How Do You Feel The Market Is Doing?

When people ask me is the market getting better, what do you hear happening out there, is it true that the R.E. industry will slow down from Nov 1^st through Feb etc etc etc. I always tell people to listen to the financial news and the see what the “Pros” are saying. But then I always tell them you can listen to 10 different “So Called” experts and get 7 different answers, so you will have to make your own assumptions.

So I ask you, looking at these 3 stories that came out today, How Would You Say The Market Is Doing?

Go ahead, make your own assumption.

Pending Home Sales Plummet Fourth Month In A Row, on declining home affordability

The number of real estate contracts signed and recorded declined 5.6% from August to September, as home affordability receded under the influence of higher mortgage rate. Lawrence Yun, chief economist for NAR, says this is the first time in 29 months that pending home sales weren't above year-ago levels and that we should anticipate lower home sales in the fourth quarter - with a plateau into next year. "This tells us to expect lower home sales for the fourth quarter, with a flat trend going into 2014," he said. "Even so, ongoing inventory shortages will continue to lift home prices, though at a slower single-digit growth rate next year."

This is the lowest index level reached since December of last year, and NAR is blaming the influence of declining home affordability, lower consumer confidence and a government shutdown that shook up both construction activity and home sales.

NAR says the Pending Home Sales fell 5.6% to 101.6 in September - from a downwardly revised 107.6 in August - and is 1.2% below September 2012 when it was 102.8. This is the lowest level since December 2012 when it was 101.3; the data reflect contracts but not closings, says NAR.

Fannie Mae Raises Its Lending Requirements

It just got a little harder to buy a home. Fannie Mae recently announced that it would reduce the maximum loan-to-value (LTV) ratio for loans it purchases from 97 percent to 95 percent -- meaning that borrowers now have to contribute a minimum 5 percent down payment, instead of 3 percent. This change places yet another barrier in front of low- and moderate-income families, who are already facing a tightening credit box.

Effective November 1, 2013, Fannie Mae's new policy will apply to both standard mortgages and affordability products (such as My Community mortgages). Freddie Mac made the same move several years ago.

 There are three things worth noting, Ninety-five to 97 percent LTV mortgages are a small fraction of recent mortgage originations purchased by Fannie Mae.  Borrowers can still take out loans with LTVs above 95 percent through the FHA, VA, or USDA, so future loans will essentially shift from one set of taxpayer-backed institutions to another.  If the intent was to reduce risk, this was a crude way to accomplish it. The default rate for 95 to 97 percent LTV mortgages is only slightly higher than for 90 to 95 LTV mortgages, and the default rate for high FICO loans with 95 to 97 LTV ratios is lower than the default rate for low FICO loans with 90 to 95 percent LTV ratios.

Bank Of America To Lay Off 4,000 Mortgage Workers

Bank of America is reportedly cutting up to 4,000 mortgage jobs, both on the servicing and origination side of the business. The cuts are due mainly to falling application volume in light of rising interest rates, according to a Reuters report.  About 1,200 of the 4,000 Bank of America employees to be laid off have already been notified, according to the report. Most of those employees work on new loans. Another 2,800 job cuts, mostly on the default servicing side, will come later this year.

Earlier this week, a federal jury in Manhattan found Bank of America liable for fraud in connection with faulty mortgages that Countrywide Financial Corp. - acquired by Bank of America in 2008 - sold to Fannie Mae and Freddie Mac just prior to the housing meltdown.

In that case, Countrywide executive Rebecca Mairone was found liable for one count of fraud. Mairone, now a managing director at JPMorgan, is accused of overseeing a process called the "High Speed Swim Lane," "HSSL" or "Hustle" that was allegedly used by Countrywide in 2007 to speed mortgage originations by side-stepping certain aspects of the application review process. Federal prosecutors allege that this program, in part, is what led to the shoddy loans that were passed onto Fannie Mae and Freddie Mac.    Penalties are yet to be determined.

Wells Fargo, JPMorgan Chase and Citigroup have also recently downsized their mortgage operations - however, a majority of those cuts have been on the servicing side. Looming Basel III regulations that will require banks told hold more money in reserves based on loans outstanding - as well as the increased risk of enforcement action or litigation as a result of these rules - is causing the larger U.S. financial institutions to divest themselves of their mortgage servicing rights.

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Paul Antonelli

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