Understanding the Multifamily Applicant Risk Index (MAR Index)

Foreclosure backlog looms

RealtyStore has completed a new study of the foreclosure
status in three major housing markets, finding the amount of
pending listings exceeds the amount of active foreclosures
listed for sale by a margin of over 2 to 1. This shadow
inventory of foreclosed homes illustrates the significant
overhang of foreclosure listings that are anticipated to be
unleashed on the housing in the wake of resolving the
so-called foreclosure robo-signing situation in late 2010.
The study was conducted for Cook County, IL (including metro
Chicago), Miami-Dade County, FL (including metro Miami) and
Maricopa County, AZ (including metro Phoenix).  Foreclosure
counts in each location were tabulated by owner, including
bank or lender owned homes, foreclosures owned by Fannie Mae
or Freddie Mac, and HUD homes. Although Arizona had
previously been one of the hardest hit areas for foreclosure
activity, Cook County, IL shows a near equal total amount of
foreclosed homes. Miami-Dade foreclosures number at roughly
half the count of either other market.

The breakdown of active foreclosure listings vs pending, or
shadow inventory, foreclosures listings was consistent
across each market surveyed. On average, 29% of total
foreclosures across the counties are currently listed for
sale. Cook County, IL foreclosures were most heavily
represented with active listings, with 32% of its
foreclosures presently being marketed to buyers, and 68% of
foreclosures pending listing. Maricopa County, AZ
foreclosure listings for sale represent only 25% of recorded
foreclosures in the county, with 75% of local foreclosures
yet to be listed for re-sale. Miami-Dade, FL currently
offers 29% of its total foreclosures on the market for
re-sale, with 71% of its foreclosure inventory awaiting
listing on the market.  According to RealtyStore, median
list prices of foreclosures for sale in Cook, Maricopa and
Miami-Dade counties continue to run below average home
prices. Cook County foreclosures are listed at a median
price of just $72,650 and an average price of $95,997.
Miami-Dade foreclosures list at a median price of $106,900
and average $145,059, while Maricopa lists foreclosed homes
slightly higher with a median of $109,900 and the average
foreclosure listed at a price of $168,744.

The foreclosure median list prices come in at 56% and 42%
below the median sales prices of single-family homes selling
in metro-Chicago and Miami, respectively, as reported by the
NAR in Q4, 2011. Metro-Phoenix posts a smaller price gap at
7%, suggesting foreclosure saturation may be peaking in
Maricopa County.  Individual foreclosure listings continue
to cover all portions of the pricing spectrum, ranging from
as low as $5,900 for a single family foreclosed home in
Chicago, IL to as high as a foreclosed estate in Paradise
Valley, AZ listed at $5,700,000.

Jobless claims up

Initial claims for state unemployment benefits slipped 2,000
to a seasonally adjusted 386,000, the Labor Department said.
But the prior week's figure was revised up to 388,000 from
the previously reported 380,000.  The four-week moving
average for new claims, considered a better measure of labor
market trends, rose 5,500 to 374,750.  Economists polled by
Reuters had forecast claims falling to 370,000 last week.
The claims data covered the week for April's nonfarm
payrolls survey. The four-week average of new applications
rose marginally between the March and April survey periods,
suggesting not much change in labor market conditions.
Employers added 120,000 new jobs to their payrolls in March,
the least since October, after averaging 246,000 jobs per
month over the prior three months. Most economists have
viewed the pull-back in job growth as payback after the
weather-induced gains in the previous months.  The number of
people still receiving benefits under regular state programs
after an initial week of aid rose 26,000 to 3.30 million in
the week ended April 7.  The number of Americans on
emergency unemployment benefits fell 19,419 to 2.78 million
in the week ended March 31, the latest week for which data
is available.  A total of 6.77 million people were claiming
unemployment benefits during that period under all programs,
down 187,807 from the prior week.

CoreLogic - First Quarter 2012 Multifamily Applicant Risk
Index Report

CoreLogic today announced that CoreLogic SafeRent, provider
of the nation's leading suite of screening and risk
management services designed for the multifamily housing
industry, released its first quarter 2012 multifamily
applicant risk (MAR) index report. The first quarter MAR
Index value increased one point from the fourth quarter 2011
and three points from a year ago, indicating an increase in
national renter credit quality and slightly better applicant
pool.  The MAR Index for first quarter 2012 is based
exclusively on applicant traffic credit quality scores from
the CoreLogic SafeRent statistical lease screening model
(Registry ScorePLUS) and is updated quarterly to provide
property owners and managers with a benchmark against which
to evaluate their applicant credit quality trends against
market based MAR Index trends. This comparison indicates the
relative strength of their property portfolio to attract and
secure applicants with higher credit quality and an
increased likelihood of fulfilling lease obligations.

When comparing applicants for one- versus two-bedroom units,
the first quarter 2012 MAR Index is slightly higher for
one-bedroom units at 102, compared with 101 for two-bedroom
units.  Regionally, the South and Midwest reflected the
lowest MAR Index, each with values of 98, a one point
increase from the fourth quarter 2011. The Northeast
continues to maintain the highest MAR Index with a value of
111.  The three Metropolitan Statistical Areas (MSA) with
the steepest decreases in the MAR Index were
Cincinnati-Middletown, Ohio, Ky., Ind.; Columbus, Ohio; and
Birmingham-Hoover, Ala.; each with decreases of three
points. The three MSAs with the greatest increases in the
MAR Index were Chicago-Naperville-Joliet, Ill., Ind., Wis.;
Denver-Aurora, Colo.; and Salt Lake City, Utah; each with
increases of four points.

Understanding the Multifamily Applicant Risk Index (MAR
Index)

The MAR Index is published quarterly by CoreLogic SafeRent.
It provides trends of national and regional traffic credit
quality scores whereby a lower index value indicates an
applicant pool with a higher risk of not fulfilling lease
obligations. A MAR Index value of 100 indicates that market
conditions are equal to the national mean for the index's
base period of 2004. A MAR Index value greater than 100
indicates market conditions with reduced average risk of
default relative to the index's base period mean. A value
less than 100 indicates market conditions with increased
average risk of default relative to the index's base period
mean. The MAR Index is derived from the statistical
screening model from CoreLogic SafeRent, which is the
multifamily industry’s only screening model that is both
empirically derived and statistically validated. The
statistical screening model was developed from historical
resident lease performance data to specifically evaluate the
potential risk of a resident’s future lease performance.
The model generates scores for each applicant indicating the
relative risk of the applicant not fulfilling lease
obligations. A lower score indicates a more risky
applicant.

BOA tops estimates

Bank of America (BOA) reported lower first-quarter profit as
the second-largest US bank took accounting charges related
to its debt, but results topped analysts' estimates as
credit quality improved.  The bank reported charges of $4.8
billion related to changes in the value of its debt,
partially offset by gains of $3.4 billion from equity
investments and debt-related transactions.  Excluding debt
valuation adjustments, it earned 31 cents a share.
First-quarter net income was $653 million, or 3 cents a
share, down from $2.05 billion, or 17 cents per share, a
year earlier.  Revenue declined to $22.3 billion from $26.9
billion.  The Charlotte, N.C.-based bank took a loan-loss
provision of $2.4 billion, compared with $3.8 billion a year
ago.  In its capital markets operations, Bank of America
reported sales and trading revenue of $3.8 billion, up from
$1.5 billion in the fourth quarter but down from $4.6
billion a year ago.

California foreclosure reform moves forward

Seven bills reforming some foreclosure rules passed
committees in the California state legislature this week.
The bills were introduced in February. One set of bills
extends protections to tenants, giving them 90 days before
eviction after the foreclosure sale of the property. Another
increases penalties to banks that fail to maintain blighted
homes.  Servicers would be required to provide documentation
to the borrower establishing its right to foreclose before
the filing first step in the process, under other passed
bills. Evidence of ownership and chain of title must also be
shown to the borrower.  Two other bills charge servicers a
$25 fee for every notice of default recording. The money
will fund investigations for California AG Kamala Harris.
Another piece of legislation passed by committee allows
Harris to convene a grand jury to investigate financial
crimes in different jurisdictions.  "All Californians have
been impacted by the toll the mortgage and foreclosure
process has taken on our neighborhoods," Harris said. "Our
California Homeowner Bill of Rights will provide relief for
homeowners, tenants and communities. I thank the authors and
supporters of these important bills."

Freddie and Fannie join the short sale hurrah

In an effort to make the short sale process more
transparent, Freddie Mac and Fannie Mae are updating their
timelines and also requiring servicers to provide weekly
updates when decisions take more than 30 days after the
receipt of a complete application for a short sale under the
Obama Administration's Home Affordable Foreclosure
Alternative (HAFA) initiative or Freddie Mac's traditional
requirements. All decisions must be made within 60 days.
Today's announcement marks the newest part of the Servicing
Alignment Initiative (SAI) Freddie Mac and Fannie Mae
launched in 2011 at the direction of their regulator, the
Federal Housing Finance Agency, to set consistent servicing
and delinquency management requirements. Last year Freddie
Mac completed 45,623 short sales, a 140% increase since the
housing crisis began.

Facts:

-  Freddie Mac and Fannie Mae's new short sale timelines
require servicers to make a decision within 30 days of
receiving either 1) an offer on a property  under Freddie
Mac and Fannie Mae's traditional short sale program or 2) a
completed Borrower Response Package (BRP) requesting
consideration for a short sale under HAFA or Freddie Mac and
Fannie Mae's traditional short sale program.  (BRPs are
standardized assistance applications developed as part of
the Servicing Alignment Initiative.)

-  If more than 30 days are needed, borrowers must receive
weekly status updates and a decision no later than 60 days
from the date the complete BRP is received.  This will help
servicers who may need more time to obtain a broker price
opinion or a private mortgage insurer's approval on a BRP or
property offer.

-  In the event a servicer makes a counteroffer, the
borrower is expected to respond within five business days.
The servicer must then respond within 10 business days of
receiving the borrower's response.

-  Freddie Mac and Fannie Mae will use the new timelines to
evaluate servicer compliance with the SAI and its own
servicing requirements.

-  Freddie Mac completed 45,623 short sales in 2011, a 140%
increase since 2009.  Overall, Freddie Mac has also helped
more than 615,000 distressed borrowers avoid foreclosure
since the housing crisis began.

Whitney reverses call on Citigroup

Meredith Whitney, who made the prescient call in 2007 that
Citigroup would cut its dividend, has now upgraded the very
stock that brought her celebrity status among equity
analysts during the credit crisis.  Shares of Citigroup
yesterday rallied as news of the upgrade to a “hold”
from “underperform” spread beyond Whitney's direct
clients. The stock is up 34% so far on the year.  “C
shares continue to trade well below tangible book value
(70%), despite relatively lower mortgage and European
exposures than its large-cap bank brethren,” wrote
Whitney, who founded Meredith Whitney Advisory Group in
2009. “On the capital question, we believe C will handily
make its capital target of +8% by the end of 2012.”
Whitney had a “Sell” or “Underperform” rating on
Citigroup since starting coverage on the stock at her new
firm in April 2009.  At the end of October 2007, while
working for Oppenheimer & Co., Whitney made waves by
predicting that Citigroup might have to cut its dividend
payout to raise capital.  The call drew the scorn of the
company and fellow analysts, but turned out to be right
after Citigroup cut its dividend in January of 2008 as more
of the subprime mortgage securities that Whitney had warned
about went sour on the company.

Mortgage applications up

Mortgage applications increased 6.9% from one week earlier,
according to data from the Mortgage Bankers Association’s
(MBA) Weekly Mortgage Applications Survey for the week
ending April 13, 2012.   The Market Composite Index, a
measure of mortgage loan application volume, increased 6.9%
on a seasonally adjusted basis from one week earlier.  On an
unadjusted basis, the Index increased 6.5% compared with the
previous week.  The Refinance Index increased 13.5% from the
previous week.  The seasonally adjusted Purchase Index
decreased 11.2% from one week earlier. The unadjusted
Purchase Index decreased 10.4% compared with the previous
week and was 13.9% lower than the same week one year ago.
The four week moving average for the seasonally adjusted
Market Index is up 1.60%.  The four week moving average is
down 0.52% for the seasonally adjusted Purchase Index, while
this average is up 2.36% for the Refinance Index.  The
refinance share of mortgage activity increased to 75.2% of
total applications from 70.5% the previous week. The
adjustable-rate mortgage (ARM) share of activity decreased
to 5.3% from 5.5% of total applications from the previous
week.

“Renewed concerns about sovereign debt in Europe led to a
drop in rates last week, with the 30-year rate tying our
survey low, reached in early February.  Refinance activity
picked up in response, increasing 13.5% for the week.
Participants in our survey indicated that about 32% of this
refinance volume was for HARP loans,” said Jay Brinkmann,
MBA’s Chief Economist and SVP of Research and Education.
“While purchase activity declined sharply for the week,
this was mostly due to a 23% drop in applications for FHA
purchase loans.  This drop follows big increases in the
demand for FHA loans over several weeks in anticipation of
the FHA mortgage insurance premium increases that went into
effect last week.  This was the largest weekly drop in the
government purchase index since the expiration of the
first-time homebuyer tax credit in May 2010.  The demand for
conventional purchase loans was down only slightly.”  The
average loan size of all loans for home purchase in the US
was $233,381 in March 2012, up from $225,463 in February
2012. The average loan size for a refinance was $214,593,
down from $222,048 in February.  The largest purchase loans
were made in the Pacific region at $ 337,227. The largest
refinance loans were also made in the Pacific region at $
290,711.

Spain bail-out; not if - when

Economic experts watching Spain don't know how much money
will be needed or precisely when, but some are near certain
that Madrid will eventually seek a multi-billion euro
bailout for its banks, and perhaps even for the state
itself.  Prime Minister Mariano Rajoy has repeatedly said
Spain doesn't need or want an international bailout, and the
European Union, which along with the IMF has already rescued
Greece, Ireland and Portugal, also dismisses such talk.  But
economists believe that Spanish banks will have to turn to
the euro zone's rescue fund, the European Financial
Stability Facility (EFSF), for help in covering losses
caused by a property market crash which has yet to end.
Madrid is likely to hold out for some time. "The underlying
picture in Spain is dramatic, but is it dramatic in the way
that it needs a bailout package tomorrow? No," Brzeski said.
"But if you look ahead, let's say the next six months, I
would not be surprised if they (the banks) have to get some
kind of European support."  Market concerns about the euro
zone's fourth largest economy have deepened in the past
week. Yields on the government's 10-year bonds, which
reflect the risk investors attach to owning Spanish debt,
have risen above 6%, a level that has proved a trigger point
for other troubled euro zone countries.  At the moment the
EU is backing Madrid. Jean-Claude Juncker, who chairs the
Eurogroup of euro zone finance ministers, said Spain was
taking the necessary steps to get its economy back on track,
despite a recession and unemployment at 24%.

"As I look at my screen and Spain 10-year yields are up at
6% - things are starting to get worrying again," said Peter
Westaway, chief economist for Europe at Vanguard, an
investment management firm overseeing $1.8 trillion in
assets.  "If they go up to 6.5 to 7%, that could become very
problematic, and if Italy started to go back above Spain
again, then that would be really serious."  Spain has one
thing on its side. It has already raised nearly half the 86
billion euros it needs to borrow from financial markets this
year, sucking up some of the 1 trillion euros of cheap
three-year loans that the European Central Bank has pumped
into the euro zone banking sector.  This means the
government could hang on for months before having to turn to
the EU for help with its own funding needs.  However, that
still leaves the banks. One of the critical "unknowables'
for Spain is just how bad a situation its banks are in. The
Spanish housing market, once a driver of the economy, has
been in turmoil for more than four years, but prices still
haven't fallen as much as economists think is needed to
squeeze the air out of the bubble.  Only when prices have
bottomed will assessors be able to calculate how just much
bad mortgage debt is sitting on the banks' balance sheets,
and therefore how much extra capital the sector requires to
return it to health.

Olick - a tale of two housing markets

The numbers are in, the analysts are out, and given the
volatility of this particular economic indicator, the spin
is at full speed:  “Good News on Housing Permits More Than
Offsets the Bad News on Starts”— HIS Global Insight;
“Housing Starts Decline Again” – Capital Economics;
“March Multifamily Starts Down; Permits Continue Upward
Trend”— KBW;  “March Construction Numbers Aren’t As
Bad as They Look”— Trulia.com;  “Housing Starts
Lacking Consumer Confidence” — Sageworks Inc.  Here’s
the problem: We are living a tale of two housing markets,
single and multi-family. Depending on what kind of builder
or investor you are, you’re going to see the housing
starts numbers differently. Let’s weed through it first:
Total starts fell 5.8%, driven by a nearly 20% drop in
multi-family. Single family was essentially flat
month-to-month. But remember, multi-family is a very
volatile number and can swing 20-30% monthly due to large
local projects. Yes, they are both ahead from last year, but
2011 was the worst year in the history of US home building.
“The further fall in housing starts in March means that
about a third of the past year’s improvement in
homebuilding has now been undone. But the continued rise in
building permits is an encouraging sign which suggests that
housing starts will improve again later this year,” writes
Paul Diggle at Capital Economics.

Building permits are always seen as a better indicator of
construction, or at least more dependable and less
influenced by weather. Single family permits dropped 3.5%
month to month, but multi-family surged ahead 24% to the
highest level in four years.  “The pickup in multifamily
construction is taking place most noticeably in the South
and West—again, not a big surprise—since 46 of the 50
fastest-growing metro-area populations from 2010 to 2011
were in the South or West, according to the Census
Bureau,” writes IHS Global Insight’s Patrick Newport.
Clearly we’re still seeing big demand in the multi-family
sector, but single family is still faltering.  “Single
family is more of a restocking issue,” said Morgan
Stanley’s Oliver Chang on CNBC. “In order to meet
baseline demand, they [builders] have to build.”  Chang
says real growth in single family demand just isn’t there,
due to a still tightening credit market. On the flip side,
he claims that distressed housing has stabilized and
distressed home prices have bottomed; that’s because
investors largely use cash.

So if there’s all this demand for single family rentals,
and investors are rushing to get in, is there still enough
demand for all this multi-family construction?  “Bottom
line, with the secular decline in home ownership,
multi-family construction will be where it’s at for a few
years but still only make up about 30% of total starts.
Single family starts still have the intense competition with
foreclosures and now rent seekers,” writes Peter Boockvar
of Miller Tabak.  So why, as we asked yesterday after the
disappointing builder sentiment report, did single family
starts, permits and sentiment rise through the fall and the
winter only to slam on the breaks? Newport calls that one a
“head scratcher,” and adds, “If the builders have
gotten ahead of the game, single-family construction will go
through a demoralizing slowdown later this year.”

Is gold headed down?

For the past decade, gold has been an incredible investment,
rising from under $300 per ounce to as high as $1,900 per
ounce before retreating to around $1,650 in recent trading.
For the bulls, gold's recent drop is nothing more than a
temporary setback on its inexorable march toward $2,000 and
beyond. The case for gold rests primarily on factors
familiar to anyone who's even remotely familiar with the
metal: easy money from central banks around the world and
rising demand from emerging economies, notably China and
India. But all good things must come to an end and Yoni
Jacobs, chief investment strategist at Chart Prophet,
believes gold's best days are behind it. In fact, Yoni
believes there's a bubble in precious metals that's about to
collapse as detailed in his book, Gold Bubble: Profiting
from Gold's Impending Collapse.  While tipping his hat to
the bullish arguments and sympathetic to reasons why people
own gold, Jacobs says the metal's inability to rally despite
Europe's ongoing crisis and renewed tensions in the Middle
East are negative signs. "The froth is coming off," he
says.

Technically, the strategist cites heavy volume during gold's
sell-off last September and the negative divergence between
gold and gold miners as warning signs. In the past six
months, the Market Vectors Gold Miners ETF (GDX) is down 20%
while the Gold ETF (GLD) is essentially flat.  Furthermore,
gold is vulnerable to the global economic slowdown, he says,
noting China just reported its slowest quarter in three
years.   Finally, Jacobs cites "over-speculation" in gold,
its "parabolic increase" in recent years, the "mass
publicity" the metal has received, and the extreme emotions
of its advocates as signs of it being in bubble territory.
Based on historical trends and technical patterns, Jacobs
predicts gold will fall below the key $1,000 per ounce level
on its way to the $700 area. He recommends shorting the GLD
or GDX or buying out-of-the-money puts on gold as a way to
profit from gold's demise.

WSJ - GOP Senators say no to write-downs

Two US Senate Republicans are urging the Treasury Department
to cancel its plans to subsidize debt forgiveness for
troubled homeowners, saying the money would be better off
reducing the federal debt.  In a letter sent Tuesday to
Treasury Secretary Timothy Geithner, Sens. David Vitter (R.,
La.) and Jim DeMint (R., S.C.) criticized an Obama
administration plan to encourage mortgage giants Fannie Mae
and Freddie Mac to reduce borrowers’ loan balances.
Earlier this year, the administration announced it would use
money from the 2008 financial industry rescue to encourage
those write-downs.  The letter adds further heat to an
intense political debate over whether the two
government-controlled companies should reverse their policy
and allow loan write-downs.  The two companies, which buy up
loans and package them into investments, and their federal
regulator have been facing pressure from Democrats and the
Obama administration, which want to see write-downs.
Republicans, however, are concerned that doing so will
encourage borrowers to intentionally default.  In their
letter, Messrs. Vitter and DeMint also argue that big banks
that hold second mortgages such as home equity loans will
benefit from write-downs. The plan “will pay off the mega
banks with taxpayer cash in exchange for reducing the
principal balance on some mortgages,” the lawmakers wrote.
“We write to urge you, on behalf of the taxpayers, to
reconsider and, instead, return this money to the Treasury
to pay down the national debt.”