FHA defaults rise
Defaults on Federal Housing Administration (FHA) mortgages
increased in December for the ninth-straight month. More than
711,000 FHA-backed home loans were in default at Dec. 31, nearly
19% higher a year earlier. As defaults increased, a constricted
and delayed foreclosure process is hurting the government's
ability to unload the properties once they are repossessed. The
US Housing and Urban Development Department (HUD) held 32,170 REO
in December, according to a recent report, the lowest level
measured since the same month in 2007. The high was reached in
March 2011 at 68,997 properties. The FHA insures roughly
one-third of the mortgage market, as private insurers have been
struggling with capital shortfalls since the crisis in 2007. But
the FHA is in trouble as well because of the surging defaults.
The capital ratio of the agency's mutual mortgage insurance fund
slipped to 0.24% last year, well below the 2% mandated by
Congress.
Analysis from the White House's Office of Management and Budget
released this week showed the fund would actually fall into the
red this year and need an unprecedented bailout from the Treasury
Department. Bank of America will send roughly $500 million to
the FHA as part of a settlement reached last week over past
countrywide origination problems. HUD Secretary Shaun Donovan
said more settlements would be announced soon, sending between
$900 million and $1 billion to the FHA. The agency will also be
raising insurance premiums above the hikes set to take place in
2012 as a result of the payroll tax cut extension reached last
year. Donovan said this week that new loans written this year
and last are proving to be more profitable than expected. But the
market remains fragile and another downturn in housing could put
the fund in further trouble. "A very significant piece of what
determines the actuarial value of the fund is what we project to
happen to home prices," Donovan said. "The better than expected
performance of the new loans can be offset if home prices perform
worse than we expect."
Tax cut deal announced
A payroll tax cut for 160 million Americans, set to expire at the
end of this month, would be extended through December under a
bipartisan deal announced early today by US congressional
leaders. The accord would also renew expiring jobless benefits
for millions of others and prevent a pay cut for doctors of
elderly Medicare patients. Economists say the tax cut extension
and renewal of jobless benefits should provide a lift to the US
economy, certain to be a key issue in the battle for control of
Congress and the White House in the run-up to Election Day. "We
have reached an agreement and we're moving forward," Republican
Representative Dave Camp, who headed the negotiating committee,
told reporters shortly after midnight EST. It was not
immediately clear when the House of Representatives and Senate
would vote on the deal, but lawmakers hoped to do so before they
leave Friday for a week-long recess. Many Republicans had
initially balked at the extension while others insisted that its
cost had to be offset by spending cuts to prevent an increase in
the US deficit. House Speaker John Boehner and fellow Republican
leaders cleared the way for a deal on Monday when they dropped
their demand that there be spending reductions to pay for the
tax-cut extension.
Olick - foreclosures up again
"After a year-long reprieve from rising foreclosures, the numbers
are going up again. One in every 624 US households received a
foreclosure filing in January, up 3% from the previous month,
according to a new report from RealtyTrac. Foreclosure activity
froze in many states in 2011, due to processing delays after
fraud, or so-called 'Robo-signing,' were uncovered in the fall of
2010. The thaw is now on. 'We expect the pattern of increasing
foreclosures to continue in the coming months, especially given
the finalized mortgage and foreclosure settlement reached in
early February between 49 state attorneys general and five of the
nation's largest lenders,' said RealtyTrac's CEO Brandon Moore in
a written release. 'Foreclosure activity increased on a
year-over-year basis for the first time in more than 12 months in
Florida, Illinois, Indiana and Pennsylvania, following a pattern
we saw in late 2011 in states such as California, Arizona and
Massachusetts.'
While states that do not require a judge to preside over
foreclosure proceedings, like California, saw a jump in filings
toward the end of last year, judicial states have all but
stalled. That will now change, thanks to the $26 billion dollar
government-lender/servicer settlement. There will still be some
delays on individual state levels, but the wheels are turning
again, and that means more bank repossessions and more foreclosed
properties heading to the re-sale market. Bank repossessions,
the final stage of the foreclosure process, increased at least
30% year-over-year in several states, including Massachusetts,
which saw a 75% spike. Bank-owned or REO (real estate owned)
activity hit a 16-month high in Illinois and a 15-month high in
Indiana. Default notices, the first stage of foreclosure, were
flat nationally in January, but spiked in judicial states, like
Connecticut and Pennsylvania (up 112%) and even in non-judicial
states like Maryland (up 100%).
Nevada still posted the highest foreclosure rate, with one in
every 198 households receiving a filing, despite an 8% drop in
foreclosure activity. Nevada is a non-judicial foreclosure state,
so the foreclosure backlog has been clearing for the last several
months. The situation is the same in California, where
foreclosure activity dropped to a 50-month low, but the state
still posted the second highest foreclosure rate in the nation.
More than 51,000 borrowers received a foreclosure filing in
January. California cities still account for nine of the top ten
metro foreclosure rates, according to RealtyTrac. As optimism
seems to abound for the spring, at least among the nation's home
builders whose sentiment index jumped to the highest level in
four years this month, foreclosures still stand in the way of a
robust recovery. Distressed property sales lower the value of
homes around them, and that pushes more borrowers into a negative
equity position, owing more on their mortgages than their homes
are currently valued. Until banks work through the enormous
backlog of foreclosures, which number in the millions, home
prices will not hit a firm bottom, especially in the most
troubled local real estate markets."
Jobless claims down
Jobless claims slipped 13,000 from an upwardly revised 361,000
the previous week and beneath economist estimates that actually
saw the number rising. The drop in jobless claims marked a near
four-year low, suggesting the labor market was finally
strengthening. Initial claims for state unemployment benefits
dropped 13,000 to a seasonally adjusted 348,000, the Labor
Department said, the lowest since March 2008. The prior week's
figure was revised up to 361,000 from the previously reported
358,000. Economists polled by Reuters had forecast claims rising
to 365,000. The four-week moving average for new claims, seen as
a better measure of labor market trends, fell 1,750 to 365,250
— the lowest since April 2008. Considerable slack still
remains, with 23.8 million Americans either out of work or
underemployed. There are no job openings for nearly three out of
every four unemployed. A Labor Department official said there
was nothing unusual in the state-level data and no state had been
estimated. The number of people still receiving benefits under
regular state programs after an initial week of aid tumbled
100,000 to 3.43 million in the week ended Feb. 4. That was the
lowest level since August 2008. Economists had forecast
so-called continuing claims falling to 3.50 million from a
previously reported 3.52 million. The number of Americans on
emergency unemployment benefits rose 16,568 to 3.00 million in
the week ended Jan. 28, the latest week for which data is
available. A total of 7.68 million people were claiming
unemployment benefits during that period under all programs, up
18,304 from the prior week.
Housing starts up
The Commerce Department said today that housing starts climbed
1.5% to an annual rate of 699,000 units. Initial estimates for
housing starts can be subject to large revisions and the
government revised the December reading significantly higher to a
689,000-unit rate. The Commerce Department initially estimated
groundbreaking in December advanced at a 657,000-unit rate.
Economists polled by Reuters had forecast housing starts rising
in January from the initial reading to a 675,000-unit pace.
Starts of multi-unit buildings, which are often rented, jumped
8.5% last month. New construction on buildings with five units or
more increased 14.4%. Groundbreaking on single-family units,
which make up a much larger portion of the sector, fell 1.0%.
Permits climbed 0.7% to an annual rate of 676,000 units.
Inflation up
US producer prices outside food and energy recorded their largest
increase in six months in January, but are unlikely to ignite
inflation pressures given the slack in the labor market. The
Labor Department said on Thursday its seasonally adjusted core
producer price index rose 0.4% last month, the largest gain since
July, after increasing 0.3% in December. Economists polled by
Reuters had expected core PPI to rise only 0.2%. In the 12 months
to January, core producer prices rose 3.0 after increasing 2.7%
in December. But overall prices received by farms, factories and
refineries edged up 0.1% after dipping 0.1% in December. The
rise, which was smaller economists' expectations for a 0.4% gain,
reflected declines in food and energy prices. In the 12 months
to January, producer prices increased 4.1%, moderating from 4.8%
December. That was the smallest increase in a year. The Federal
Reserve last month viewed inflation as largely contained and said
it expected to hold interest rates near zero at least through
late 2014. Wholesale prices outside of food and energy were
pushed up by a drugs costs, which accounted for about 40% of the
increase. Higher prices for light motor trucks and household
appliances also contributed. Passenger car prices fell 0.8%
after rising 0.5% in December.
Student loans drain retirement savings
Student loan debt amassed by parents is growing faster than loans
taken out by the student. Parents' loan debt has more than
doubled over the last decade — exceeding $100 billion dollars
or 10% of all outstanding student loan debt, according to the
independent research firm FinAid.org. "Parents of every income
level are increasingly borrowing for their children's college
education. It doesn't matter whether the parents are low income,
middle income or upper income. There's been dramatic growth in
the percentages of parents who've been borrowing," says
FinAid.org founder and publisher Mark Kantrowitz. Many parents
who co-signed loans or borrowed money on their own for their
children's education now face the loss of their retirement nest
eggs, homes and other assets. As student loan debt has topped US
credit card debt, "America faces the very real possibility of
another major threat on par with the devastating home mortgage
crisis," according to a new study by the National Association of
Consumer Bankruptcy Attorneys (NACBA).
Piling up student loans in middle age is "troublesome", says
NACBA vice president John Rao, an attorney with the National
Consumer Law Center. "Parents who take out loans for children or
co-sign loans will find those loans more difficult to pay as they
stop working and their incomes decline." But, parents' need to
borrow has grown as their savings has declined and plummeting
home values have made it difficult for many households to tap
what was once a common financial resource — the equity in their
homes. Parents have an average of about $34,000 in student loans
and that figure rises to $50,000, including interest, over a
standard 10-year loan repayment period. Interest rates on the
most common parental loan - the federal Parent "PLUS" loan - is
fixed at almost 8%. So the return on parents' investments needs
to average at least 8% just to break even. The fixed-rate PLUS
loan is often a better choice for families than private student
loans, whose rates may vary. But the need to borrow private or
PLUS is often a sign of over borrowing, Kantrowitz says.
"Parents should borrow no more than they can afford to pay in 10
years because they have to worry about their own retirement. By
the time they retire, they should have no debt remaining since
they will have no income to repay that debt."
Southern California - January sales up, prices down
Southern California home sales rose slightly last month as
investors snapped up the region's lowest-priced properties,
sinking prices to the lowest levels in more than 2 1/2 years,
DataQuick, a research firm, reported yesterday. More than half
of existing homes sold were foreclosed on in the previous year or
short sales -- transactions in which the price is less than what
is owed on the property. There were 14,523 new and existing
homes and condominiums sold in the six-county region in January,
up 0.4% from the same period last year, DataQuick said. Sales
plunged nearly 25% from December, reflecting a typical seasonal
decline.
Last month, 669 new homes sold, the lowest monthly tally since
DataQuick began tracking sales in 1988. The median price was
$260,000, down 3.7% from $270,000 the same period a year earlier
and from December. It was the lowest price since $249,000 in May
2009. During the current cycle, prices peaked at $505,000 in the
middle of 2007 and bottomed out at $247,000 in April 2009. John
Walsh, president of the San Diego-based research firm, said
January is typically a poor gauge of future sales but that the
mortgage market "remains dysfunctional." Nearly one-third of
homes sold last month were paid for fully in cash for a median
price of $199,000. Absentee buyers -- mostly investors and
second-home purchasers -- bought 26.8% of homes sold, paying a
median price of $193,500. Absentee buyers were especially active
in the Inland Empire, which has Southern California's
lowest-priced homes. Homes that sold for at least $500,000
accounted for 16% of sales, down from 18.3% a year earlier,
DataQuick said. During the last decade, a monthly average of
27.2% of homes sold for at least $500,000
Defaults on Federal Housing Administration (FHA) mortgages
increased in December for the ninth-straight month. More than
711,000 FHA-backed home loans were in default at Dec. 31, nearly
19% higher a year earlier. As defaults increased, a constricted
and delayed foreclosure process is hurting the government's
ability to unload the properties once they are repossessed. The
US Housing and Urban Development Department (HUD) held 32,170 REO
in December, according to a recent report, the lowest level
measured since the same month in 2007. The high was reached in
March 2011 at 68,997 properties. The FHA insures roughly
one-third of the mortgage market, as private insurers have been
struggling with capital shortfalls since the crisis in 2007. But
the FHA is in trouble as well because of the surging defaults.
The capital ratio of the agency's mutual mortgage insurance fund
slipped to 0.24% last year, well below the 2% mandated by
Congress.
Analysis from the White House's Office of Management and Budget
released this week showed the fund would actually fall into the
red this year and need an unprecedented bailout from the Treasury
Department. Bank of America will send roughly $500 million to
the FHA as part of a settlement reached last week over past
countrywide origination problems. HUD Secretary Shaun Donovan
said more settlements would be announced soon, sending between
$900 million and $1 billion to the FHA. The agency will also be
raising insurance premiums above the hikes set to take place in
2012 as a result of the payroll tax cut extension reached last
year. Donovan said this week that new loans written this year
and last are proving to be more profitable than expected. But the
market remains fragile and another downturn in housing could put
the fund in further trouble. "A very significant piece of what
determines the actuarial value of the fund is what we project to
happen to home prices," Donovan said. "The better than expected
performance of the new loans can be offset if home prices perform
worse than we expect."
Tax cut deal announced
A payroll tax cut for 160 million Americans, set to expire at the
end of this month, would be extended through December under a
bipartisan deal announced early today by US congressional
leaders. The accord would also renew expiring jobless benefits
for millions of others and prevent a pay cut for doctors of
elderly Medicare patients. Economists say the tax cut extension
and renewal of jobless benefits should provide a lift to the US
economy, certain to be a key issue in the battle for control of
Congress and the White House in the run-up to Election Day. "We
have reached an agreement and we're moving forward," Republican
Representative Dave Camp, who headed the negotiating committee,
told reporters shortly after midnight EST. It was not
immediately clear when the House of Representatives and Senate
would vote on the deal, but lawmakers hoped to do so before they
leave Friday for a week-long recess. Many Republicans had
initially balked at the extension while others insisted that its
cost had to be offset by spending cuts to prevent an increase in
the US deficit. House Speaker John Boehner and fellow Republican
leaders cleared the way for a deal on Monday when they dropped
their demand that there be spending reductions to pay for the
tax-cut extension.
Olick - foreclosures up again
"After a year-long reprieve from rising foreclosures, the numbers
are going up again. One in every 624 US households received a
foreclosure filing in January, up 3% from the previous month,
according to a new report from RealtyTrac. Foreclosure activity
froze in many states in 2011, due to processing delays after
fraud, or so-called 'Robo-signing,' were uncovered in the fall of
2010. The thaw is now on. 'We expect the pattern of increasing
foreclosures to continue in the coming months, especially given
the finalized mortgage and foreclosure settlement reached in
early February between 49 state attorneys general and five of the
nation's largest lenders,' said RealtyTrac's CEO Brandon Moore in
a written release. 'Foreclosure activity increased on a
year-over-year basis for the first time in more than 12 months in
Florida, Illinois, Indiana and Pennsylvania, following a pattern
we saw in late 2011 in states such as California, Arizona and
Massachusetts.'
While states that do not require a judge to preside over
foreclosure proceedings, like California, saw a jump in filings
toward the end of last year, judicial states have all but
stalled. That will now change, thanks to the $26 billion dollar
government-lender/servicer settlement. There will still be some
delays on individual state levels, but the wheels are turning
again, and that means more bank repossessions and more foreclosed
properties heading to the re-sale market. Bank repossessions,
the final stage of the foreclosure process, increased at least
30% year-over-year in several states, including Massachusetts,
which saw a 75% spike. Bank-owned or REO (real estate owned)
activity hit a 16-month high in Illinois and a 15-month high in
Indiana. Default notices, the first stage of foreclosure, were
flat nationally in January, but spiked in judicial states, like
Connecticut and Pennsylvania (up 112%) and even in non-judicial
states like Maryland (up 100%).
Nevada still posted the highest foreclosure rate, with one in
every 198 households receiving a filing, despite an 8% drop in
foreclosure activity. Nevada is a non-judicial foreclosure state,
so the foreclosure backlog has been clearing for the last several
months. The situation is the same in California, where
foreclosure activity dropped to a 50-month low, but the state
still posted the second highest foreclosure rate in the nation.
More than 51,000 borrowers received a foreclosure filing in
January. California cities still account for nine of the top ten
metro foreclosure rates, according to RealtyTrac. As optimism
seems to abound for the spring, at least among the nation's home
builders whose sentiment index jumped to the highest level in
four years this month, foreclosures still stand in the way of a
robust recovery. Distressed property sales lower the value of
homes around them, and that pushes more borrowers into a negative
equity position, owing more on their mortgages than their homes
are currently valued. Until banks work through the enormous
backlog of foreclosures, which number in the millions, home
prices will not hit a firm bottom, especially in the most
troubled local real estate markets."
Jobless claims down
Jobless claims slipped 13,000 from an upwardly revised 361,000
the previous week and beneath economist estimates that actually
saw the number rising. The drop in jobless claims marked a near
four-year low, suggesting the labor market was finally
strengthening. Initial claims for state unemployment benefits
dropped 13,000 to a seasonally adjusted 348,000, the Labor
Department said, the lowest since March 2008. The prior week's
figure was revised up to 361,000 from the previously reported
358,000. Economists polled by Reuters had forecast claims rising
to 365,000. The four-week moving average for new claims, seen as
a better measure of labor market trends, fell 1,750 to 365,250
— the lowest since April 2008. Considerable slack still
remains, with 23.8 million Americans either out of work or
underemployed. There are no job openings for nearly three out of
every four unemployed. A Labor Department official said there
was nothing unusual in the state-level data and no state had been
estimated. The number of people still receiving benefits under
regular state programs after an initial week of aid tumbled
100,000 to 3.43 million in the week ended Feb. 4. That was the
lowest level since August 2008. Economists had forecast
so-called continuing claims falling to 3.50 million from a
previously reported 3.52 million. The number of Americans on
emergency unemployment benefits rose 16,568 to 3.00 million in
the week ended Jan. 28, the latest week for which data is
available. A total of 7.68 million people were claiming
unemployment benefits during that period under all programs, up
18,304 from the prior week.
Housing starts up
The Commerce Department said today that housing starts climbed
1.5% to an annual rate of 699,000 units. Initial estimates for
housing starts can be subject to large revisions and the
government revised the December reading significantly higher to a
689,000-unit rate. The Commerce Department initially estimated
groundbreaking in December advanced at a 657,000-unit rate.
Economists polled by Reuters had forecast housing starts rising
in January from the initial reading to a 675,000-unit pace.
Starts of multi-unit buildings, which are often rented, jumped
8.5% last month. New construction on buildings with five units or
more increased 14.4%. Groundbreaking on single-family units,
which make up a much larger portion of the sector, fell 1.0%.
Permits climbed 0.7% to an annual rate of 676,000 units.
Inflation up
US producer prices outside food and energy recorded their largest
increase in six months in January, but are unlikely to ignite
inflation pressures given the slack in the labor market. The
Labor Department said on Thursday its seasonally adjusted core
producer price index rose 0.4% last month, the largest gain since
July, after increasing 0.3% in December. Economists polled by
Reuters had expected core PPI to rise only 0.2%. In the 12 months
to January, core producer prices rose 3.0 after increasing 2.7%
in December. But overall prices received by farms, factories and
refineries edged up 0.1% after dipping 0.1% in December. The
rise, which was smaller economists' expectations for a 0.4% gain,
reflected declines in food and energy prices. In the 12 months
to January, producer prices increased 4.1%, moderating from 4.8%
December. That was the smallest increase in a year. The Federal
Reserve last month viewed inflation as largely contained and said
it expected to hold interest rates near zero at least through
late 2014. Wholesale prices outside of food and energy were
pushed up by a drugs costs, which accounted for about 40% of the
increase. Higher prices for light motor trucks and household
appliances also contributed. Passenger car prices fell 0.8%
after rising 0.5% in December.
Student loans drain retirement savings
Student loan debt amassed by parents is growing faster than loans
taken out by the student. Parents' loan debt has more than
doubled over the last decade — exceeding $100 billion dollars
or 10% of all outstanding student loan debt, according to the
independent research firm FinAid.org. "Parents of every income
level are increasingly borrowing for their children's college
education. It doesn't matter whether the parents are low income,
middle income or upper income. There's been dramatic growth in
the percentages of parents who've been borrowing," says
FinAid.org founder and publisher Mark Kantrowitz. Many parents
who co-signed loans or borrowed money on their own for their
children's education now face the loss of their retirement nest
eggs, homes and other assets. As student loan debt has topped US
credit card debt, "America faces the very real possibility of
another major threat on par with the devastating home mortgage
crisis," according to a new study by the National Association of
Consumer Bankruptcy Attorneys (NACBA).
Piling up student loans in middle age is "troublesome", says
NACBA vice president John Rao, an attorney with the National
Consumer Law Center. "Parents who take out loans for children or
co-sign loans will find those loans more difficult to pay as they
stop working and their incomes decline." But, parents' need to
borrow has grown as their savings has declined and plummeting
home values have made it difficult for many households to tap
what was once a common financial resource — the equity in their
homes. Parents have an average of about $34,000 in student loans
and that figure rises to $50,000, including interest, over a
standard 10-year loan repayment period. Interest rates on the
most common parental loan - the federal Parent "PLUS" loan - is
fixed at almost 8%. So the return on parents' investments needs
to average at least 8% just to break even. The fixed-rate PLUS
loan is often a better choice for families than private student
loans, whose rates may vary. But the need to borrow private or
PLUS is often a sign of over borrowing, Kantrowitz says.
"Parents should borrow no more than they can afford to pay in 10
years because they have to worry about their own retirement. By
the time they retire, they should have no debt remaining since
they will have no income to repay that debt."
Southern California - January sales up, prices down
Southern California home sales rose slightly last month as
investors snapped up the region's lowest-priced properties,
sinking prices to the lowest levels in more than 2 1/2 years,
DataQuick, a research firm, reported yesterday. More than half
of existing homes sold were foreclosed on in the previous year or
short sales -- transactions in which the price is less than what
is owed on the property. There were 14,523 new and existing
homes and condominiums sold in the six-county region in January,
up 0.4% from the same period last year, DataQuick said. Sales
plunged nearly 25% from December, reflecting a typical seasonal
decline.
Last month, 669 new homes sold, the lowest monthly tally since
DataQuick began tracking sales in 1988. The median price was
$260,000, down 3.7% from $270,000 the same period a year earlier
and from December. It was the lowest price since $249,000 in May
2009. During the current cycle, prices peaked at $505,000 in the
middle of 2007 and bottomed out at $247,000 in April 2009. John
Walsh, president of the San Diego-based research firm, said
January is typically a poor gauge of future sales but that the
mortgage market "remains dysfunctional." Nearly one-third of
homes sold last month were paid for fully in cash for a median
price of $199,000. Absentee buyers -- mostly investors and
second-home purchasers -- bought 26.8% of homes sold, paying a
median price of $193,500. Absentee buyers were especially active
in the Inland Empire, which has Southern California's
lowest-priced homes. Homes that sold for at least $500,000
accounted for 16% of sales, down from 18.3% a year earlier,
DataQuick said. During the last decade, a monthly average of
27.2% of homes sold for at least $500,000
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