WSJ - The case for rentals
Lewis Ranieri, the co-inventor of the mortgage-backed security,
authored a research paper with University of California economist
Kenneth Rosen that lays out the case for using federal entities
to support private investors who are already converting
foreclosed properties into rentals. The foreclosure-to-rental
model can be developed in “most every market in the United
States,” write Messrs. Ranieri and Rosen. But they also
highlight their “top 10” markets where such a program makes
the most sense. Those markets generally have high levels of
foreclosures and strong apartment fundamentals. They include
Chicago, Denver, Detroit, Oakland, Seattle, Minneapolis, and Los
Angeles. Some markets, such as San Francisco, aren’t great
candidates because while they have strong rental conditions, they
don’t have high levels of bank-owned foreclosures. Others, such
as Las Vegas, aren’t well suited yet because they have poor
rental fundamentals despite a glut of bank-owned inventory.
The paper argues that existing industry and government effort to
modify mortgages, while necessary, won’t alone be enough to
deal with the problem of already vacant properties and those that
may not qualify for modifications. So why is the government
needed? There’s two reasons: First, Fannie Mae, Freddie Mac,
and the Federal Housing Administration sit on nearly half of all
foreclosed properties, making them key sellers to investors that
are converting properties into rentals. Second, Mr. Ranieri says
investors could soak up the overhang of distressed properties
even faster if Fannie or Freddie expanded their investor
financing programs. The paper addresses many of the logistical
challenges involved with building the infrastructure needed to
acquire and manage scattered-site rental homes. “I’m always
asked is this kind of a program scale-able? The answer is there
are already people who are already doing a reasonable job with
it,” Mr. Ranieri said in a speech last year.
The paper includes a series of other interesting ideas that build
on the rental-conversion idea:
- Employ a “rent-to-own” option that would allow tenants to
allow some tenants to ultimately purchase their rental homes. Mr.
Ranieri has already employed that option through his company,
Selene Finance, which invests in distressed loans and homes.
- Raise the ceiling on the number of loans that Fannie and
Freddie will guarantee to a single buyer. Currently, those limits
are set at 10 and four, respectively, but Mr. Ranieri has argued
that investors who make large down payments of 30% or 35% should
be able to take out 25 mortgages. That would allow smaller
investors to get more involved in repairing their local markets,
even as federal officials consider structured sales of bulk
properties to larger outfits.
- Change appraisal rules for investor purchases to evaluate the
value of properties based on the rental income, rather than the
traditional metric of “comparable sales.”
Other influential housing analysts, including Laurie Goodman of
Amherst Securities, have also strongly backed policies that would
convert bank-owned foreclosures and other distressed properties
into rentals. But the idea remains unpopular with the National
Association of Realtors and major real-estate brokerages, which
say that foreclosed properties are selling briskly and don’t
need to be taken off the market.
Jobs recovery, or not?
Based on weekly jobless claims, the February jobs market is
bearing out to look very much like January, which saw 243,000 net
new jobs and the unemployment rate at 8.3%, down from
December’s 8.5%. Thursday’s weekly jobless claims were
unchanged at 351,000 for the week ending Feb. 18, the same week
that the Bureau of Labor Statistics will use for the February
monthly employment report survey week. Continuing claims fell by
52,000, to 3.4 million, with the four-week average falling to
359,000, its lowest level since March 2008. “[The] bottom line
is claims have been improving. The trend in layoffs is improving.
That tells you firms are more optimistic about the outlook and
they continue to lower the amount of cost cutting,” said Credit
Suisse economist, Jonathan Basile. While that’s a good sign,
Basile said it may be some time before the trend can be trusted
as signs of a sustainable jobs recovery. “We do know this is a
very warm winter, and in recent months, there’s been a lot more
construction jobs showing up than usual," said Basile. "These are
the times of year when there are construction layoffs. I think
we’re going to have to get through the March, April, May data
to sort out whether this strength in jobless claims is a weather
phenomena or a fundamental move." Economists at Barclays Capital
said they are now looking for a total nonfarm payroll addition of
225,000 jobs in February and a decline in the unemployment rate
to 8.1%. The February employment report will be released March 9.
The economists note that the ongoing improvement in the weekly
claims data and other indicators indicates improvement in private
employment across a variety of sectors. But they also note:
“Favorable weather conditions are also likely to support hiring
in construction-related sectors.” They also see federal and
state governments continuing to cut jobs.
BOA: no more mortgages for Fannie
Bank of America (BOA) is faced with numerous reps and warrants
challenges on the mortgage front, and as a result of growing
uncertainty, it will no longer sell certain mortgage refinances
into Fannie Mae mortgage-backed securities. "The issue is tied
to ongoing disagreements between Bank of America and Fannie Mae
in regards to repurchases," said Dan Frahm, spokesman for BOA.
Specifically, Bank of America will no longer place non-Making
Home Affordable Program (MHA) refinance first-lien residential
mortgage products into Fannie mortgage-backed securities. Making
Home Affordable is the Obama administration's initiative to help
struggling homeowners get mortgage relief through a variety of
programs. "We continue to deliver MHA programs, including loan
modifications and refinancing through HARP to our customers whose
loans are owned by Fannie Mae," Frahm said, adding mortgage
origination levels will not drop at the bank. "We're adequately
prepared for this, there will be no impact to our customers."
BOA will likely do more business with Freddie Mac and Ginnie Mae
as a result of this decision. The bank says the risk of
repurchases on non-MHA mortgages is too great, and hedging
repurchase risk is now too difficult. "We are not able to
predict changes in the behavior of the GSEs based on our past
experiences," BOA reports in a regulatory filing with the
Securities and Exchange Commission. "Therefore, it is not
possible to reasonably estimate a possible loss or range of
possible loss with respect to any such potential impact in excess
of current accrued liabilities," the filing states. "The
ultimate resolution of these exposures could have a material
adverse effect on our cash flows, financial condition and results
of operations," the filing said. At the heart of the decision is
recent changes in mortgage insurance policies. The filing notes
Fannie Mae policy where MI rescission must be resolved in a
timely fashion. As of Dec. 31, 2011, 74% of the MI rescission
notices received had not been resolved, and Fannie began
exercising repurchases with Bank of America. "We have informed
FNMA that we do not believe that the new policy is valid under
our relevant contracts with FNMA and that we do not intend to
repurchase loans under the terms set forth in the new policy,"
BOA states. "If we are required to abide by the terms of the new
FNMA policy, our representations and warranties liability will
likely increase."
Oil hits $108
Oil prices rose to a fresh nine-month high above $108 a barrel
Friday in Asia amid signs the US economy is improving against a
backdrop of elevated tensions in the Middle East over Iran's
nuclear program. Benchmark crude for April delivery was up 59
cents to $108.42 per barrel late afternoon Singapore time in
electronic trading on the New York Mercantile Exchange. The
contract rose $1.55 to settle at $107.83 in New York on Thursday.
Brent crude was up 55 cents at $124.17 per barrel in London.
The government said Thursday that the number of people seeking
unemployment benefits last week was unchanged and that the
four-week average was the lowest in four years. Traders brushed
off evidence that crude demand in the US remains weak.
The Energy Department's Energy Information Administration said
Thursday crude inventories rose 1.6 million barrels last week and
that oil demand has dropped 6.7% from a year ago. "The ability
of crude to post new highs in the face of what appeared to be a
bearish EIA report attests to the underlying strength of this
price advance," energy trader and consultant Ritterbusch and
Associates said in a report. "The oil market has evolved into
somewhat of a self perpetuating cycle in which new highs beget
new buying that forces new highs." Crude has jumped from $96
earlier this month amid growing tension over Iran's nuclear
program and fears global crude supplies could be disrupted. Some
analysts expect economic sanctions by the US and Europe and
countermeasures by Iran will help keep crude prices elevated this
year. "There is a relatively high and growing probability to a
scenario in which there is no resolution in 2012, in which oil
prices grind higher along with a gradual escalation of tension,"
Barclays Capital said in a report. In other energy trading,
heating oil fell 0.5 cent to $3.29 per gallon and gasoline
futures were steady at $3.29 per gallon. Natural gas fell 0.2
cent to $2.62 per 1,000 cubic feet.
Frustration with Florida's foreclosures
Florida courts continue to struggle with a backlog of more than
368,000 pending cases, according to Jane Bond, a Florida
foreclosure attorney at McCalla Raymer. It's a nightmare,
attorneys say — one with no end in sight. "It's not as bad as
it seems. It's much, much worse," said David Rodstein, a
foreclosure attorney with the Rodstein Law Group. Bond and
Rodstein chaired a panel at the Mortgage Bankers Association
annual mortgage servicing conference in Orlando, Fla. The state
is suffering from an ailing housing market. Home prices dropped
41% from 2006. Nearly half of all borrowers are underwater.
Distressed properties abound. Unemployment is at 9.9%. And as it
tries to clear the backlog of foreclosures, the state is going
nowhere fast. "The judges are frustrated. The attorneys are
frustrated. The servicers are frustrated. Everyone is
frustrated," Bond said. The average foreclosure in Florida takes
nearly 800 days to complete, more than twice the national
average, according to RealtyTrac. Rodstein said 40% of
foreclosures filed by servicers are contested by the borrower
because of a very efficient bar system in the state. It's helped
create a cottage industry of delays, displacing an earlier system
not any fairer. "Borrowers can hire these attorneys for a small
monthly payment — much less than the mortgage — and the
attorney can come in and easily delay the case for year plus,"
Rodstein said.
But the delay recently has much to do with some attorneys' own
mistakes. Massive firm David J. Stern ceased foreclosure work in
March after coming under investigation for robo-signing and other
document problems. The entire firm crashed later in the year.
Several other firms came under investigation as well. The result
was almost a complete freeze on the system. What had been a
60,000 foreclosure filings per month pace slowed to less than
19,000, according to Bond. The Florida Bar News reported in
November that the court system, which operates almost entirely on
foreclosure fees since the crisis, had to take out a bridge loan
to continue operating as the robo-signing correction paused the
process. An accelerated "rocket docket" that had made some
progress through the backlog closed in the summer when funding
ran out. Servicers had to spread out the Stern cases among many
more firms. Consent orders signed with regulators in April capped
the amount of files a servicer could have with one law firm. One
bank, Bond said, went from having six representatives in the
state to more than 26 after Stern folded. Defense attorneys
aren't letting up for what they claim to be a system still under
abuse by the servicers. According to a survey released Wednesday
by the National Consumer Law Center, 90% of defense attorneys
claimed clients were foreclosed on while waiting for a
modification, a practice banned by consent orders last year.
"Until rigorous national mortgage servicing standards that are
enforceable by homeowners are put in place by the federal
government, banks will continue to seize homes illegally and
routinely," said NCLC attorney Diane Thompson.
The problems aren't over for Florida or the rest of the country
either. According to Lender Processing Services, roughly 1.7
million mortgages are more than 90 days past due but not yet in
the foreclosure process. "Unless you're a servicer with a very
geo-centric model, you're having to deal with different state
policies that are changing month to month," said Rick Sharga,
executive vice president at Carrington Mortgage Services. "The
tendency is to almost throw your hands up in the air." The state
legislature is working on speeding up the process. The Florida
Senate passed H.B. 213 last week to allow servicers to use an
alternative court process that could potentially limit the amount
of hearings per foreclosure and would loosen affidavit
requirements. After delaying the bill last week, a second
committee in the Florida House of Representatives passed the bill
Wednesday for the floor to vote. If signed into law, the bill
would take effect in July. Servicers and the courts will need
more time to implement it as well. Until then, the backlog
remains. "We don't have a paradise," Bond said at the
conference, which is being held next to the Walt Disney World.
"We have the opposite."
See you.
Lewis Ranieri, the co-inventor of the mortgage-backed security,
authored a research paper with University of California economist
Kenneth Rosen that lays out the case for using federal entities
to support private investors who are already converting
foreclosed properties into rentals. The foreclosure-to-rental
model can be developed in “most every market in the United
States,” write Messrs. Ranieri and Rosen. But they also
highlight their “top 10” markets where such a program makes
the most sense. Those markets generally have high levels of
foreclosures and strong apartment fundamentals. They include
Chicago, Denver, Detroit, Oakland, Seattle, Minneapolis, and Los
Angeles. Some markets, such as San Francisco, aren’t great
candidates because while they have strong rental conditions, they
don’t have high levels of bank-owned foreclosures. Others, such
as Las Vegas, aren’t well suited yet because they have poor
rental fundamentals despite a glut of bank-owned inventory.
The paper argues that existing industry and government effort to
modify mortgages, while necessary, won’t alone be enough to
deal with the problem of already vacant properties and those that
may not qualify for modifications. So why is the government
needed? There’s two reasons: First, Fannie Mae, Freddie Mac,
and the Federal Housing Administration sit on nearly half of all
foreclosed properties, making them key sellers to investors that
are converting properties into rentals. Second, Mr. Ranieri says
investors could soak up the overhang of distressed properties
even faster if Fannie or Freddie expanded their investor
financing programs. The paper addresses many of the logistical
challenges involved with building the infrastructure needed to
acquire and manage scattered-site rental homes. “I’m always
asked is this kind of a program scale-able? The answer is there
are already people who are already doing a reasonable job with
it,” Mr. Ranieri said in a speech last year.
The paper includes a series of other interesting ideas that build
on the rental-conversion idea:
- Employ a “rent-to-own” option that would allow tenants to
allow some tenants to ultimately purchase their rental homes. Mr.
Ranieri has already employed that option through his company,
Selene Finance, which invests in distressed loans and homes.
- Raise the ceiling on the number of loans that Fannie and
Freddie will guarantee to a single buyer. Currently, those limits
are set at 10 and four, respectively, but Mr. Ranieri has argued
that investors who make large down payments of 30% or 35% should
be able to take out 25 mortgages. That would allow smaller
investors to get more involved in repairing their local markets,
even as federal officials consider structured sales of bulk
properties to larger outfits.
- Change appraisal rules for investor purchases to evaluate the
value of properties based on the rental income, rather than the
traditional metric of “comparable sales.”
Other influential housing analysts, including Laurie Goodman of
Amherst Securities, have also strongly backed policies that would
convert bank-owned foreclosures and other distressed properties
into rentals. But the idea remains unpopular with the National
Association of Realtors and major real-estate brokerages, which
say that foreclosed properties are selling briskly and don’t
need to be taken off the market.
Jobs recovery, or not?
Based on weekly jobless claims, the February jobs market is
bearing out to look very much like January, which saw 243,000 net
new jobs and the unemployment rate at 8.3%, down from
December’s 8.5%. Thursday’s weekly jobless claims were
unchanged at 351,000 for the week ending Feb. 18, the same week
that the Bureau of Labor Statistics will use for the February
monthly employment report survey week. Continuing claims fell by
52,000, to 3.4 million, with the four-week average falling to
359,000, its lowest level since March 2008. “[The] bottom line
is claims have been improving. The trend in layoffs is improving.
That tells you firms are more optimistic about the outlook and
they continue to lower the amount of cost cutting,” said Credit
Suisse economist, Jonathan Basile. While that’s a good sign,
Basile said it may be some time before the trend can be trusted
as signs of a sustainable jobs recovery. “We do know this is a
very warm winter, and in recent months, there’s been a lot more
construction jobs showing up than usual," said Basile. "These are
the times of year when there are construction layoffs. I think
we’re going to have to get through the March, April, May data
to sort out whether this strength in jobless claims is a weather
phenomena or a fundamental move." Economists at Barclays Capital
said they are now looking for a total nonfarm payroll addition of
225,000 jobs in February and a decline in the unemployment rate
to 8.1%. The February employment report will be released March 9.
The economists note that the ongoing improvement in the weekly
claims data and other indicators indicates improvement in private
employment across a variety of sectors. But they also note:
“Favorable weather conditions are also likely to support hiring
in construction-related sectors.” They also see federal and
state governments continuing to cut jobs.
BOA: no more mortgages for Fannie
Bank of America (BOA) is faced with numerous reps and warrants
challenges on the mortgage front, and as a result of growing
uncertainty, it will no longer sell certain mortgage refinances
into Fannie Mae mortgage-backed securities. "The issue is tied
to ongoing disagreements between Bank of America and Fannie Mae
in regards to repurchases," said Dan Frahm, spokesman for BOA.
Specifically, Bank of America will no longer place non-Making
Home Affordable Program (MHA) refinance first-lien residential
mortgage products into Fannie mortgage-backed securities. Making
Home Affordable is the Obama administration's initiative to help
struggling homeowners get mortgage relief through a variety of
programs. "We continue to deliver MHA programs, including loan
modifications and refinancing through HARP to our customers whose
loans are owned by Fannie Mae," Frahm said, adding mortgage
origination levels will not drop at the bank. "We're adequately
prepared for this, there will be no impact to our customers."
BOA will likely do more business with Freddie Mac and Ginnie Mae
as a result of this decision. The bank says the risk of
repurchases on non-MHA mortgages is too great, and hedging
repurchase risk is now too difficult. "We are not able to
predict changes in the behavior of the GSEs based on our past
experiences," BOA reports in a regulatory filing with the
Securities and Exchange Commission. "Therefore, it is not
possible to reasonably estimate a possible loss or range of
possible loss with respect to any such potential impact in excess
of current accrued liabilities," the filing states. "The
ultimate resolution of these exposures could have a material
adverse effect on our cash flows, financial condition and results
of operations," the filing said. At the heart of the decision is
recent changes in mortgage insurance policies. The filing notes
Fannie Mae policy where MI rescission must be resolved in a
timely fashion. As of Dec. 31, 2011, 74% of the MI rescission
notices received had not been resolved, and Fannie began
exercising repurchases with Bank of America. "We have informed
FNMA that we do not believe that the new policy is valid under
our relevant contracts with FNMA and that we do not intend to
repurchase loans under the terms set forth in the new policy,"
BOA states. "If we are required to abide by the terms of the new
FNMA policy, our representations and warranties liability will
likely increase."
Oil hits $108
Oil prices rose to a fresh nine-month high above $108 a barrel
Friday in Asia amid signs the US economy is improving against a
backdrop of elevated tensions in the Middle East over Iran's
nuclear program. Benchmark crude for April delivery was up 59
cents to $108.42 per barrel late afternoon Singapore time in
electronic trading on the New York Mercantile Exchange. The
contract rose $1.55 to settle at $107.83 in New York on Thursday.
Brent crude was up 55 cents at $124.17 per barrel in London.
The government said Thursday that the number of people seeking
unemployment benefits last week was unchanged and that the
four-week average was the lowest in four years. Traders brushed
off evidence that crude demand in the US remains weak.
The Energy Department's Energy Information Administration said
Thursday crude inventories rose 1.6 million barrels last week and
that oil demand has dropped 6.7% from a year ago. "The ability
of crude to post new highs in the face of what appeared to be a
bearish EIA report attests to the underlying strength of this
price advance," energy trader and consultant Ritterbusch and
Associates said in a report. "The oil market has evolved into
somewhat of a self perpetuating cycle in which new highs beget
new buying that forces new highs." Crude has jumped from $96
earlier this month amid growing tension over Iran's nuclear
program and fears global crude supplies could be disrupted. Some
analysts expect economic sanctions by the US and Europe and
countermeasures by Iran will help keep crude prices elevated this
year. "There is a relatively high and growing probability to a
scenario in which there is no resolution in 2012, in which oil
prices grind higher along with a gradual escalation of tension,"
Barclays Capital said in a report. In other energy trading,
heating oil fell 0.5 cent to $3.29 per gallon and gasoline
futures were steady at $3.29 per gallon. Natural gas fell 0.2
cent to $2.62 per 1,000 cubic feet.
Frustration with Florida's foreclosures
Florida courts continue to struggle with a backlog of more than
368,000 pending cases, according to Jane Bond, a Florida
foreclosure attorney at McCalla Raymer. It's a nightmare,
attorneys say — one with no end in sight. "It's not as bad as
it seems. It's much, much worse," said David Rodstein, a
foreclosure attorney with the Rodstein Law Group. Bond and
Rodstein chaired a panel at the Mortgage Bankers Association
annual mortgage servicing conference in Orlando, Fla. The state
is suffering from an ailing housing market. Home prices dropped
41% from 2006. Nearly half of all borrowers are underwater.
Distressed properties abound. Unemployment is at 9.9%. And as it
tries to clear the backlog of foreclosures, the state is going
nowhere fast. "The judges are frustrated. The attorneys are
frustrated. The servicers are frustrated. Everyone is
frustrated," Bond said. The average foreclosure in Florida takes
nearly 800 days to complete, more than twice the national
average, according to RealtyTrac. Rodstein said 40% of
foreclosures filed by servicers are contested by the borrower
because of a very efficient bar system in the state. It's helped
create a cottage industry of delays, displacing an earlier system
not any fairer. "Borrowers can hire these attorneys for a small
monthly payment — much less than the mortgage — and the
attorney can come in and easily delay the case for year plus,"
Rodstein said.
But the delay recently has much to do with some attorneys' own
mistakes. Massive firm David J. Stern ceased foreclosure work in
March after coming under investigation for robo-signing and other
document problems. The entire firm crashed later in the year.
Several other firms came under investigation as well. The result
was almost a complete freeze on the system. What had been a
60,000 foreclosure filings per month pace slowed to less than
19,000, according to Bond. The Florida Bar News reported in
November that the court system, which operates almost entirely on
foreclosure fees since the crisis, had to take out a bridge loan
to continue operating as the robo-signing correction paused the
process. An accelerated "rocket docket" that had made some
progress through the backlog closed in the summer when funding
ran out. Servicers had to spread out the Stern cases among many
more firms. Consent orders signed with regulators in April capped
the amount of files a servicer could have with one law firm. One
bank, Bond said, went from having six representatives in the
state to more than 26 after Stern folded. Defense attorneys
aren't letting up for what they claim to be a system still under
abuse by the servicers. According to a survey released Wednesday
by the National Consumer Law Center, 90% of defense attorneys
claimed clients were foreclosed on while waiting for a
modification, a practice banned by consent orders last year.
"Until rigorous national mortgage servicing standards that are
enforceable by homeowners are put in place by the federal
government, banks will continue to seize homes illegally and
routinely," said NCLC attorney Diane Thompson.
The problems aren't over for Florida or the rest of the country
either. According to Lender Processing Services, roughly 1.7
million mortgages are more than 90 days past due but not yet in
the foreclosure process. "Unless you're a servicer with a very
geo-centric model, you're having to deal with different state
policies that are changing month to month," said Rick Sharga,
executive vice president at Carrington Mortgage Services. "The
tendency is to almost throw your hands up in the air." The state
legislature is working on speeding up the process. The Florida
Senate passed H.B. 213 last week to allow servicers to use an
alternative court process that could potentially limit the amount
of hearings per foreclosure and would loosen affidavit
requirements. After delaying the bill last week, a second
committee in the Florida House of Representatives passed the bill
Wednesday for the floor to vote. If signed into law, the bill
would take effect in July. Servicers and the courts will need
more time to implement it as well. Until then, the backlog
remains. "We don't have a paradise," Bond said at the
conference, which is being held next to the Walt Disney World.
"We have the opposite."
See you.
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