Loan mods create new costs, Fed study says

Fed says lenders should cut principal instead of adding to it

BY DEAN CALBREATH

ORIGINALLY PUBLISHED DECEMBER 20, 2010 AT 3:14 P.M., UPDATED DECEMBER 20, 2010 AT 5:30 P.M.

Getting a mortgage modified can add thousands of dollars to the principal of the loan instead of reducing it, according to a study released today by the Federal Reserve branch in San Francisco.

The study found that "the continued reluctance of servicers to reduce principal balance may limit the effectiveness of modifications, especially in areas that have seen drastic declines in house prices."

Currently, when lenders modify home mortgages, it is typically through temporary reductions in the interest payments attached to the loan. But relatively few lenders reduce the principal of the loan, even though the principal may be far higher than the home is currently worth on the market.

Instead of reducing the principal, lenders often add to it by tacking on any loan payments that they borrowers failed to make when they were in default - which is typically a necessary precondition for getting a loan modification.

The Fed report says that borrowers might seen an increase in their loan balance ranging from $7,400 to $8,160.

The study found that "especially given the dramatic house price declines in California," reducing the amount of principal owed on a loan is an important way of preventing foreclosures.

"Research has shown that loans that include a reduction in the principal amount are less likely to redefault than loans with only payment changes," the study said, adding that "few borrowers are receiving principal reductions, and are instead finding that their missed payments are being rolled into their loan balance."

For a link to the study, which primarily focuses on how different ethnic groups cope with foreclosures, click HERE.

What are homebuyers' most common names?

BY ROGER SHOWLEY

TUESDAY, DECEMBER 21, 2010 AT 6 A.M.

The diversity of San Diego County’spopulation shows up in the shifting surnames that top a list of homebuyers, tracked since 1990 by MDA DataQuick’s analyst John Karevoll. Western European family names have been joined by others from Asia and Latin America, as those ethnic groups have joined the middle class and become homeowners.

One caveat: The number of distinct Asian and Latin surnames tends be fewer than for other nationality groups, so their ranking may overstate their proportion in the householder population. But the fact that they show up on the Top 10 list speaks volumes about the upward mobility that’s part of theAmerican dream.

As Karevoll says: “Clearly, there's more cultural diversity in today's pool of those entering home ownership than was the case 10 or 20 or 30 years ago. The Smiths, Browns and Millers did most of their buying years ago, now it's the Nguyens, Garcias and Lees’ turn.

That said, the math is important. A high percentage of people with Vietnamese heritage have the last name Nguyen, or Tran. From Korea it's Kim and Park. Those percentages are much higher in their communities than Smith or Brown ever was.”

SoCal home prices outpaced San Diego's in November

Sales dropped less as well, MDA DataQuick reports

BY ROGER SHOWLEY

ORIGINALLY PUBLISHED DECEMBER 15, 2010 AT 1:36 P.M., UPDATED DECEMBER 15, 2010 AT 2:22 P.M.

Southern California home prices rose more and sales dropped less than in San Diego County from October to November, MDA DataQuick reported Wednesday.

The six-county regional median price was $287,000 up $4,000 or 1.4 percent from October, compared with San Diego’s previously reported median, which rose just $500 or 0.15 percent to $335,000.

But on a year-over-year basis, regional prices were up 0.7 percent while San Diego’s median price rose 3.1 percent, the highest rate of the six counties.

Regional sales totaled 16,208, down 3.2 percent from October compared to San Diego sales, which declined by more than 6.7 percent. Year-over-year, the region was down 15.5 percent and San Diego was down 18.5 percent.

Sales typically drop from October to November and this year’s month-to-month regional decline was smaller than the 22-year average of 8.1 percent.

But for new housing, it was the slowest November both regionally and locally since DataQuick began keeping records in 1988. The company said the slowdown in sales reflects the difficulty builders have in competing with low-cost foreclosures, short-sales and other distressed properties on the market.

Foreclosure sales, involving properties that were foreclosed in the previous 12 months, remained well above the long-term average regionally at 35.1 percent of all sales in November — although the proportion was below the 56.7 percent peak in February 2009 and above this year’s low of 32 percent in June. San Diego’s foreclosure proportion has consistently been less than the regional figure; it was 29.6 percent in November, compared with 30.4 percent in October and 32.6 percent a year earlier.

More generally, said DataQuick President John Walsh, “Home sales remain weak because the job market has been slow to mend and credit policies remain unusually tight. But with sales this low for this long, you know there are a lot of people just waiting to jump into the market once they feel the time is right.”

He said the signal is likely to be “a greater sense of job security.”

“For others the cue could be evidence that home prices have bottomed for good or that ultralow mortgage rates are slipping away,” he said.

Last week’s average 30-year, fixed-rate loan nationally went for 4.6 percent, according toFreddie Mac, up from the most recent low of just under 4.2 percent Nov. 11.

In San Diego, prices have been rising and falling month by month, staying within a narrow band of $320,000 to $340,000 since mid-2009. Conditions can vary greatly neighborhood by neighborhood and even block by block, depending on what’s for sale and whether distressed properties dominate.

In other findings, DataQuick said 20.7 percent of regional sales involved homes selling for $500,000 or more, up from 19.8 percent in November 2009 but below the November average of 26.8 percent in the past decade. Sales at the top end have been hampered by the relative scarcity of jumbo financing and credit limitations.

Absentee buyers accounted for 23.1 percent of sales, just below the 23.2 percent peak set in February. The 10-year average is 16 percent.

All-cash buyers accounted for 28 percent of November sales, down from the 30.1 percent peak last February but ahead of the 22-year average of 14.3 percent.

Buyers who flipped properties within six months comprised 3.6 percent of sales in November, down from 3.7 percent in October but up from 3 percent a year earlier.

The typical mortgage in November was $1,136, up from $1,111 in October but down from $1,207 a year earlier. Adjusted for inflation, the payment was 58.5 percent below the peak in July 1007 and 49.3 percent below the previous peak in the spring of 1989.

Roger Showley, (619) 293-1286, roger.showley@uniontrib.com, Twitter: @rmshowley

Jobs, not housing dominate real estate conference

2011 looks like a slight improvement over 2010

BY ROGER SHOWLEY

TUESDAY, DECEMBER 14, 2010 AT 4:51 P.M.

The University of San Diego’s 11th annual residential real estate conference was supposed to be about housing, but jobs dominated the panelists’ view of how to end the five-year gloom.

Leslie Appleton-Young, chief economist at the California Association of Realtors, acknowledged that her original 2010 statewide projection did not pan out: Sales dropped 10 percent, not 2.3 percent, and prices rose 11.5 percent, not 3 percent. For next year she expects double 2’s: 2 percent jump in both sales and prices.

“Jobs are really the key,” she said. “That’s where the focus needs to be.”

Echoing other judgments, she declared “the worst is over” but that the economy offers no forward momentum to producing more jobs, more spending and more housing demand.

“We are in for a very slow recovery,” she said. “I don’t think there will be a double dip. We never got out of the first one.”

While real estate typically operates at the local, even micro, block-by-block level, Appleton-Young said today’s market is behaving sector by sector. For example, the $1 million-plus home market suffers from a 17.7-month inventory of unsold homes, largely because owners do not want to drop their prices to meet buyers’ expectations.

“The top end is very nostalgic for 2004-’05-’06,” she said.

The low end, below $300,000, is running at twice the unsold inventory as last year — 7.1 months compared with 4.1 months.

In a report issued Tuesday on San Diego home prices and sales, MDA DataQuick confirmed some of the economists’ observations:

•Prices rose just $500 from October to November to a median price of $335,000. But on a year-over-year basis, the median was up 3.1 percent, the 14th straight month of such improvement. Still the median was far below the November 2005 peak of $517,500.

•Sales were down 6.7 percent from October to 2,566 in the usual season slowdown, but were 18.5 percent below November 2009’s 3,148 count — the fifth straight year-over-year decline.

USD economist Alan Gin’s said companies and the real estate industry are poised to act, but not alone. “They’re waiting for signs that the economy is firming before jumping in,” Gin said.

Panelists at the all-morning conference did not expect a return to recession, mainly because the recovery has been so anemic since the recession was declared officially over in mid-2009.

“Right now, there’s just a lot of uncertainty,” Gin said. “I could see it going either direction.”

Still, he forecast 10,000 more jobs in 2011 in the county, almost making up for the 11,000-job loss of the past 12 months.

“It’s not good by historical standards, but at least we’ll break the three-year string of negative job growth,” he said.

Without a firmer economy in 2010, he downgraded his San Diego housing permit total for 2010 from 4,000 to 3,500, the second lowest on record after 2009, but predicted a rise to 5,000 next year.

Still, said Alan Nevin, economist at MarketPointe Realty Advisors, that figure is far below the 10,000-unit count needed to meet an annual 30,000-person population growth the region expects for the next 10 years.

“We’re not even remotely beginning to satisfy the market,” Nevin said. He predicts prices will skyrocket in two years if construction doesn’t pick up.

Roger Showley, (619) 293-1286, roger.showley@uniontrib.com, Twitter: @rmshowley

Fewer homes underwater, but foreclosures account for drop

By Julie Schmit, USA TODAY

The number of U.S. homeowners who owe more on their homes than the homes are worth dipped slightly in the last quarter to 10.8 million.

But the drop was driven mostly by homes slipping into foreclosure rather than any good economic news, such as increases in home prices, says analytics firm CoreLogic.

CoreLogic said Monday that 22.5% of mortgaged homes were underwater as of Sept. 30, down from 23%, or 11 million, in the second quarter.

From October to November, home prices slid by 0.2% after declining 0.1% in October, Standard & Poor's/Case-Shiller home price index says. That means the trend toward fewer underwater buyers may not last, says Mark Fleming, CoreLogic chief economist. "Price declines are accelerating, which may put a stop to or reverse the recent improvement in negative equity," he says.

The ramifications of so many underwater borrowers will cause problems for real estate markets for years, says Joel Naroff, president of Naroff Economic Advisors.

Those markets may recover more slowly because fewer homeowners will be in position to move into more expensive homes. Underwater borrowers are at higher risk of foreclosure, which drives down real estate values. As homeowners sink deeper, concerns rise that more will choose to default on loans.

The U.S. government has several fledgling programs to help underwater borrowers. But getting lenders to reduce what's owed on mortgages has been a tough sell. They're not convinced that forgiving debt to potentially avoid a foreclosure makes good economic sense, says Patrick Newport, economist at IHS Global Insight.

The Federal Housing Administration, as of Sept. 7, started offering some underwater borrowers the chance to qualify for new FHA-insured mortgages if lenders wrote off at least 10% of the principal.

The program is off to a slow start. Only 100 applications are underway. Lenders lack systems to carry out reductions and lack confidence that mortgage-owning investors will agree to reductions so are reluctant to invest in the systems, says Vicki Bott of the Department of Housing and Urban Development.

Government programs may help a fraction of underwater borrowers, Naroff says. "People will have to get used to living underwater," he says.

San Diego one of few metro areas to show higher home values

BY ROGER SHOWLEY

ORIGINALLY PUBLISHED DECEMBER 11, 2010 AT 11:30 A.M., UPDATED DECEMBER 13, 2010 AT 11:28 A.M.

San Diego had the best home-value improvement in 2010 out of large metro areas , according to Zillow.com.

The area's estimated year-end value for all homes was $378.5 billion, up $10.2 billion from 2009. At 2.8 percent, that was the biggest rise in the top 20 and 14th among all 129 markets.

However, only two markets -- Binghamton, N.Y., and Virginia Beach, Va. -- are higher than their peaks. One -- Cedar Rapids, Iowa -- has no change and all others are down.

San Diego is down $151.6 billion or 28.6 percent from the peak of $530.1 billion, set in the third quarter of 2005, while the U.S. as a whole is down slightly less, off $9 trillion or 28.5 percent to $22.7 trillion.

Binghamton, located in upstate New York, was up only only $79 million or .8 percent from the peak set in the second quarter 2008 to $10.1 billion. The biggest decrease -- 65.1 percent -- occurred in Merced, down $14.5 billion from the peak reached in the fourth quarter of 2005 to $7.8 billion.

Zillow uses a proprietary estimation system to calculate values of all homes, while most real estate statistics are based on actual sales. Sales figure into these "Zestimates" but the company uses other factors to arrive at values for homes that have not sold lately or are not on the market.

Zillow said the bulk of losses nationally occurred in the second half of the year, following the end to the federal homebuyer tax credits. It said only 31 of the 129 markets it watches poisted gains in values during the year.

The company compares to losses to the cumulative cost of the Iraq War at $750.8 billion. But these losses, as with stocks, are only theoretical until an owner actually sells a property and incurs an monetary loss.

While San Diego had the best upswing of the year among the biggest markets, recent sales figures indicate that prices have slid back below their recent peaks and some economists believe there will be little change next year.

For example, the MDA DataQuick report for October showed that the overall median sales price of $334,500 was up from September and October 2009, but was down from the recent peak of $340,000 in May.

Roger Showley, (619) 293-1286, roger.showley@uniontrib.com, Twitter: @rmshowley

Some condo owners may lose FHA financing

Their ability to sell or refinance their units could be hampered if their condo projects missed a key deadline for recertification.

By Kenneth R. Harney

December 12, 2010

Reporting from Washington

Tens of thousands of condominium unit owners around the country may not know it, but their ability to sell or refinance could be jeopardized by a rolling series of federal government deadlines.

On Wednesday, an estimated 2,200 condominium projects missed an eligibility deadline involving sales or refinancings using Federal Housing Administration-insured mortgages. The deadline was originally set by FHA for recertification or approval of these projects, but at the last minute the agency agreed to extend eligibility for most of them -- 23,000 projects -- into next year, with a series of rolling expiration dates. A group of 2,200 condo projects around the country received extensions only until the end of this month.

What this means, say lenders and condo experts, is that unsuspecting unit owners nationwide could suddenly be cut off from an increasingly important source of mortgage money. In some markets where FHA accounts for 75% or more of first-time home purchases, condo sellers could be severely handicapped. In parts of the country with heavy concentrations of condos, such as California, Florida, New England, Washington, D.C., and the urban Midwest, the effects could even depress sales prices.

"This is a travesty" unfolding, said Jon Eberhardt, president of Condo Approvals LLC, a national consulting firm based in Torrance. "You've got thousands of people out there with no idea" that FHA financing could evaporate for them in the near future.

"This is going to be a big problem," said Steve Stamets, a loan officer with Union Mortgage Group inRockville, Md., with numerous condo clients. "I expect you will have frantic sellers pushing management companies" to get their condo buildings approved.

The eligibility issue dates to November 2009, when the FHA published new rules on the types of condo projects acceptable for mortgages on unit sales and refinancings. The rules were the outgrowth of a review that found the FHA — essentially a government-owned insurance company — had approved thousands of projects over the previous two decades but possessed inadequate current information on their underlying homeowners associations' budgets, legal documents, insurance coverage, renter-to-owner ratios, delinquencies on condo fee payments, the amount of commercial space and a variety of other characteristics that could affect a project's financial stability.

The 2009 guidance spelled out toughened standards in these areas and set up timetables for taking fresh looks at projects before sanctioning additional unit financings. Condo projects that had been approved by the FHA before October 2008, the guidance said, would have to submit the information required for renewed approval by Dec. 7, 2010, or lose eligibility for FHA financing.

FHA officials issued bulletins and notices during the last year to lenders, condo management companies and consulting firms warning them about the approaching deadline. Ultimately, however, according to FHA officials, roughly 25,000 projects nationwide missed the cutoff. Officials said they had no estimate on the number of individual units affected, but clearly it's a sizable multiple of 25,000. For example, Eberhardt said, the average condo project in California contains 85 units.

Rather than abruptly eliminate financing for such a large and important segment of the country's housing market, FHA relented and announced the revised schedule of expirations.

Though the precise expiration schedules were not immediately available, FHA officials said they planned to notify condo associations, management companies and lenders on the specifics shortly.

What can owners do? Tops on the list, according to FHA officials, is to get in touch with the leaders of your homeowners association. Ask them to do what's necessary to get the project through the approval hoops. Large mortgage lenders can also get the ball rolling if they want to finance a unit in the project.

Costs for a recertification or approval can run from just under $1,000 to more than $3,000. Time for approvals may be a much more significant factor, however. Eberhardt says his firm can assemble documents and create a package for the FHA in about five days, but the process can extend for an additional 45 days to more than 60 days if the FHA staff is overwhelmed with applications. That just might happen in the coming weeks as unit owners begin learning about their financing cutoff deadlines.

Meanwhile, your sale or refinancing could be put on hold.