is up 6% from the revised first quarter figure and down 11%
from the second quarter of last year. The average sales price for
foreclosures or bank-owned properties hit $164,217 in 2Q, down
less than one percent from 1Q and 5% from the second quarter of
2010.  The sales price for distressed real estate was 32% below
the average sales price of homes not in foreclosure. States with
the largest quarterly increase in pre-foreclosure home sales
included Nevada, which experienced a 43% increase; Washington
(39%), California (38%); and Texas (34%). The states with the
highest number of foreclosure sales included Nevada, Arizona and
California.

Budget Deficit Estimate Cut to $1.28 Trillion: CBO

The federal budget deficit will hit $1.28 trillion this year,
down slightly from the previous two years, with even bigger
savings to come over the next decade, according to congressional
projections released Wednesday.  The nonpartisan Congressional
Budget Office says budget deficits will be reduced by a total
$3.3 trillion over the next decade, largely because of the
deficit reduction package passed by Congress earlier this month.
Nevertheless, the federal budget will continue to be awash in red
ink for years to come. Even with the savings, budget deficits
will total nearly $3.5 trillion over the next decade—more if
Bush-era tax cuts scheduled to expire at the end of 2012 are
extended.  There is more bad news in the report: CBO projects
only modest economic growth over the next few years, with the
unemployment rate falling only slightly by the end of 2012. The
agency projects an unemployment rate of 8.5 percent for the last
four months of 2012. The presidential election is in November of
that year.

"The United States is facing profound budgetary and economic
challenges," the new CBO report says. "With modest economic
growth anticipated for the next few years, CBO expects employment
to expand slowly." Failure to pass a package would trigger $1.2
trillion in automatic spending cuts, affecting the Pentagon as
well as domestic programs.  The new CBO report projects that the
legislation will reduce deficits by a total of $2.1 trillion over
the next decade. The agency also projects savings of $600 billion
over the next decade from lower interest rates.

Diana Olick: Higher-End Housing Hits a Wall

Most of America won't shed a tear for those who own higher-priced
homes, especially given that the median home price in the nation
has now fallen to just $174,000, but investors and homeowners
alike should take note: Higher priced homes are taking a hit and
the outlook for them is worse than the overall market.  That will
have ramifications for recovery.  Despite the fact that just
eight percent of US loans are currently jumbo, according to
Inside Mortgage Finance, and that share will rise to just 10-12
percent when the conforming loan limit is lowered October 1st,
high-end housing is already being hit harder than the overall
market, which isn't exactly doing so well itself. For one, weekly
mortgage applications to purchase a home have been falling
steadily, down 5.7 percent last week. But jumbo loan purchase
applications fell 15 percent.

While sales of homes below $250,000 rose nearly 25 percent in
July year over year according to the National Association of
Realtors (June 2010 was the end of the home buyer tax credit, so
July 2010 was artificially low, still....) sales of homes over
$500,000 were basically flat.  Demand on the low end of the
housing market is boosted by investors largely buying distressed
properties; they either fix up and flip the homes or rent them
out, waiting for the market to recover. Higher end homes have far
fewer investors and may be more sensitive to a volatile stock
market, as potential buyers are more likely to be invested there.
Suffice it to say, we need all segments of the housing market
pushing forward in order to get the full market back to health.

Markets not impacted by rise in jobless claims

Initial jobless claims rose last week, increasing by 5,000
filings for a total of 417,000 claims on a seasonally adjusted
basis. That is up from the previous week's revised figure of
403,500 claims. The Labor Department noted the numbers for the
week ending Aug. 20 were impacted by 8,500 claims stemming from a
labor dispute between the Communications Workers of America and
Verizon Communications. Meanwhile, the advance seasonally
adjusted insured unemployment rate hit 2.9% for the week ending
Aug. 13, a slight decrease from the previous week's revised rate
of 3% Despite recent volatility in the stock market, analysts
with Econoday said Thursday the markets "are showing little
reaction to the report, which outside of the Verizon strike,
points to mildly improving conditions in the labor market."

Pre-Foreclosure Short Sales Jump 19% in Second Quarter

Short sales shot up 19 percent between the first and second
quarters, with 102,407 transactions completed during the
April-to-June period, according to RealtyTrac. Over the same
timeframe, a total of 162,680 bank-owned REO homes sold to third
parties, virtually unchanged from the first quarter.
RealtyTrac’s study also found that the time to complete a short
sale is down, while the time it takes to sell an REO has
increased. Pre-foreclosure short sales took an average of 245
days to sell after receiving the initial foreclosure notice
during the second quarter, RealtyTrac says. That’s down from an
average of 256 days in the first quarter and follows three
straight quarters in which the sales cycle has increased.
Nationally, REOs had an average sales price of $145,211, a
discount of nearly 40 percent below the average sales price of
non-distressed homes. The REO discount was 36 percent in the
previous quarter and 34 percent in the second quarter of 2010.
Together, REOs and short sales accounted for 31 percent of all
U.S. residential sales in the second quarter, RealtyTrac reports.
That’s down from nearly 36 percent of all sales in the first
quarter but up from 24 percent of all sales in the second quarter
of 2010.

NBA Predicts Greater Drop In Origination Volume in 2012

The Mortgage Bankers Association's (MBA) Economic and Mortgage
Finance Forecasts project $1.1 trillion in residential mortgage
origination volume in 2011, roughly $100 billion more than
earlier forecasts, as low mortgage rates have brought in higher
than expected refinance volume, while purchase volume has been
less than anticipated.  However, despite lower forecasted
mortgage rates, weaker projected economic growth in 2012 led to a
reduction in MBA's origination forecast for that year to $931
billion, which would be the lowest volume originated since 1997.

 Jay Brinkmann, MBA's Senior Vice President of Research and
Education and Chief Economist said, "We have lived through a
series of unprecedented events over the past month:  the debt
ceiling crisis, S&P's downgrade of US Treasury debt, the ongoing
sovereign debt crisis in Europe, a commitment by the Fed to keep
rates near zero for the next two years and stock market
volatility that has reached levels not seen since the fall of
2008." "While there is substantial uncertainty about how these
events will impact consumer and business behavior, we do not
believe that the economy is facing the same types of risks as in
2008.   Given that both fiscal and monetary policymakers' options
are limited at this point, it would be difficult for policy
changes to soften any blow." "The silver lining in all the
turmoil for our industry is that mortgage rates are once again at
or approaching historic lows.

Lower rates continue to boost refinance volumes above our earlier
projections, even though refinance application volume remains
quite constrained by tight credit standards, the weak job market,
and the large number of underwater borrowers. For the market as a
whole, we are now projecting total mortgage originations to be
$1.1 trillion in 2011, up about $100 billion from our earlier
projection, and $931 billion in 2012," Brinkmann concluded.

Stocks poised for a bounce

U.S. stocks were poised for an early bounce Monday, following the
biggest four-week loss since March 2009. Dow Jones industrial
average, S&P 500 and Nasdaq futures were up more than 1% ahead of
the opening bell. Stock futures indicate the possible direction
of the markets when they open at 9:30 a.m. On Friday, U.S.Stocks
capped a difficult week, with the S&P 500 posting its biggest
four-week loss since March 2009, amid fears that the U.S. economy
is heading into another recession, and ongoing concerns about
Europe's debt crisis. The Dow, S&P 500 and Nasdaq fell between 4%
and 6% last week. The big event for investors this week will be
on Friday, when Federal Reserve Chairman Ben Bernanke will give
his keynote speech at the Kansas City Fed's annual retreat in
Jackson Hole, Wyo.  "The Fed's annual gathering in Jackson Hole
this year presents yet another opportunity to calibrate Chairman
Bernanke's thoughts on the forces of structural weakness in the
economy and the appropriate Fed policy stance over the medium
term," said Marc Chandler, global head of currency strategy at
Brown Brothers Harriman.  At last year's annual meeting, the Fed
chief prepared the market for QE2, a policy that is widely
credited for supporting stocks earlier this year.

Shadow inventory improves but still threatens housing recovery

Despite all those millions of distressed properties out on sale,
depressing home prices even further, there is one glimmer of hope
according Standard & Poor.  According to the report  the time it
would take for banks to purge all of this so-called "shadow
inventory" from the market (through foreclosure sales, mortgage
modifications and other measures) shrunk to 47 months during the
second quarter, a significant drop from the 52 months it
estimated for the first quarter of this year. The report also
found that the total dollar value of the loans on these
properties -- known as non-agency loans because they are not
backed by Fannie Mae, Freddie Mac or the Federal Housing
Administration -- also fell to $405 billion at the end of June
from $433 billion three months earlier. S&P said the decline was
helped by stabilizing liquidation rates and by fewer borrowers
falling behind on their mortgage payments as the economy slowly
recovered during the quarter.

S&P estimates that there are still a total of between 4 million
and 5 million homes, including those with agency-backed loans, in
shadow inventory, an amount that continues to jeopardize the
housing market's recovery. Nevertheless, Fannie and Freddie are
looking to rid themselves of a large percentage the shadow
inventory they do have -- and quickly. Earlier this month, the
Federal Housing Finance Agency (FHFA), the Treasury Department
and the U.S. Department of Housing and Urban Development were
seeking suggestions on how to dispose all the repossessed homes
now owned by Fannie Mae, Freddie Mac and the Federal Housing
Administration in a way that would benefit local communities.

Layoffs Slide Morale at Wall Street

Before layoffs began sweeping across Wall Street, the timing of
rampant job-cutting by organizations like Credit Suisse,
Barclays, HSBC, Goldman Sachs, Bank of New York Mellon,
illustrated the unanticipated dangers of such acts, which tend to
run in cycles on Wall Street. Employee morale often plummets at a
time when survivors are asked to pick up more responsibility and
customer relations can suffer as service and relationships
deteriorate.  What's more, layoffs inartfully constructed can
come across to shareholders as Band-Aid solutions that at best
temporarily cut expenses and at worst pare away reserves of
talented people. "They finished cutting the fat and now they're
into the muscle and bone," said Tim White, a managing partner who
specializes in wealth management at the recruiting firm
Kaye/Bassman International in Dallas.

The planned cuts at Bank of America have pushed the number of
financial sector layoffs this year to 18,252 — 6 percent higher
than in the comparable period in 2010. That is not good for
morale. Hours have become longer, trading floors have more open
seats and fresh young faces are taking over offices where
high-level personnel once sat. The highest-paid people can be
easy targets for layoffs now, given the cost of keeping them
employed and the eagerness of younger workers to take on their
roles, even at less pay, executive recruiters said Changes in
pay structures mandated in part by the Dodd-Frank financial
reform laws have exacerbated the problem. "When people are getting
hired, fired, hired, fired, every two years, it's very difficult
to run a business," said Conrad Ciccotello, a finance professor
at Georgia State University who has studied the issue. "There is
precious human capital destroyed in vicious boom-and-bust cycles
that is costly to replace.

Diana Olick: Refinance Surge…Not so much

As mortgage rates hit new record lows, refinance applications
have surged accordingly. That, as always, is leading economists
to talk once again about what the effect of all that refinancing
might be on the greater economy. It's even bringing up an old
proposal by Columbia University's Christopher Meyer to have the
government blanket refinance all loans backed by Fannie Mae and
Freddie Mac, pumping billions of dollars of spending back into
the economy.  But we have to take a look at the refinance picture
in today's market, since we all know that today's economic
reality is not usual. The value of refinance is around $1
trillion in mortgage debt annually, in normal times. If you
assume an average savings of one percentage point in the refi,
then you get about $10 billion in savings (including average
fees). But we have to remember that many borrowers are not
qualifying for refis now because they are underwater on their
mortgages (owe more than the homes are worth).

Fannie and Freddie have programs for underwater borrowers to
refi, but they have strict standards to meet. This from Dean
Baker at the Center for Economic and Policy Research: "To get
some rough numbers, we have around 12 million underwater
mortgages. Probably around 4-5 million are with Fannie and
Freddie. Assuming an average value of 200k, that gets you $800
billion to $1 trillion in debt. If we assume that by easing the
rules we get half of these people to refi (probably way high) and
the average saving is 1.5 pp, this saves between $6-7.5 billion a
year in interest. It's something, but it's not going to be some
huge stimulus." Even for those not underwater, most already
refinanced last year, and some argue, due to that, mortgage rates
have to go far lower than 4 percent to make a second refinance
worthwhile.

Commercial property prices inch higher in June

The price of commercial property inched up in June, representing
a firming up of the bottom as continued market turmoil and less
lending keep any significant gains at bay, according to Moody's
Investors Service. The ratings agency said its commercial
property price index increased 0.9% in June from the prior month.
Analysts said the 254 repeat-sale transactions in June were the
highest non-year-end level in about three years. Tightening of
10-year Treasury yield "has largely offset widening loan spreads,
helping maintain attractive financing costs and increasing
transaction volume." Distressed transactions accounted for 28.7%
of all sales, higher than the two-year average of 25.9%. "The
broad middle portion of the commercial real estate market
(neither trophy nor distressed) continues to perform well,
helping sustain positive movement in the aggregate index,"
according to analysts. Three of the four Moody's property type
indices showed prices gains in the second quarter led by office
space with a 8.9% gain, industrial 2.5% and apartments 0.6%. The
retail space index fell 0.3% for the second quarter.

Real estate sales down in July as lack of lending hampers
recovery

Sales of residential property declined in July with experts
blaming a lack of lending that is holding back the real estate
recovery. But although sales were down they are still higher than
a year ago, according to the latest monthly reports from the
National Association of Realtors. Total completed sales fell 3.5%
to a seasonally adjusted annual rate of 4.67 million in July from
4.84 million in June, the NAR figures show. But they are 21%
above the 3.86 million unit pace in July 2010, which was a
cyclical low immediately following the expiration of the home
buyer tax credit. Lawrence Yun, NAR chief economist, said it is a
lack of lending that is holding the market back from recovery.
‘Affordability conditions this year have been the most
favourable on record dating back to 1970, but many buyers are
being held back because banks are offering financing to only the
most highly qualified borrowers, ignoring a large share of
otherwise creditworthy buyers,’ he said. According to Ron
Phipps, NAR President, an unacceptably high number of potential
home buyers are unable to complete transactions. ‘Beyond the
tight credit problems, all appraisals must be done by valuators
with local expertise and using reasonable comparisons, it
doesn’t make sense to consistently see so many valuations
coming in below negotiated prices, often below replacement
construction costs,’ he explained.

Housing Market Faces Long, Cold Winter: Altos

Housing market faces long, cold winter: Altos

Low interest rates and a glut of inventory failed to
substantially stimulate a weak housing market this summer,
according to Altos Research. Based on summer statistics and shaky
economic indicators, Altos is predicting a "long, cold winter"
with nothing on the horizon to suggest improved housing market
activity through the fall and winter. Home prices in July rose in
14 of the 20 metro areas surveyed for the Altos Research
Mid-Cities Report and inventory increased in 12 of the markets.
"The housing market in the United States is in a constant state
of flux. Volatility is the norm and the rules of yesterday's
market no longer apply," Altos said. Eight of the 20 markets saw
their housing inventory levels decline, while six of 20 markets
noted a drop in median prices. The Federal Reserve Bank of Dallas
recently said it expects home prices to bottom out by early 2012,
with market volatility somewhat limited to certain hard-hit
areas, such as Arizona, California and Nevada. The Fed said
markets like Texas, where jobs have been created during the
recession, could see the tide shift by the early part of 2012.

Stocks take a dip again

As renewed concerns about global economy did the rounds again,
turmoil returned to US stock markets, plunging major indexes and
pushing gold to a new record high. Investors were working through
bad news on various fronts, including a dismal forecast from
Morgan Stanley for global economic growth, and two U.S.
government-issued reports on inflation and the job market. The
investment bank slashed its global growth outlook for 2011 and
2012, adding that the United States and Europe are "hovering
dangerously close to a recession." Morgan Stanley cut GDP
forecasts to 3.9% in 2011 and 3.8% in 2012, down from 4.2% and
4.5%, respectively. Growth will be particularly sluggish in
developed nations, with GDP averaging an increase of 1.5%
Investors received an unpleasant surprise, when the Labor
Department reported that weekly jobless claims were worse than
expected. The government reported that jobless claims rose by
9,000 to 408,000 in the week ended Aug. 13.

Diana Olick: Wells Fargo Lowers Conforming Loan Limits

The deadline for ending temporarily higher loan limits at Fannie
Mae, Freddie Mac and the FHA is October 1st, but they are
effectively ended now.  A Wells Fargo spokesman confirms, "August
15th was the deadline for applications and rate locks for FHA and
conventional conforming loans with balances above the limits we
expect will be in place after September 30th."  The loan limits
were raised by Congress in 2008 temporarily from $417,000 to
$729,000 in the highest priced markets in order to help bring
much-needed liquidity to the mortgage market after the sub-prime
meltdown that sent investors fleeing. Even though the rule goes
into effect on October 1st, all loans have to be funded, sold and
shipped to the GSE's by then. Refi volume has been so high lately
that it can take 45 days to do a loan, so lenders have to cut off
in time.  What does that mean on the street? A check of Wells
Fargo's website shows it offering the 30-yr fixed conforming at
4.25 percent, and jumbos at 4.625 percent. Obviously the rate
changes will affect only the highest priced markets, largely on
the coasts.

This from mortgage expert Mark Hanson: "The realists note that
within certain mid-to-high end communities, which can underpin an
entire county's economy, the majority of houses and borrowers
could be impacted, again weakening the macro economic foundation.
Bottom line: The loss of high leverage GSE and FHA loans to $729k
will negatively impact mid-to-high end housing. To what extent, I
am not sure yet. However, I don't think it will be trivial. But
what I am sure of is that mid-to-high end housing is the segment
most at-risk for step-down in sales volume and prices...just look
at CA house sales over $500 in July for an example of how
volatile this market segment is." Wells Fargo is the first to
confirm the change, but other banks either will or have followed
suit. They have to, simply because of the timing.

Shadow inventory levels improve: S&P

Standard & Poor's analysts estimate it would take 47 months for
the housing market to work through the shadow inventory,
according to their second quarter research note. They revised
that down from 52 months in the first quarter, the first decline
since the middle of 2009. The amount of time it would take for
the housing market to move through properties lingering in the
foreclosure system is finally improving. S&P analyzed loan-level
private-label residential mortgage-backed securities data from
CoreLogic to calculate its estimates. It defines the shadow
inventory as a collection of properties in 90-day delinquency or
worse, foreclosure and REO. The unpaid principal balance on these
properties remains high at $405 billion, but it is a 6.4% drop
from the previous quarter and represents less than one-third of
the outstanding private-label RMBS market. "In conjunction with
stable liquidation rates, we believe these are positive signs
that the amount of time it will take to clear this 'shadow
inventory' should continue to decline over the next year,"
analysts said.

Debate on Housing finance reform stirs secondary mortgage market
Hours after The Washington Post published a story Tuesday
detailing the Obama administration's alleged plan to extend the
government's role in the mortgage market, the Treasury Department
quickly rejected the notion and stressed continued devotion to
installing private capital dominance in mortgage financing once
again. "The article made some waves, which helped bring the
denials, with the thought a new direction in policy — perhaps
after the 2012 elections — could perhaps preserve Fannie Mae
and Freddie Mac under different names and a different set of
capital requirements," Jim Vogel of FTN Financial said in a note
Wednesday. So far, Fannie and Freddie owe the Treasury $142.2
billion in still compiling rescue funds. Vogel pointed out that
even if the Obama administration issued such a proposal, it would
have a difficult time winding through a policy gridlock in
Washington, leaving the only window for such action after the
2012 election.

Refinance Applications Increase

Refinance Applications Increase

Mortgage applications increased 4.1 percent from one week
earlier, according to data from the Mortgage Bankers
Association’s Weekly Mortgage Applications Survey for the week
ending August 12, 2011.  The Market Composite Index, a measure of
mortgage loan application volume, increased 4.1 percent on a
seasonally adjusted basis from one week earlier. On an unadjusted
basis, the Index increased 3.6 percent compared with the previous
week and was 13.5 percent lower than a year ago. The Refinance
Index increased 8.0 percent from the previous week, but was 16.3
percent lower than the same week last year. The seasonally
adjusted Purchase Index decreased 9.1 percent from one week
earlier. The unadjusted Purchase Index decreased 10.1 percent
compared with the previous week and was 1.1 percent lower than
the same week one year ago.

“Unprecedented volatility in the stock market last week amid
additional signs that the economy has slowed led to further drops
in mortgage rates, with the 15-year rate reaching a new low for
the MBA survey,” said Mike Fratantoni, MBA’s Vice President
of Research and Economics.  Fratantoni continued, “The big
differences in refinance volumes were likely driven by the
decisions of some lenders not to drop rates last week, largely
due to the need to manage their pipelines.” The four week
moving average for the seasonally adjusted Market Index is up 6.9
percent. The four week moving average is down 2.2 percent for the
seasonally adjusted Purchase Index, while this average is up 10.1
percent for the Refinance Index.  The adjustable-rate mortgage
(ARM) share of activity decreased to 5.8 percent from 6.1 percent
of total applications from the previous week. The average
contract interest rate for 30-year fixed-rate mortgages decreased
to 4.32 percent from 4.37 percent. The 30-year fixed contract
rate has decreased for three straight weeks and is at a new low
for this year.

US Recession Is Guaranteed: Expert

As the debate rages on about whether the U.S. economy is headed
for a douple-dip, one expert says another recession is all but
guaranteed, and there's nothing that can be done to prevent it.
Paul Gambles, Managing Director of financial advisory and asset
management firm MBMG Group said the bond market, which is the
most reliable indicator, has been pointing to a slowdown since at
least April or May. According to Gambles, the deleveraging
process facing the U.S. is so severe that a recession is
inevitable. "If you've got a $14.5 trillion debt burden, it's
going to be a pretty severe recession," he said. "Recession is
usually linked to the size of the debt (a country) has to clear
up." In fact, Gambles believes the U.S. economy has been in
trouble far longer than most people appreciate and has been
merely using debt to prop up growth. Gambles believes that the
party might end soon because a recession would hurt the
government's ability to raise revenues.

BofA weighs foreclosure deal

Bank of America Corp may settle a state and federal probe of
foreclosure practices in a deal that lets New York proceed with
an inquiry into securitizations.  According to Bloomberg, the
firm may pursue an accord with most of the 50 state attorneys
general, even if it omits New York's attorney general Eric
Schneiderman, said one of the people. BofA did not immediately
respond to an email seeking comment outside regular U.S. business
hours.  In late June, BofA agreed to an $8.5 billion deal to
settle an eight-month dispute with outside investors who bought
Countrywide Financial Corp mortgage bonds. The deal, which must
be approved by a New York court, applies to all investors in
nearly all Countrywide Financial-created mortgage bonds. The
investors -- including Pacific Investment Management Co, or
PIMCO, and BlackRock Inc -- requested the bank repurchase toxic
home loans that comprised a series of mortgage-backed securities.
Negotiations with regulators and the five largest mortgage
servicers including Bank of America, JPMorgan Chase & Co,
Citigroup Inc, Wells Fargo & Co and Ally Financial Inc have been
bogged down over details of the proposed deal, according to
people who have knowledge of the talks.

Diana Olick: Home Builders Face New Hurdles

Builders are on track to construct the fewest single family homes
in history this year. Total housing starts in July were down 1.7
percent, month to month, which may not sound like a lot, but when
you break the number down, you see the problem. Single family
starts were down 4.9 percent, while Multi-family starts rose 6.3
percent. Rental demand continues to rise, as consumer confidence
in homeownership was decimated yet again by the recent debt
turmoil in the economy. I am reporting these numbers today from a
construction site. Mid-Atlantic Builders of Rockville, MD is
putting up the last phase of a large single family development
out in Bowie, MD, which is about 15 minutes outside the DC
Beltway. According to executive VP Stephen Paul, "We started what
we call the spring market in February. We started out very
strong, we had a good February, March, even into April. What
started to cause consumer confidence to wane was the escalation
of gas prices, the debt issue with the government, and what's
going on in Europe."  In other words: Confidence. "We see people
not sure what to do at this moment and a little unsure," adds
Paul, though he is confident that things will pick up this Fall,
but housing analysts aren't so sure.  "The market is continuing
to adjust to a reduction in the national home ownership rate at
the same time the supply of existing single family homes remain
excessive," writes Peter Boockvar at Miller Tabak. Builder
Stephen Paul told me of a new trend I'd heard of only
anecdotally: We're seeing more multi-generational families moving
into our homes, so we're selling in-law suites, with the regular
part of the house, and the parents are moving in and actually
helping pay, funding the mortgage, so that's helping with the
affordability." That's precisely why we are seeing a drop in
household formation. Add that to the surge in renting and it's
pretty clear why the nation's home builders are in for a long
haul back to recovery.

Low Rate Pledge 'Inappropriate': Fed's Plosser

The Fed last week pledged to keep rates low for at least two more
years and said it would consider further steps to help growth. In
response to this announcement, Philadelphia Federal Reserve
President Charles Plosser said he disagreed with the Fed's
decision to promise to keep interest rates low for another two
years because policy should be dictated by the economy rather
than a timeline. "It was inappropriate policy at an inappropriate
time," Plosser told Bloomberg Radio.  "Policy shouldn't be
dependent on the calendar, it should be dependent on the
economy," he later added.  Plosser was among three dissenters
against the Fed's decision who wanted to avoid any specific time
reference on the low-rates pledge.

DSNews.com - Past-Due Mortgages Climb Above 6.5 Million

According to a report from Lender Processing Services, the number
of mortgages that are delinquent or in foreclosure is at
6,538,000. The company’s assessment is based on mortgage
performance statistics derived from its loan-level database of
nearly 40 million mortgage loans through the end of July. LPS
says the national delinquency rate — loans that are at least 30
days past due but not yet in foreclosure – rose to 8.34 percent
as of the end of July. That’s up 2.4 percent from June but down
10.4 percent from July 2010. According to the company’s latest
report, 4.11 percent of the nation’s outstanding mortgages were
part of the foreclosure inventory at July month-end.  The
foreclosure inventory rate – which LPS calculates as loans that
have been referred to an attorney but have not yet reached the
final stage of foreclosure sale – increased 0.4 percent from
June, and is up 9.7 percent from a year earlier. Of the 6,538,000
mortgages going unpaid in July, LPS says 2,156,000 were in the
process of foreclosure.  The remaining 4,382,000 were 30 or more
days past due but the lender had not yet initiated foreclosures.
Of these, 1,899,000 were 90-plus days delinquent

AIG sues BOA

AIG sues BOA

American International Group (AIG) is planning to sue Bank of
America (BOA) over hundreds of mortgage-backed securities, adding
to the surge of investors seeking compensation for the troubled
mortgages that led to the financial crisis.  The suit seeks to
recover more than $10 billion in losses on $28 billion of
investments, in possibly the largest mortgage-security-related
action filed by a single investor.  It claims that BOA and its
Merrill Lynch and Countrywide Financial units misrepresented the
quality of the mortgages placed in securities and sold to
investors.  A.I.G. AIG, still largely taxpayer-owned as a result
of its 2008 government bailout, is among a growing group of
investors pursuing private lawsuits because they believe banks
misled them into buying risky securities during the housing boom.
At least 90 suits related to mortgage bonds have been filed,
demanding at least $197 billion, according to McCarthy Lawyer
Links, a legal consulting firm. AIG is preparing similar suits
against other large financial institutions as part of a
litigation strategy aimed at recovering some of the billions in
losses the insurer sustained during the financial crisis.

Debt downgrade hit pride more than markets

By now we all know that S&P has downgraded the US credit rating
from AAA to AA+.  That's a far cry from Greece's junk status and
still the second highest rating out there.  The blow is more
psychological than material.  “What I think the S&P thing did
was to hit a nerve that there's something basically bad going on,
and it's hit the self-esteem of the United States, the psyche,”
said the former chairman of the Federal Reserve, in an interview
with NBC’s Meet the Press on Sunday.  Having attacked S&P’s
“terrible judgment” in an exclusive interview with CNBC, US
Treasury Secretary Tim Geithner said America is much stronger
than Washington itself and voiced his confidence in the “basic
regenerative capacity of the American economy and the American
people.”

Others, like Bernd Weidensteiner, an economist at Commerzbank,
agreed that equities could be in for a rough ride but said he
believes the effect on the Treasury market will be temporary.
“Money market disruptions are not to be expected since money
market funds will not be affected by the rating action. They have
only short-term Treasury paper in their portfolios, and the
short-term rating was not affected. Finally, haircuts in the repo
market will certainly not rise massively,” said Weidensteiner.

Olick - rising foreclosures

"Just as we saw a double dip in home prices, we may be seeing
another surge in foreclosures.  And just as the home price
scenario was caused by artificial government stimulus, in the
form of the home buyer tax credit juicing home sales only
briefly, the foreclosure scenario was caused by real negligence,
in the form of the 'robo-signing' paperwork scandal.  Banks and
servicers stopped foreclosures entirely for a time after the
malpractice was discovered, and courts delayed the process,
picking through papers as foreclosures were resubmitted; that is
now turning around.  The system is ramping up again, and
foreclosure starts are up dramatically, more than 10% in June
from the previous month, according to Lender Processing Services
(LPS). The good news of the past few months has been that while
the end game is quickening, as stalled foreclosures are making
their way through the system at a faster pace, new delinquencies
were decreasing, leading us all to believe that the crisis is
abating.  Well think again.

New delinquencies rose 2.4% in June, which isn't a lot, but it is
still the wrong direction. This as the pipeline is still so
clogged that foreclosure timelines continue to rise. The average
loan in foreclosure in June was delinquent a record 587 days, and
more than 40% of 90+-day delinquencies have not made a payment in
more than a year. For loans in foreclosure, 35% have been
delinquent for more than two years, according to LPS.  [Friday's]
surprisingly good jobs report for July did not do much to impress
economists, who cited still fewer people working in July than
June and far fewer job creations on average in the past three
months than in three months before that. Bottom line, we need
surging jobs to shore up consumer finances and consumer
confidence, both of which are vital to housing's recovery.  Even
as Fannie Mae reported a second quarter drop in mortgage
delinquencies in its portfolio, chief economist Doug Duncan had
this to say about the future:

'Economic growth at the current pace is insufficient to spur
sustained, robust job creation, which is required to boost
sentiment, spending and housing demand. Our July Fannie Mae
National Housing Survey, to be released next Monday, continues to
indicate a high level of caution among consumers regarding
additional financial commitments. In addition, 70% of Americans
believe that the economy is moving in the wrong direction,
according to our quarterly survey that will be released. The
impact of recent financial market volatility on household wealth
is an additional setback to confidence and the outlook for the
housing market.'

If the foreclosure numbers are not improving significantly, which
the latest data would indicate, and the weak economy is in fact
getting weaker, the Obama administration will have to reverse its
course of removing itself from housing and figure out new and
better ways to jump back in.  I am constantly amazed, and have
been for years, at how little the President speaks of our housing
disaster, especially of late. It's what got us into this mess in
the first place, and without its strong recovery, the economy
cannot walk out of this recession on anything but a crippled
foot."

Fed says it's business as usual

Federal Reserve officials publicly declared it was business as
usual in the face of Standard and Poor’s downgrade of US
government debt, but privately they acknowledged these were
uncharted waters.  Within 90 minutes of S&P’s decision, a joint
release from US banking regulators declared that, despite the
downgrade of US paper, there would be no change in the
risk-weighting of treasury bills, bonds and notes or any paper
guaranteed by the US government. In other words, banks do not
have to post any additional capital against their Treasury
positions.  Regulators also announced that the treatment of US
treasuries at the Fed’s discount window would be unchanged.
Typically, the riskier an asset, the more collateral banks have
to post to borrow from the Fed’s emergency lending facility.

Fed officials met in the past two days to consider the impact of
a downgrade on markets. They concluded that, other than the
unknowable impact on sentiment, there would be little impact.
They suggested that there was not much money that would have to
"mechanically" sell treasuries because of investment
restrictions. So they didn’t expect much, if any, forced
selling.  Even if there were, they concluded that interest rates
were so low that any potential rise in rates would cause little
economic damage. They noted that treasury yields actually fell
during the debt ceiling debate with its threat of default and
downgrade because the US is still considered a safe haven.  In
addition, they say that the S&P downgrade provides little new
information about the US debt situation that the markets didn’t
have already. And markets have been on notice from S&P for
several weeks of a possible change.  But Fed officials
acknowledge they cannot quantify the potential psychological
impact on markets of the downgrade.

Mortgage stocks decline

After experiencing double-digit percentage declines during the
Dow's dramatic 500-point plunge Thursday, mortgage stocks
finished the week on a low note despite the market rallying
somewhat on news of better-than-expected job numbers Friday
morning.  Mortgage insurers felt significant pangs as the
companies, which are already dealing with uncertainty over their
place in the future mortgage finance space, watched their stocks
riled by Thursday's storm on Wall Street.  The PMI Group, which
saw its stock plunge more than 50% Thursday afternoon and another
37% Friday, ended the week with its stock price trading as low as
25 cents per share. Standard & Poor's lowered the insurer's
ratings Friday. The company is dealing with several issues,
including by its own admission fears that it will have to stop
writing insurance policies in several states because of heavy
losses that left it with inadequate capital and an excessive
risk-to-capital ratio.

Fellow mortgage insurer MGIC Investment Corp., saw its stock drop
about one% Friday after experiencing a 20% decline during
Thursday afternoon trading. By weekend, it was valued in the
$3.18 per share range.   Other mortgage insurers fared better in
Friday trading. At closing, Old Republic's stock was virtually
unchanged from a day earlier, falling slightly from $9.78 on
Thursday to $9.77 at close Friday afternoon.  Radian Group's
stock fell 4.83% Friday, closing at $2.76 per share.  The big
banks also continued to face the headwinds of poor to lackluster
economic news. Bank of America saw its stock drop 7.47% Friday
afternoon, closing a little over $8 per share.  Wells Fargo fell
more than 2%, closing at $25.21 per share.  Citigroup fell almost
4% in Friday trading, while JPMorgan fared much better falling
less than one percent.