Will housing double dip or not???

This is a great article from Chris McLaughlin about the US foreclosure market, will housing double dip or not??? Poll: Home prices to drop 2.3%

US home sales will soon hit a wall as foreclosures are dragged out, creating a supply overhang that will push prices down 2.3% this year before beginning a slight recovery in 2012, according to the median forecast of the 26 economists who gave a price outlook in the Reuters poll. A rise in "distressed" home sales at depressed prices has helped clear the path for a recovery. But economists doubt the bounce will last as the pace of foreclosures drags out. By the fourth quarter of 2011, the pace of US existing home sales will only edge up to a 5.48 million annualized rate from the 5.36 million pace in January, according to the poll. The rate has recovered from 3.86 million units in July last year, following a slump that was caused by the expiry in April of federal home buyer tax credit incentives.

The total price drop from the peak of the housing market in 2006 will be 35%, they said. Purchases of distressed homes from troubled borrowers, or those in or near foreclosure, are seen as an important way to absorb the almost four years' worth of inventory that may hit the market, economists said. Foreclosures will at least begin to subside in 2011, according to 18 who gave an outlook in the Reuters poll. "Price expectations are probably more important than foreclosures at this time," said Donald Ratajczak, Morgan Keegan's Atlanta-based consulting economist. He noted that prices are rising in San Diego, where foreclosures make up a big portion of sales, and falling in Atlanta, where foreclosures are below average. The difference, he said, is that San Diego buyers see foreclosures as an opportunity, and Atlanta buyers see them as a problem.

Jobless claims at 3 year low

There were 368,000 initial jobless claims filed in the week ended Feb. 26, the Labor Department said Thursday. That was down 20,000 from the week before, and the lowest since May 2008. Economists surveyed by Briefing.com had expected initial claims to rise to 400,000 in the latest report. The 4-week moving average of initial claims, which aims to smooth out volatility, also improved, falling to 388,500 from the previous week's revised average of 401,250. The four-week average for applications, a less volatile figure, fell last week to 388,500. That's the lowest level since July 2008, the last time the four-week average was below 400,000. Economists say applications that remain consistently below 375,000 tend to signal declines in the unemployment rate. Applications for benefits peaked during the recession at 651,000.

The downward trend in applications suggests that companies are easing the pace of layoffs now that the economy is gaining momentum. During the recession, companies slashed work forces, cut or froze workers' pay and took other aggressive steps to reduce costs. Companies are expected to increase hiring in the month ahead. Employers probably added 175,000 new jobs in February, economists predict. That would mark an improvement from an anemic 36,000 in January when snowstorms and bad weather hurt job gains. The government releases the employment report for February on Friday. At the same time, economists think the unemployment rate edged up to 9.1 percent in February as more jobseekers -- perhaps feeling better about their prospects -- stream into the labor market looking for work.

Double dip or not?

Home prices are at near their post-bust lows. January saw a double-digit dip in the number of new homes sold. Then Robert Shiller, Yale economist and co-founder of the S&P/Case-Shiller home price indexes, dropped this bomb: "There's a substantial risk of home prices falling another 15%, 20% or 25%," he said. On a national level, Shiller and other economists compare home price changes with income growth over the years. Before the bust, home prices had been outpacing earnings since the late 1990s. Just to get that back to a normal ratio -- which we last saw in 1998 -- home prices would have to drop another 15%, according to Anthony Sanders, a director of Real Estate Entrepreneurship at George Mason University. "Even after the bubble burst, the ratio of income to home prices is still way too high," he said. Many disagree with these assessments. Karl Case, who co-founded the home price index with doom-sayer Shiller, believes that the market will "bounce along the bottom all
year." If that's the case, buyers who take the plunge now shouldn't expect big profits if they sell in the next few years, but they shouldn't have to take a major hit either.

Besides, a home purchase is more than a potential investment, especially for families planning to stay put for a while. The big plus for them is the pleasure of living in their own homes. "People should base their decision on affordability, lifestyle choices and home preferences, not on investment," said Lawrence Yun, the National Association of Realtors' chief economist. Some stable areas, such as Texas and the Midwest, will probably not experience price plunges at all, but other markets, such as Seattle, Portland and inland California, could still fall substantially, according to Baker. And buyers may take heart from some positive recent indicators, such as an up tick in the sales of existing homes in January; a drop in vacant rental homes; and more investors snapping up properties. There's also been an upswing in the number of high-end homes -- those costing more than $750,000 -- being sold, according to Yun. The wealthy buyers of these properties have lots of choices
of where to place their money and many are investing in real estate. "The smart money is making their move," said Yun.

Mini-budget cuts signed

President Obama signed a budget cutting stop-gap spending bill yesterday after it was passed by the Senate by 91 votes. The bill terminates eight government programs, for savings of $1.24 billion, while an additional $2.7 billion in earmarks are eliminated. On the chopping block were eight programs involving broadband access in rural communities, education, highway construction and the Smithsonian Institution. All eight had been identified by both parties as wasteful and unnecessary. The programs that were cut fall into two umbrella categories: ineffective or duplicative. The bill eliminated $75 million in election assistance grants, which are funds allocated to help states upgrade voting machines and voter rolls.

Since 2002, Washington has pumped $3 billion into the program, but states have only found ways to spend $2 billion. And that rural broadband program? The Agriculture Department's inspector general uncovered "abuses and inconsistencies" as well as "a lack of focus on the rural communities it was intended to serve." The four education programs total $468 million, and are being eliminated for being outdated, ineffective or duplicative. The highway funds, $650 million in total, were originally budgeted as a one-time payment for 2010 but never cut. The remaining $2.7 billion in cuts cover almost 50 different earmark programs that will no longer be funded because House Republicans have instituted a new rule banning that type of spending.

What penalties are coming for the mortgage mess?

Disputes are emerging over how much to punish the banks as well as exactly who should benefit from a settlement. The newly created Consumer Financial Protection Bureau is pushing for $20 billion or more in penalties, backed up by the attorneys general and the Federal Deposit Insurance Corporation. But other regulators, including the Office of the Comptroller of the Currency, which oversees national banks, and the Federal Reserve, do not favor such a large fine, contending a small number of people were the victims of flawed foreclosure procedures. If only victims of problems at the servicers are helped in a settlement, that would cover a small portion of homeowners who are in default and even fewer of those whose homes are valued at less than they owe. All the regulators declined to comment publicly on just how close they are to wrapping up a global settlement that would be presented to the banks. But signs of the differences have emerged in public testimony as well as in
private conversations with government officials.

The acting comptroller of the currency, John Walsh, testified last week that while there were widespread problems with documentation and oversight of law firms and other crucial links in the foreclosure chain, only a “small number of foreclosure sales should not have proceeded.” Despite skepticism on the part of the comptroller’s office, other regulators would like a broader plan to help pay for modifications of mortgages that are delinquent or in default, even if homeowners cannot point to a specific example of wrongdoing on the part of servicers. In other cases, the money might be used to help mortgage holders whose loan principal exceeds the home’s current value. One possibility, industry insiders and banking lobbyists suggest, is that homeowners might deliberately become delinquent on their loans to get a principal reduction.

Housing activists counter that homeowners seeking modifications are often told by their lenders to stop payments, and then end up in foreclosure. The debate reflects some degree of weariness with foreclosure, as the administration’s signature mortgage modification program is under attack by both House Republicans and housing activists as a failure. “There has been a tension in this country during the financial crisis,” said Michael S. Barr, a former Treasury official now at the University of Michigan Law School. “People want those who are in economic trouble to get a fair shake. But they don’t want them bailed out for making their own mistakes, like buying too big a home.”

Community banks push back on mortgage reforms

Community bank leaders warned a House Financial Services Committee yesterday about the risks their institutions face from excessive Wall Street regulation. The Independent Community Bankers of America (ICBA) said thousands of smaller banks could be chased out of the mortgage market if lawmakers end up redefining the qualified residential mortgage too narrowly, leaving the ball in the court of large banks. ICBA said in a statement that "regulators should exempt portfolio loans held by banks with assets of less than $10 billion from a new requirement that first-lien mortgage lenders establish escrow accounts for the payment of taxes and insurance." Without an exemption, it's feared smaller banks will not have the mechanisms to compete.

Bankers who gave testimony said increased regulation is another concern since smaller players with smaller capital reserves lack the funds to hire compliance staff for the handling of new regulations. Rep. Blaine Luetkemeyer (R-Mo.) warned the panel that "we are regulating ourselves out of the recovery." Albert Kelly Jr., chairman-elect of the American Bankers Association and CEO of SpiritBank, agreed, saying "managing the anomaly of regulation" is overwhelming for a bank that has only 37 employees.

Olick - Obama defends housing bailout

"The Obama Administration is vigorously defending its mortgage bailout programs, from the Home Affordable Modification Program (HAMP) to the Neighborhood Stabilization Program to the FHA Short Refi. They've taken to the blogosphere, the reporter conference call and to a hearing room in the House of Representatives, where Republicans are bent on scrapping it all. Interestingly, the Administration also released the 'Monthly Scorecard' for the programs today. The HAMP in particular offered some pretty lackluster results. While totals continue to rise, the number of trial and permanent modifications made in January were fewer than the number made in December. New volume has been falling steadily. Neil Barofsky, the Special Inspector General for the TARP, opened today's hearing with strong criticism of the Treasury's transparency, or lack thereof, in reporting the number of borrowers who can be helped. He called it 'disturbing,' 'shameful,' and 'inexplicable.' When the vote to
abolish these programs was announced last week, and Administration spokesperson blasted, 'If enacted, this legislation would close the door to struggling homeowners seeking relief in the face of the worst housing crisis in generations.'

FHA Commissioner David Stevens, who unfortunately had to answer for the Treasury, wouldn't opine as to whether the government's mortgage bailout programs were successful, but did admit, 'the HAMP numbers have not been what they were originally forecast. We are clearly concerned.' But he added that proprietary modifications by the big banks, while more abundant than HAMP mods, don't reduce payments as much and have higher re-default rates. Last week I was in Portland, OR at a Wells Fargo modification event. The organizers had sent over three thousand letters to troubled Wells Fargo borrowers and received about 300 RSVPs. Fewer than 300 showed up. I was told that they usually have between a five and seven% response rate. There were at least 100 Wells agents sitting at booths, waiting to work; many of them twiddling their thumbs. The excuse? I was told many borrowers think these events are a scam. Reality? Many have either gone already or don't want to go through a modific
ation on a loan that is worth more than the home. They know they've got at least a year before any sheriff comes knocking."