Negative equity traps one third of American borrowers

U.S. Housing stepping towards recovery

After several false starts, housing is flashing the strongest
signals yet of a sustainable rebound. While foreclosures continue
to depress prices, buyers are wading back into the market, lured
by rising employment and record-low mortgage rates. Six years
into the biggest real estate collapse since the Great Depression,
housing may become a net contributor to the U.S. economy for the
first time since 2005. “There are definitely green shoots in
the housing market, no argument about that,” said Peter de
Bruin, an economist at ABN Amro Group Economics in Amsterdam.
Speculation that new home sales will rebound has boosted shares
of homebuilders, with the 11-member Standard & Poor (SPY)’s
1500 Homebuilding index up 17 percent this year, compared with a
9.3 percent gain for the Standard & Poor’s 500 Index.

Apply stimulus vigorously: Fed Williams

Recent signs of improvement in the U.S. economy are encouraging
but the rebound has been anemic and the Federal Reserve must
"keep applying monetary policy stimulus vigorously," San
Francisco Federal Reserve President John Williams said on
Thursday. Despite a recent drop in the unemployment rate to 8.3
percent, Williams said he expected it to remain above 8 percent
into next year and to be "well over" 7 percent for several years
to come. Strained household finances, a weak housing market and
tight credit conditions are likely to hold down spending growth
for some time, he added. The economy should grow about 2.25
percent this year and 2.75 percent in 2013, he said, adding the
main threat to his forecast was the debt crisis in Europe. The
San Francisco Fed chief is known as a monetary policy "dove" who
is more concerned with the threat of high joblessness than high
inflation.

Olick - Negative equity traps one third of American borrowers

As home sales begin a slow recovery and potential buyers dip
their toes back in real estate's still-troubled waters, many of
them face a huge barrier to entry: Negative equity, that is,
borrowers who owe more on their mortgages than their homes are
currently worth. One point 1 million, or 22.8 percent, of all
residential properties with a mortgage were in negative equity at
the end of the fourth quarter of 2011, according to a new report
from CoreLogic. Combine negative equity and near-negative equity,
and about one third of all borrowers cannot sell their homes
without either putting up some cash to pay off the mortgage or
the closing costs or without the bank agreeing to a short sale.
That's when the home is sold for less than the value of the
mortgage. The prime culprit in rising negative equity is falling
home prices, and home prices are falling because distressed
property sales are rising. Sales of properties in some stage of
foreclosure made up a full 24 percent of all home sales in Q4, up
from 20 percent in Q3, according to RealtyTrac. As previously
noted, home sales are rising, but largely on the backs of
investors buying distressed, low-end properties. With one third
of borrowers stuck in their underwater homes, there is unlikely
to be much movement at all this spring in the move-up market.

Economy awaits liftoff

A flurry of economic reports issued Thursday captured some solid
recent gains in the U.S. economy.  But Thursday’s reports also
showed that a healthier job market hasn’t translated into
bigger paychecks for workers or a surge in consumer spending. And
the progress of the past few months is now threatened by a rise
in gasoline prices. “When you get this sort of hodgepodge and
not-so-good results, you start to see the true nature of this
recovery,” said Sean Snaith, director of the University of
Central Florida’s Institute for Economic Competitiveness. A
healthier job market hasn’t produced bigger paychecks or a
surge in consumer spending. The housing market is still weak. A
European recession threatens to hold back U.S. growth. The
economy grew at a 3 percent annual rate at the end of last year.
“It’s a very subpar recovery,” said Beth Ann Bovino, senior
economist at Standard & Poor’s. “Historically, after a
recession ends, we would see 5 percent growth."

Government foreclosure to rental pilot programs not needed

Housing markets are complex and varied, and a government pilot
program to turn bank-owned properties into rentals could be
disruptive and counter productive in some markets, according to
the National Association of Realtors. NAR urges the Federal
Housing Finance Agency (FHFA) to proceed cautiously with its Real
Estate-Owned (REO) Initiative pilot program to sell homes
repossessed by government agencies to private investors to
convert into rental units. According to a recent NAR analysis,
while the overall visible inventory of foreclosures has been
trending down across the country, there is a noticeable
difference in foreclosure inventories in states that require
judicial proceedings to foreclose on a property versus
inventories in states that do not require the court’s
intervention. NAR urges that a national advisory board be created
to ensure that current and future REO-to-rental pilot programs
truly benefit the local community, minimize taxpayer losses and
stabilize home values, and suggests substantial participation of
local market experts, especially licensed real estate
professionals, who have unparalleled knowledge of local market
conditions.

Fannie REO inventory declines 27% in 2011

For the first time since the collapse, Fannie sold more REO than
it repossessed. In 2011, the government-sponsored enterprise
acquired nearly 200,000 properties and sold more than 243,000,
the most in the company's history. Total repossessions of REO
homes declined nearly 24% from the year before, due mostly to the
slowdown caused by servicers correcting affidavit and other
documentation problems. The Federal Housing Finance Agency began
a pilot program in February to more efficiently sell bulk REO
held by Fannie and Freddie Mac to investors. About 23% of Fannie
Mae's REO inventory is located in California followed by 11.5% in
Florida.  According to the filing, the average amount of days
between the last mortgage payment and the completion of the
foreclosure process was 890 days in Florida on Fannie Mae loans.
California, a nonjudicial state, was second at 529 days.

DSnews.com - Rise in Underwater Homes

Negative equity homes known as underwater homes shot up to 22.8
percent, during the fourth quarter of 2011, according to
CoreLogic. Third quarter numbers showed 10.7 million properties
to be in negative equity, or 22.1 percent. Borrowers with less
than 5 percent equity in their homes, also known as near-negative
equity, stood at 2.5 million for the fourth quarter. In total,
those with negative equity and near-negative equity equaled 27.8
percent of all residential properties. Nationally, the total
mortgage debt outstanding on underwater properties stood at $2.8
trillion in the fourth quarter, compared to $2.7 trillion in the
previous quarter. The states with the highest level of negative
equity were Nevada (61 percent), Arizona (48 percent), Florida
(44 percent), Michigan (35 percent) and Georgia (33 percent).
These five states had a combined average 44.3 percent of the
share of negative equity, whereas the remaining states have a
combined average negative equity share of 15.3 percent. CoreLogic
included 48 million properties with a mortgage, which accounts
for over 85 percent of all mortgages in the U.S., when putting
together the report.