High-Distress Markets Continue to Lead Recovery

Rising home sales and declining foreclosure sales have driven the highest quarterly price increase since the national housing recovery began, according to the latestFNC Residential Price Index.

Prices rose 2.5 percent during the third quarter, according to FNC., which observed prices in the 100 largest metro areas in the country. The company found that national home prices have risen 11 percent since the beginning of the recovery, a timestamp that FNC considers to be the start of 2012.

“Continuing to lead in the recovery are the markets in high distress during the 2008-2009 mortgage crisis,” FNCnoted in a statement to the press.

Phoenix posted the highest cumulative price gain since the start of the recovery—a 46.2 percent increase.

The rest of the top five gains were recorded in Las Vegas (38.3 percent), Riverside, California (23.5 percent), Los Angeles (22.7 percent), and Orlando, Florida (20.5 percent).

The FNC 100-MSA index recorded a 0.5 percent price gain over the month of September.

Prices increased 6.2 percent from September last year to September this year and 5.7 percent from the third quarter of 2012 to the third quarter of 2013, according toFNC.

FNC reported 27 of the 30 metro areas in the FNC 30-MSAindex experienced rising prices over the month of September.

Miami and Riverside, California, topped the index with price gains of 2 percent over the month. They were followed closely by Baltimore and Charlotte, North Carolina, both of which posted increases of 1.9 percent.

The three cities to register price declines in September were St. Louis (-1.3 percent), New York (-0.6 percent), and Denver (-0.3 percent).

Both Denver and St. Louis experienced a rise in foreclosure sales in September, which FNC deemed as the culprit in both cities’ September price declines.

In St. Louis foreclosure sales made up almost 30 percent of September home sales, according to FNC.

 

Housing’s ‘Perfect Storm’ Puts Homeownership out of Reach for Some

Steady gains in home prices and rising mortgage rates across the United States contributed to weakening housing affordability in the year’s third quarter.

According to the Housing Opportunity Index (HOI) published by the National Association of Home Builders(NAHB) and Wells Fargo, 64.5 percent of new and existing homes from the start of July through the end of September were considered affordable to families earning the national median income of $64,400. That share is down from 69.3 percent in the second quarter, marking the biggest HOIdecline since Q2 2004.

NAHB chairman Rick Judson said the third quarter’s drop was the result of a “‘perfect storm’ scenario.”

“With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor,” Judson said.

David Crowe, chief economist for NAHB, added that the decline may have been amplified by the current lending environment.

“Some of the decline in the affordability index could be the result of a loss in some more modest priced homes as tight underwriting standards have limited the purchases by moderate income families,” he said. “While affordability has come down from the peak in early 2012, the index still means a family earning a median income can afford 65 percent of homes recently sold.”

Indianapolis-Carmel, Indiana, and Syracuse, New York, tied as the country’s most affordable major housing markets, with 93.3 percent of transactions fitting into those areas’ median household income ($65,100 and $65,800, respectively).

Another Indiana market claimed the most affordable title among smaller metros: Kokomo, where 96.9 percent of home sales were affordable for the median income of $60,100.

At the other end of the scale, California’s San Francisco-San Mateo-Redwood City metro held the spot for least affordable major market for the fourth quarter in a row. In that market, only 16 percent of homes sold in the third quarter were affordable to families earning the median income of $101,200.

Among smaller markets, the five least affordable metros last quarter were all located in the Golden State. Santa Cruz-Watsonville was declared the least affordable, with 20.3 percent of sales being considered affordable for a household earning the median income of $73,800.

JPMorgan Strikes Deal with Mortgage Investors

JPMorgan Chase & Co. has reached a $4.5 billion agreement with 21 institutional investors to settle mortgage repurchase and servicing claims on 330 residential mortgage-backed securities (RMBS).

JPMorgan will make a binding offer to the trustees of theRMBS trusts issued by J.P. Morgan, Bear Stearns, and Chase. The group of investors support the arrangement, according to the Houston-based law firm representing the group, Gibbs & Bruns LLP, and have asked the trustees to accept JPMorgan’s offer.

JPMorgan called the settlement “another important step” in its efforts to resolve legacy RMBS matters and said it believes it is “appropriately reserved for this and any remaining RMBS litigation matters.”

The trustees have until January 15, 2014, to accept the offer, which may be extended pursuant to the terms of the offer for an additional 60 days. The offer includes the following key terms:

1. Payment by JPMorgan of $4.5 billion in cash to the trusts to settle mortgage repurchase and servicing claims;

2. Implementation of certain servicing changes to mortgage loans in the trusts;

3. Reimbursement to the trustees for expenses associated with their evaluation of the offer;

4. A release of all repurchase and servicing claims that have been or could have been asserted by the 330 trusts; and,

5. Continuation of a previously agreed tolling and forbearance agreement among JPMorgan and the trustees to permit the trustees to evaluate the proposed settlement.

The institutional investors who are parties to the agreement include:

– AEGON USA Investment Management
– Bayerische Landesbank
– BlackRock Financial Managemet
– Cascade Investment
– Fannie Mae
– Federal Home Loan Bank of Atlanta
– Freddie Mac
– Goldman Sachs Asset Management
– ING Investment Management Co.
– ING Investment Management
– Invesco Advisers
– Kore Advisors
– Landesbank Baden-Wuerttemberg
– Metropolitan Life Insurance Company
– Pacific Investment Management Company
– Sealink Funding Limited
– Teachers Insurance and Annuity Association of America
– The Prudential Insurance Company of America
– The TCW Group
– Thrivent Financial for Lutherans
– Western Asset Management Company

Pursuant to the agreement, the institutional investors have requested that the trustees accept the settlement.

They also agreed to use their reasonable best efforts to obtain court approval of the settlement if the trustees elect to seek a judicial instruction concerning their decision to accept the settlement. JPMorgan also agreed to pay the investors’ attorneys’ fees.

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More Homeowners Receiving Principal Reductions Under HAMP

As of September, more than 1.2 million homeowners have received a permanent modification through the Home Affordable Modification Program (HAMP), according to Treasury.

Those granted permanent relief through HAMP are saving approximately $547 on their mortgage payments each month—almost a 40 percent savings from their previous payment on average. Government officials say this represents a total estimated savings of $22.9 billion in monthly mortgage payments since the inception of the program.

Homeowners currently in HAMP permanent modifications with some form of principal reduction have been granted an estimated $12.1 billion in reduced principal, Treasury reports. Of all non-GSE loans eligible for principal reduction entering HAMP in September, 72 percent included a principal reduction feature, according to the Department’s latest report.

Servicers awarded 12,884 permanent HAMPmodifications in September, of which 5,854 included principal reduction. September’s program numbers are down considerably compared to the previous month when an estimated 19,100 permanent mods were granted to struggling borrowers.

The government’s Home Affordable Foreclosure Alternatives (HAFA) program showed even greater monthly falloff. In September, Treasury reports 11,816 homeowners exited their homes through a short sale or deed-in-lieu of foreclosure with assistance from HAFA, compared to approximately 21,000 HAFA transactions completed in August.

As of September, servicers completed more than 226,000HAFA transactions for distressed homeowners, including both non-GSE and GSE activity. Servicers participating in the federal government’s Making Home Affordable program must consider all borrowers denied for HAMP for a short sale or deed-in-lieu of foreclosure through theHAFA program. However, individual investors can impose additional eligibility requirements.

Treasury reports 91,323 GSE loans have received assistance through Fannie Mae’s and Freddie Mac’s Standard HAFA programs, 36,837 loans held in servicers’ own portfolios have received HAFA relief, and 98,275HAFA transactions have involved loans held by private investors.

The top three states for HAFA activity include California, where 40 percent of all HAFA deals are conducted; followed by Florida with 16 percent of HAFA short sales and deeds-in-lieu; and then Arizona with just 6 percent of the HAFA market share.

Analysts Say Government Should Continue ‘Significant’ Role in Housing

Ideally, the government should back up to 35 percent of all new mortgages, according to the median response given in a recent Zillow survey which polled 108 economists, real estate experts, and investment and market strategists.

Among those surveyed were analysts and authorities from such institutions as Barclays Capital, Equifax, the International Monetary Fund, Auction.com, Wharton–University of Pennsylvania, Local Market Monitor, and the Urban Land Institute.

The government currently backs about 90 percent of all new mortgages, and according to Zillow the last time the government held a 35 percent share of new originations was in 2006 “at the height of the housing bubble.”

Despite a widespread opinion that the government’s current majority share should be scaled back, about 58.4 percent of the experts and analysts surveyed say the government should continue to play a “somewhat significant,” “significant,” or “very significant” role in the housing market. Just 8 percent say the government should exit the housing market completely.

“Policy discussions centered on reforming the nation’s housing finance system have only just begun, and it will be very interesting to see what comes out of these debates and how much the market will react to new proposals,” said Stan Humphries, chief economist at Zillow.

Zillow polled sentiment surrounding government participation in the housing market as part of its quarterly Zillow Home Price Expectation Survey.

Zillow found market analysts generally expect price growth to dwindle but not stagnate over the next few years. Those surveyed anticipate price growth will reach between 5.6 percent and 8.3 percent for 2013. Next year, they anticipate a 4.3 percent rise in prices, and by 2018, they expect prices to increase just 3.4 percent annually.

“The housing market has seen a period of unsustainable breakneck appreciation, and some cooling off is both welcome and expected,” Humphries said.

Based on analysts’ forecasts, prices should exceed their May 2007 peak by 2018. By the end of 2018, the national median home price could exceed $200,000.