Lawrence Yun, NAR chief economist, said commercial real estate almost always lags the economy. “Because of the lingering impact from the deep recession over the past two years, vacancy rates will trend higher and many commercial property owners will need to make rent concessions,” he said.

“With the job market expected to turn for the better later this year, we’ll see rising demand for office and warehouse space, but that isn’t likely before 2011,” Yun said. “At the same time, improved consumer confidence would help sustain the retail sector and encourage more people to enter the rental market.”

Yun notes that commercial vacancy rates remain high in most market areas and are depressing rents.

The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 700 local market experts, suggests a flattening level of business activity in upcoming quarters with 55 percent of members expecting the market to improve in the second quarter.

The SIOR index rose 0.2 percentage point to 35.5 in the fourth quarter, compared with a level of 100 that represents a balanced marketplace. This is the first gain following 11 consecutive quarterly declines. Although some indicators show that a decline in commercial property values is beginning to flatten, 86 percent of respondents report prices are below replacement costs.

Nearly nine in 10 survey participants said new commercial development is virtually nonexistent in their market areas, and rent concessions are reported almost everywhere.

A Long Way To Go
An independent survey earlier this month showed a couple dozen banks are willing to expand commercial credit this year, which is critical. The lending expansion is aided by the Federal Reserve’s Term Asset-Backed Loan Facility (TALF), which is encouraging issuance of commercial mortgage-backed bonds. In addition, regulators are prodding lenders to extend terms for many existing commercial loans.

“We have a long way to go for satisfactory levels of commercial credit, but these are important first steps,” Yun said. “Given that about $1.4 trillion in commercial debt will come due over the next three years, more extensive action is needed and the Fed needs to more actively help resuscitate commercial mortgage-backed securities. The credit improvement will mean more commercial property sales in 2010, even some at deeply discounted prices.”

Looking at the overall market, commercial vacancy rates generally will stay at elevated levels, according to NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

Office Market
With a lot of sublease space currently on the market, vacancy rates in the office sector are forecast to rise from 16.3 percent in the fourth quarter of 2009 to 17.6 percent in the fourth quarter of this year; the longer term outlook is for vacancies to average 17.4 percent in 2011.

Annual office rent is projected to decline 7.2 percent in 2010, following a drop of 12.7 percent last year. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 27.3 million square feet in 2010.

Industrial Market
There is proportionately less industrial sublease space on the market than in the office sector, but obsolescence remains a factor. Industrial vacancy rates will probably rise from 13.9 percent in the fourth quarter of last year to 14.9 percent in the closing quarter of 2010; they could average 14.5 percent next year.

Annual industrial rent is likely to fall 9.6 percent this year, after declining 10.9 percent in 2009. Net absorption of industrial space in 58 markets tracked is seen at a negative 93.5 million square feet in 2010.

Retail Market
Retail vacancy rates are expected to edge up from 12.4 percent in the fourth quarter of 2009 to 12.7 percent in the same period of this year, and may hold at that level in 2011.

Average retail rent is forecast to decline 2.4 percent in 2010, following a drop of 4.0 percent in 2009. Net absorption of retail space in 53 tracked markets should be a negative 3.4 million square feet this year.

Multifamily Market
The apartment rental market – multifamily housing – is poised to gain from a rise in household formation. Multifamily vacancy rates are likely to decline from 7.4 percent in the fourth quarter of last year to 6.6 percent in the fourth quarter of 2010, and possibly edge down to 6.1 percent next year.

Average rent is projected to decline 3.4 percent this year, following a decline 3.6 percent in 2009. Multifamily net absorption is expected to be 115,000 units in 59 tracked metro areas this year.

Investors see these low rates as a boon to a recovery of employment and business.

Bernanke’s announcement also took the edge off the news Wednesday that housing sales hit a new low in January.

“Even though nothing he said was particularly new, it was just enough to calm the ruffled feathers that were out there,” said Jim McDonald, chief investment strategist at Northern Trust in Chicago.

Source: Associated Press, Tim Paradis (02/24/2010

The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who were expecting a 5 percent increase over December’s pace.

While winter storms were partly to blame, home sales have fallen for three straight months despite sweeping government support. Economists were already worried that an improvement in sales in the second half of last year could falter as various government support programs are withdrawn.

“There is no doubt that January and February are going to be messy months for housing, given the severe weather conditions, but that doesn’t take away from the fact that the housing sector has taken another big step back, even with the government aid,” Jennifer Lee, a senior economist at BMO Capital Markets, said in a research note.

A rebound in housing in the second half of last year helped to boost overall economic growth back into positive territory. Each new home built, for example, creates about three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

However, economists are worried that if housing falters in coming months, that will be one more headwind the recovery will have to overcome. The decline to an annual purchase rate of 309,000 in January was 6 percent below the previous record low set in January last year.

“I don’t think we are going to have a double-dip recession in housing, but it is going to take us longer to recover from a very deep hole,” said Patrick Newport, an economist at IHS Global Insight.

January’s weakness was evident in all regions except the Midwest, where sales posted a 2.1 percent increase. Sales were down 35 percent in the Northeast, 12 percent in the West and almost 10 percent in the South.

The drop in sales pushed the median sales price down to $203,500. That was down 5.6 percent from December’s median sales price of $215,600, and off 2.4 percent from year-ago prices.

New home sales for all of 2009 had fallen by almost 23 percent to 374,000, the worst year on record. The National Association of Home Builders is forecasting that sales will rise to more than 500,000 sales this year, an improvement from 2009 but still far below the boom years of 2003 through 2006 when builders clocked more than 1 million new home sales per year.

January’s data increased concerns that the housing rebound could falter in coming months as the government withdraws the support it has used to try to bolster the housing market. The real estate crisis was the epicenter of the country’s overall recession, the worst downturn since the 1930s.

The Federal Reserve has been holding down mortgage rates by buying $1.25 trillion in mortgage-backed securities, but that program is set to end March 31. And temporary tax credits to bolster home buying are scheduled to expire at the end of April.

Federal Reserve Chairman Ben Bernanke told Congress Wednesday that by holding the securities on its books the central bank would continue to help keep mortgage rates low. Economists believe that as long as the Fed owns the securities it will reduce the overall supply and thus help support the price.

Bernanke, delivering the Fed’s twice-a-year economic report to Congress, said that the Fed’s record low interest rates were still needed to attack high unemployment levels and help the overall economy recover.
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer

It is important, however, not to generalize foreclosure trends across all states. In fact, four states – Nevada, Arizona, Florida, and California – account for 45 percent of the foreclosure inventory (according to the Mortgage Bankers Association’s Mortgage Delinquency Survey) and 50 percent of all delinquency filings (based on data from RealtyTrac). Nevada tops the list with more than 10 percent of its housing units receiving at least one delinquency notice. In general, throughout 2009 these four states topped the list with the highest rates of filings and the number of foreclosures.*

In contrast, Vermont boasted the lowest foreclosure rate – 0.05 percent of its housing units – as well as the lowest absolute number of foreclosures – 143. Similarly, North Dakota had only 0.13 percent of its housing units receiving a delinquency notice. West Virginia was third at 0.17 percent and South Dakota ranked fourth at 0.21 percent. For comparison, the average national delinquency rate in the same quarter was at 8.85 percent.

Current Situation
At the beginning of the foreclosure crisis, mortgage defaults were primarily among non-prime borrowers. But things changed. In 2009, the wave of foreclosures were largely among prime loans. This suggests that while the initial crisis stemmed from bad underwriting practices, the extension of the crisis was due to the national economic recession and borrowers losing their jobs. Actually, the number of seriously delinquent prime loans grew at a much faster rate in 2009 – 66 percent – than did the number of seriously delinquent subprime loans, which increased by about 20 percent. As a result, prime loan defaults accounted for about 60 percent of the increase in all delinquent loans over the past year.

Similarly, the number of prime loans in foreclosure has doubled in each of the past two years, 99 percent between 2007 and 2008, and 95 percent in 2009. In comparison, the number of subprime loans in the process of foreclosure increased only 5 percent in the past year and 12 percent the year before. There has been, however, a much lower share of subprime loans originated in the last year, falling by 14 percent from the year prior. In the 3rd quarter of 2009, prime mortgage foreclosures accounted for 54 percent of all foreclosures, while subprime loans accounted for 36 percent.

In the last couple of months, it has become evident that the foreclosure crisis has moved “up market.” Among recent prime loan defaults, those loans with balances of between $417,000 and $600,000 have performed the worst. In fact, the monthly Mortgage Monitor by Lender Processing Services (LPS) suggests that non-agency jumbo prime loans have had the worst deterioration rates year-over-year for both delinquencies and foreclosures, with delinquencies increasing some 85 percent and foreclosures increasing some 190 percent, both significantly higher than other product types. In 2006, homes in the bottom one-third of home values accounted for almost 55 percent of all foreclosures. In 2009, the bottom one-third made up 35 percent of foreclosures, compared to 35 percent and 30 percent for the middle and top one-thirds, respectively. That means 30 percent of foreclosures are homes in the top tier of local home values, almost twice the proportion of foreclosures than three years ago. Data by Amherst Securities suggest that the increasing rate of negative equity among top home price tiers might be kindling this trend.

Underwater
Nearly 10.7 million, or 23 percent, of all residential properties with mortgages were in negative equity as of the second quarter of 2009. An additional 2.3 million mortgages were possibly approaching negative equity – or having less than five percent in equity. That adds up to nearly 28 percent of all residential properties with a mortgage nationwide.

The share of homeowners “under water” is still largely concentrated in five states – in fact, those states with the highest foreclosure rates, namely Nevada, Arizona, Florida, Michigan, and California. Among the top five states, the average negative equity share was 46 percent, compared to 13 percent for the remaining states.

In terms of larger metropolitan areas (with population greater than 50,000 people), the highest levels of negative equity are in those metros located in the top five “negative equity” states. Within smaller metropolitan areas largest losses are seen in Merced, CA and El Centro, CA (both 85 percent underwater), Modesto, CA and Stockton, CA (both 84 percent), Bakersfield, CA (79 percent), and Port St. Lucie, FL (79 percent).

“Strategic Defaults”
With estimates from LPS of some 25 percent of borrowers currently having negative equity nationwide, the question increasingly being asked is what the likelihood may be of homeowners underwater who are likely to “leave the pool”, or “strategically default”. According to a study by Experian and Oliver Wyman, more than a quarter of all existing defaults were found to be strategic and they more than doubled from 2007 to 2008 to 588,000. The study also found that borrowers with higher credit scores were 50 percent more likely to strategically default than those with lower credit scores.

In another survey study by Guiso, Sapienza, and Zingales**, the authors found that 26 percent of existing defaults were strategic. They also found that no household would default if the equity shortfall is less than 10 percent of the value of the home. Yet, 17 percent of households would default, even if they could afford to pay the mortgage, when the equity shortfall reaches 50 percent of the value

of their house.

Besides relocation costs, the most important variables in predicting strategic default are moral and social considerations. All things being equal, people who consider it immoral to default are 77 percent less likely to declare their intention to do so, while people who know someone who defaulted are 82 percent more likely to declare their intention to do so. That said, there is some research that suggests that while borrowers with negative equity should be walking away in droves, most homeowners choose not to strategically default due to the desire to avoid the shame and guilt of foreclosure and exaggerated anxiety over the perceived consequences from foreclosure.

What May Lie Ahead
What many analysts are finding alarming is the decreasing rate of delinquencies that are ending up in foreclosures. Loss mitigation efforts such as the Making Home Affordable Program (HAMP), as well as backlogs caused by the elevated delinquent loan volumes, are extending the number of days in delinquency. The data by LPS suggest that average number of delinquent days for loans in foreclosure has risen from 249 to 406 from January 2008 to December 2009 – an increase of 63 percent. The fear is that the increasing pool of troubled loans, also referred to as the “shadow inventory,” is only going to lead to more inventory and home price problems in the future. (We’ll discuss shadow inventory in a follow-up article in next month’s Real Estate Insights.)

The impact of HAMP is still difficult to evaluate. December’s numbers suggest 1,164,507 cumulative trial-period plan offers extended to borrowers, and 902,620 trial modifications started. The goal is 3-4 million homeowners with lower mortgage payments through a modification through 2012. Available data indicate around 112,000 modifications have turned permanent. The latest assessment of the program’s progress by the State Foreclosure Prevention Working Group*** also suggests that while the HAMP has helped to slow down the foreclosure crisis, current efforts have been insufficient as the total number of struggling homeowners not on track for any foreclosure prevention assistance continues to grow. Indeed, the Working Group found that only four out of ten seriously delinquent borrowers were involved in loss mitigation efforts.

As the increase in the rates of prime loan defaults suggests, so does the predominant hardship reason for permanent modifications under the Making Home Affordable program: curtailment of income is currently the primary reason for mortgage defaulting. With the unemployment rate at or near 10 percent nationally, and millions of more Americans having either exited the workforce or remaining underemployed, it is very difficult to say definitively how the economy will play out in the next couple of years and what the effects will be on the future foreclosure rates.

More in-depth analysis of this issue by NAR Research is available at www.realtor.org/research.

Illinois posted the nation’s fourth highest total in January, with 18,120 properties receiving a foreclosure filing during the month — a nearly 2 percent increase from the previous month and a 25 percent increase from January 2009.

Michigan posted the nation’s fifth highest total, with 17,574 properties receiving a foreclosure filing, and Texas posted the sixth highest total, with 12,225 properties receiving a foreclosure filing.

Other states with totals among the 10 highest in the country were Nevada (11,854), Georgia (11,274), Ohio (11,105) and New Jersey (6,146).
realtytrac.com

IRVINE, Calif. – Feb. 11, 2010 – RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its January 2010 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 315,716 U.S. properties during the month, a decrease of nearly 10 percent from the previous month but still 15 percent above the level reported in January 2009. The report also shows one in every 409 U.S. housing units received a foreclosure filing in January.

REO activity nationwide was down 5 percent from the previous month but still up 31 percent from January 2009; default notices were down 12 percent from the previous month but still up 4 percent from January 2009; and scheduled foreclosure auctions were down 11 percent from the previous month but still up 15 percent from January 2009.

“January foreclosure numbers are exhibiting a pattern very similar to a year ago: a double-digit percentage jump in December foreclosure activity followed by a 10 percent drop in January,” said James J. Saccacio, chief executive officer of RealtyTrac “If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works.”

It’s anticipated that these rules will go into effect in the spring or early summer of 2010.

Higher insurance requirements – this change requires that an upfront mortgage insurance
premium required of a borrower would be raised from 1.75% to 2.25%.

Larger down payment – only those borrowers with FICO scores about 580 would qualify
for the low 3.5% down payment. Those borrowers with a score lower than 580 would need
a down payment of at least 10%.

Lower seller concessions – this is the money returned to a borrower in exchange for
agreeing to a higher home sales price. This seller concession would drop from 6% to 3%.

Higher minimum FICO score requirements – in addition to needing a minimum FICO score
to qualify for the lower down payment option, it may be difficult for a borrower to even
begin the process with FICO scores below 600. This higher FICO score requirement is not
limited to FHA loans, but is being adopted throughout the mortgage industry; what was
once a fair FICO score may now only be considered a poor score. source: www.myfico.com

Significant changes to the terms of your credit card must be given 45 days prior to the
change taking affect. Under current rules, credit card companies only needed to give 15
days notice prior to making certain term changes.
Over-limit fees will be prohibited unless you consent to pay for the privilege.
Your credit card bill will now be due on the same calendar day every month. This means
you can schedule payments each month knowing exactly when your bill needs to be paid.
When you open a new account, your interest rate must stay at the opening rate for at
least 12 months. Even if a consumer’s rates are raised after 12 months, the increased rate
only applies to new purchases – not the balance accrued in the first 12 months. There are a
few exceptions that allow a rate increase such as a 60-day delinquency on the account, a
variable rate, the completion of a workout plan or temporary hardship arrangement, or an
expiration of a specified period of time.
Statements must be mailed at least 21 days ahead of when they are due. This provides
you with more time between when you receive your statement and when your bill is due.
If you’re under 21, it will be difficult to open a new credit card account. You’ll need a
co-signer or show proof of income.
You can “opt-out” if you don’t like the terms your credit card companies send you. Your
card may be closed, but you will have multiple options for paying off your balance,
including having up to 5 years to pay the card off – under the terms you had before opting
out.
Other accounts can’t be used as the basis for raising your interest rate. This practice
known as “universal default”, allowed late payment or defaults on other bills (such as utility
bills) to be cause for raising your credit card interest rate even though those other accounts
are not related to your credit card account.

Restoring good payment history will lower a raised APR. If you are reported as delinquent
on your credit card payments for 60 days your APR can be increased, but it must return to
the old rate if you make 6 consecutive payments thereafter.
Payments go towards higher interest rate balances first. For example, if you have a cash
advance balance in addition to a regular purchase balance, it’s very likely the cash advance
has a higher interest rate associated with it. When you pay more than your minimum, the
excess amount goes toward paying off that higher interest rate balance before the rest of
your balance.
It may be harder for those with bad credit to get credit. The Federal Reserve openly
recognized that these new rules may make it difficult for those with bad credit or limited
credit histories to qualify for a new credit card.
Increased protection for gift card holders. Gift cards now cannot expire for at least 5
years and no inactivity fees can be assessed unless the gift card goes unused for at least
12 months.
source: www.myfico.com

Members can download the latest issue of Trends by clicking here.

Success in today’s Real Estate Market depends on people, technology, and a competitive edge! TRENDS Newsletter provides you the competitive edge with the latest information on the California housing market.

TRENDS Newsletter is a monthly publication developed by the Economics Department of THE CALIFORNIA ASSOCIATION OF REALTORS®. Each issue contains a variety of statistical data covering:

As a subscriber to TRENDS, you’ll have the latest numbers and analysis on the housing market in California and its regions each month.

· Housing market indicators for California and its regions

· California monthly sales, median home price, and sales
by price range

· Unsold inventory index for California and its regions

· California housing supply

· Median home sales price and resale activity for both
detached homes and condominiums

· C.A.R.’s Housing Affordability Index

· Median Home Prices by City, based on data
obtained from DataQuick Information Systems,
table format showing current median price and the
year-ago price for over 400 cities in California.

· Timely articles written by our experienced economists
and research staff.

The TRENDS newsletter is FREE for members. If you are not a member of C.A.R. and would like to order the newsletter magazine click here. If you are already a subscriber and would like to renew your subscription click here. To receive one free issue, please send an e-mail request to Alma Menchaca at almam@car.org. or call directly at (213) 739-

Freddie required lenders to buy back $2.7 billion of loans in the first nine months of 2009. Fannie Mae won’t disclose its figures, but the mortgage trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

One result is that banks are underwriting mortgage loans even more carefully than they were last year, which can further slow the lending process.

“If you’re being hit with a lot of repurchases very suddenly, the easiest thing to do is to tighten your standards rapidly,” said Glenn Boyd, a Barclays analyst.

Source: The Wall Street Journal, Nick Timiraos (01/30/2010)

The agency is changing what is known as the “anti-flipping rule” to speed up sales of renovated homes in communities with too many bank-owned and foreclosed homes, says FHA Commissioner David H. Stevens.

Waiving the 90-day rule will encourage private investors to buy vacant properties, fix them up, and quickly sell them to buyers who will be eligible to buy them using FHA financing.

FHA’s change “is going to be absolutely terrific” for first-time home buyers hoping to take advantage of the tax credit, says Bobby Taylor, an associate with Coldwell Banker Mountain West Real Estate in Salem, Ore.
source: realtor.org

She predicts:
Real estate will be an attractive investment strategy in 2010 with wealthy investors devoting an increasing segment of their portfolios to it.
Loan modifications will result in more people who should probably be facing foreclosure slipping deeper into debt.
Cities like Omaha, Neb., and Buffalo, N.Y., which avoided the housing bubble and most of the bust, will be models for cities trying to avoid another bubble.
Financial troubles in Dubai will ripple through the U.S. luxury market, creating energy in a market that has been stagnant.

Source: Forbes, Francesca Levy (12/28/2009)

WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.
The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January.
“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”
Announced FHA Policy Changes:
1.Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
◦The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
◦If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
◦This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
◦The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

2.Update the combination of FICO scores and down payments for new borrowers.
◦New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
◦This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
◦This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

3.Reduce allowable seller concessions from 6% to 3%
◦The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
◦This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

4.Increase enforcement on FHA lenders
◦Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.
■This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
◦Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
■Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
■This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
◦Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
■Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
◦HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
■Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
■Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches
In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward. source: hud.gov

California energy regulators on Thursday approved a $350 million rebate program for homeowners and businesses that install solar thermal water heaters, which use the sun’s warmth to heat water for the bathroom, kitchen and laundry room.

Such systems have been around for decades, but they’ve received little of the attention paid to photovoltaic solar panels. And yet, using sunlight to heat water cuts the amount of natural gas or electricity a building needs. Most California homes run their boilers on natural gas, while a few use electricity.

California’s popular rebate program for photovoltaic solar has helped spur the growth of the state’s solar power industry, from companies that make solar panels to those that install them. The California Public Utilities Commission, which unanimously approved the new rebates on Thursday, now wants to see the same results with solar thermal companies.

“The time is right to establish a program that promotes the growth of the solar thermal market, creates green jobs and furthers our goals of greenhouse gas reductions,” said Commissioner Timothy Simon.

There are several variations on solar thermal technology, but most involve a rooftop “collector” that absorbs the sun’s heat and transfers it to water. In colder climes, the collector transfers heat to an antifreeze solution, which then transfers the heat to water.

A typical home solar water system costs from $5,000 to $7,000. Using one can cut a home’s natural gas bill in half, said Bernadette Del Chiaro, clean energy advocate for Environment California, an environmental group.

“This is another giant step forward for California making solar a mainstream technology,” she said.

The new solar thermal rebates will work much like the old photovoltaic rebates, decreasing in size over time. The average residential rebate will start around $1,500 but eventually will fall to $550. The program will run for eight years or until the funding is used up, whichever comes first.

Funding will come from utility customers, through a surcharge on natural gas bills. The surcharge is estimated to be 13 cents per month.

E-mail David R. Baker at dbaker@sfchronicle.com.

The tax credit could be combined with the recently extended and expanded federal tax credit for home buyers.
source: car.org

The legislation, which is part of a larger bill that also extends unemployment benefits, was signed into law by President Obama today.

More people are now eligible to take advantage of the law, which includes a $6,500 tax credit for buyers who are current home owners and have lived in their home for five of the past eight years.

Income limits for eligible home buyers were also expanded to $125,000 for single buyers and $225,000 for couples, up from $75,000 for individuals and $150,000 for couples. Qualifying home prices are capped at $800,000.

NAR’s Government Affairs Division has compiled facts on the changes made to the current tax credit. NAR members sent more than 500,000 letters to leaders in Congress and made nearly 13,000 telephone calls to Senate offices last weekend to encourage support. So far this year, REALTORS® have spent nearly $14 million lobbying Congress, according to federal campaign finance records compiled by the Center for Responsive Politics.

Sen. Johnny Isakson, a Georgia Republican and a former member of NAR, was key in extending the credit, as well as pushing it through initially. Other prominent boosters include the National Association of Homebuilders and the Mortgage Bankers Association.

Listen to NAR President Charles McMillan’s podcast announcement.

NAR economists estimate that approximately 2 million people will take advantage of the tax credit this year.

Sources: NAR and The Associated Press, Julie Hirschfeld Davis (11/06/2009)

The conclusion of the first half of the 2009-10 legislative session has brought many new laws that may affect California REALTORS® and their clients. Not surprisingly in the subprime aftermath, prominently featured among the new laws is stricter regulation of the mortgage lending industry. To view the full text and legislative summary of any of the following new bills, go to www.leginfo.ca.gov.

•REO Buyer Can Select Escrow and Title: Effective October 11, 2009, the Buyer’s Choice Act prohibits an REO lender selling residential property up to four units from directly or indirectly requiring the buyer to purchase escrow services or title insurance from any particular company. A buyer, however, who has received written notice of the right to make an independent selection, may agree to the REO lender’s escrow or title recommendations. An REO lender that violates this law can be held liable for three times the charges the buyer incurred, whereas a violation by the seller’s agent may be subject to license disciplinary action. This law expires on January 1, 2015. Assembly Bill 957.
•No Advance Fee Loan Modifications: Starting October 11, 2009, a new law prohibits anyone from claiming any compensation for negotiating or arranging a loan modification until after that person fully performs each and every service as promised. Aimed at combating loan modification scams, this ban applies to upfront fees collected by real estate agents and attorneys. The ban expires on January 1, 2013. Also effective immediately, anyone who negotiates or arranges a loan modification must give the borrower a specified notice that paying a third-party for loan modification services is unnecessary. These new requirements apply to mortgage loans secured by residential property up to four units, with certain exceptions for lenders and loan servicers acting on their own behalf. Violations can be penalized by, among other things, a $10,000 fine plus one-year imprisonment for individuals, or a $50,000 fine for businesses. Real estate brokers with existing Advance Fee Loan Modification Agreements reviewed by the Department of Real Estate (DRE) can no longer, as of October 11, 2009, enter into these agreements or collect advance fees. Agreements entered into and advance fees collected before October 11, 2009 are not affected. For the DRE announcement, go to http://www.dre.ca.gov/pdf_docs/SB94WebAnnouncement(brokers).pdf. Senate Bill 94.
•Advance Fee Redefined: Aside from loan modifications discussed above, Senate Bill 94 also broadens the definition of an advance fee which must be specially handled by real estate agents, such as by submitting an advance fee agreement for DRE review and placing funds received into a broker’s trust account. Under the new definition that took effect on October 11, 2009, agents cannot separate advance fees or services into components to avoid the advance fee requirements. More specifically, an advance fee is now defined as “a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed.” Exceptions include advertisements in newspapers of general circulation, tenant prescreening fees, and tenant security deposits. Senate Bill 94.
•Mortgage Loan Originators Regulated: Beginning in December 2010, a real estate licensee acting as mortgage loan originator must obtain a license endorsement, which entails education, written testing, and reporting requirements. A mortgage loan originator is anyone who, for compensation or gain, takes a mortgage loan application or offers or negotiates terms of a mortgage loan for residential property containing one-to-four units. Exemptions include real estate agents who only engage in selling, buying, or leasing activities, unless compensated by a lender or mortgage loan originator. This license endorsement requirement comports with the creation of a Nationwide Mortgage Licensing System and Registry under recent federal law. Finance lenders and residential mortgage lenders under the Department of Corporation must also register in the nationwide system. Additionally, if a real estate broker or the broker’s salesperson makes, arranges, or services loans secured by residential property containing one-to-four units, the broker must notify the DRE by January 31, 2010 or within 30 days of commencing such loan activity, whichever is later. Senate Bill 36.
•Mortgage Broker Activities Restricted: Commencing January 1, 2010, a mortgage broker will be deemed a fiduciary with a duty to place the borrower’s economic interest above his or her own. This fiduciary duty pertains to a mortgage broker who makes loans secured by residential property of one-to-four units. Also starting January 1, 2010, the law will strictly regulate higher-priced mortgage loans as defined, including requiring upfront disclosure if a mortgage broker only arranges higher-priced mortgage loans, restricting prepayment penalties and yield spread premiums, prohibiting negative amortization, and prohibiting mortgage brokers from steering borrowers to higher-cost loans. Assembly Bill 260.
•Appraisal Industry Oversight: The Office of Real Estate Appraisers (OREA) will have regulatory oversight of appraisal management companies, which gained prominence after Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC). Starting January 1, 2010, the OREA must implement a registration system for appraisal management companies, including fingerprinting and background checks for persons with operational authority as defined. On a separate note, this law clarifies what conduct constitutes improperly influencing the appraisal process by anyone with an interest in a real estate transaction. Such prohibited conduct includes withholding or threatening to withhold an appraisal fee, withholding or threatening to withhold future appraisal business, and promising future business, promotions, or compensation. Senate Bill 237.
•Mortgage Fraud Becomes a State Crime: As of January 1, 2010, anyone who deliberately makes any misrepresentation or omission during the mortgage lending process with the intent of influencing that process will be guilty of mortgage fraud under California law. A violation of this law is a crime punishable by one-year imprisonment. Under existing federal law, loan fraud against a federally-insured lender is a crime punishable by a $1 million fine, plus one-year imprisonment (18 U.S.C. section 1014). Senate Bill 239.
•Increase in Homestead Exemptions: Coming into effect on January 1, 2010, the homestead exemption protecting a homeowner’s equity from judgment creditors has been increased by $25,000 across the board to $75,000 for individuals, $100,000 for married couples or family units as specified, and $175,000 for persons over 65 years, disabled, or over 55 years with limited income as specified. Assembly Bill 1046.
•60-Day Notice to Terminate Tenants Extended: Existing law generally requiring a 60-day notice to terminate a month-to-month residential tenant, which was originally slated to sunset on January 1, 2010, has been extended indefinitely. A 30-day notice to terminate is sufficient if the tenant has lived in the property for less than one year, or if the landlord has sold the property and certain requirements are met as specified in our standard-form Notice of Termination of Tenancy (C.A.R. Form NTT). The 60-day notice requirement does not apply to fixed-term leases, such as a one-year lease. Other laws address tenants in properties foreclosed upon. Senate Bill 290.
Other Significant Laws: Other new laws that may interest REALTORS® include, without limitation, the following:

•Landlord Utilities: Requires certain utility companies to notify residential tenants of landlord’s past due accounts and upcoming shutoffs, and allows tenants to begin service in their own names and deduct payment from rent (Senate Bill 120).
•Mobilehome Parks: Prohibits management from requiring a homeowner to use a specific broker or dealer when replacing a mobilehome or manufactured home on a space in a mobilehome park (Senate Bill 804).
•Swimming Pools: Requires anti-entrapment devices for owners of apartment buildings, condominium complexes, and others, including the filing of compliance statements (Assembly Bill 1020).
•Mechanic’s Liens: Provides new procedures, including service of a Notice of Mechanic’s Lien to the owner and mandatory recording of a lis pendens when enforcing a mechanic’s lien (Assembly Bill 457).
•Low Water-Using Plants: Renders unenforceable any HOA provision prohibiting landscaping with water-efficient plants in common interest developments (Assembly Bill 1061).
•Reverse Mortgages: Provides new disclosure and other requirements under the Reverse Mortgage Elder Protection Act (Assembly Bill 329).
•Disposal of Records: Shields from liability businesses that dispose of abandoned records containing personal information by shredding or erasing, and gives a legal presumption that a tenant owns records remaining on the premises after tenancy termination (Assembly Bill 1094).
•Plumbing Fixtures: Provides new disclosure and other requirements for water-conserving plumbing fixtures effective on or after January 1, 2014 (Senate Bill 407).

“ California ’s housing market continued its strong sales rebound this year, resulting from the continued pace of distressed properties coming to market,” said C.A.R. President James Liptak . “This follows two years of double-digit sales declines in 2006 and 2007. Looking ahead, we expect sales to moderate to a more sustainable pace.”

“After experiencing its sharpest decline in history, we expect the median price to rise modestly next year,” Liptak added. “2010 will mark the beginning of the ‘new normal’ for California ’s housing market. This ‘new normal’ likely will feature a steady stream of sales driven by distressed properties in the low end of the market, coupled with moderate home-price appreciation.”

“With distressed properties accounting for nearly one-third of the sales in 2010, inventory will be relatively lean, under six months during the off-season months, and a roughly four-month supply during the peak season,” said C.A.R. and Vice President Leslie Appleton-Young. “We expect the median price to decrease slightly through the remainder of 2009 and into next year, then rise before leveling off next summer. For the year as a whole, home prices are forecast to reach $280,000. The wild cards for 2010 include foreclosures, loan resets, the labor market, and the California budget crisis, as well as the actions of the federal government.”

Since its inception earlier this year, the $8,000 first-time homebuyer tax credit has brought 1.2 million new buyers into the market—350,000 of whom would not have purchased a home without the credit, according to NAR. The credit is due to expire November 30.

“Now is the time for Congress to keep this recovery going by extending the tax credit through 2010 and making it available to more homebuyers. We have all seen how the credit has been a spur to bring homebuyers into the market, and have seen the beginnings of a real recovery in the housing market. Housing has always led this nation out of economic downturns, and can do so again,” said NAR President Charles McMillan.

Write Congress Now

REALTORS®, the leading advocates for homeownership and housing issues, will be writing to their Senators and Representatives to tell them of the successes with the tax credit thus far, and press them to extend and expand it now.

McMillan added that the market has improved, but it has not yet fully corrected itself. “The credit needs to be available for an additional period of time in order to sustain the progress that’s been made so we can continue to see our markets fully recover. Uncertainty about the future of the credit will dampen consumer demand. The only way we can assure that the progress we’ve made can continue is to extend the credit and to do that now,” he said.

As the current deadline for the credit looms, potential homebuyers need to complete a contract, satisfy any contingencies, secure financing, and go to closing by November 30. In today’s market, NAR estimates that it generally is taking between 45 and 60 days from contract to closing.

“That means potential homebuyers who qualify must act now, and so must Congress,” McMillan said.

Source: NAR

In the following markets, home values are expected to remain level this year but increase in value next year:

Baton Rouge, La.
Buffalo-Niagara Falls, N.Y.
Dallas-Plano-Irving, Texas
Fort Worth-Arlington, Texas
Houston-Sugar Land-Baytown, Texas
Little Rock-North Little Rock-Conway, Ark.
Omaha-Council Bluffs, Neb.-Iowa
Pittsburgh, Pa.
San Antonio, Texas
Syracuse, N.Y.

source: realtor.org

“The giddiness we see out there [about a recovery] is without merit,” says Richard A. Smith, CEO of Realogy, which is the parent company of Century 21, ERA, Coldwell Banker, and Sotheby’s International Realty.

Not everybody sees things Smith’s way. Michelle Meyer, an economist with Barclays Capital in New York, says that while the tax credit did contribute to an increase in sales, some of the improvement reflects an improving economy.

“Even if you say some of the gain is artificial, it’s still true that we’re seeing an increase in housing demand, and that shows fundamental strength,” she says.

Mark M. Zandi, chief economist at Moody’s Economy.com, ignores this chicken-or-egg argument and points to an analysis he did that suggests increasing the tax credit to $15,000 for all home owners through the end of next year would result in 675,000 additional home sales.

Source: BusinessWeek, Prashant Gopal (09/11/2009)

By E. Scott Reckard And Ronald D. White  August 21, 2009

Widespread joblessness is causing more Americans to fall behind on their house payments, triggering a new round of foreclosures that some analysts fear could delay the nation’s economic recovery.

A mortgage trade group reported Thursday that more than 13% of the nation’s homeowners were delinquent on their mortgages or in the process of having their homes repossessed during the second quarter of this year. That’s the highest figure since tracking began in 1972. California’s rate, 15.2%, was among the highest of all states.

The numbers underscores a worrisome trend. A spate of foreclosures — which began with speculators who walked away from their souring investments, then spread to high-risk borrowers who couldn’t make their payments when their low-interest mortgages reset — is now hitting unemployed homeowners with good credit scores, clean financial histories and conventional home loans.

The U.S. has shed 6.7 million jobs since the recession began, employment losses that have left even high-quality borrowers struggling. One in three new foreclosures from April to June was from a prime, fixed-rate loan, up from one in five a year earlier.

The rising tide of foreclosures could swamp positive economic trends such as improving home sales and a surprise increase in U.S. regional manufacturing, also reported Thursday.

“The broadening of the foreclosure crisis to include prime loans due to high and rising unemployment will delay a bottom in the housing market and threatens the economic recovery,” said Mark Zandi, co-founder and chief economist of Moody’s Economy.com.

It’s also a huge challenge to the Obama administration, which is pressuring banks to restructure troubled mortgages to keep borrowers in their homes. Such modifications are difficult to achieve when a family’s income is slashed. The Washington-based Mortgage Bankers Assn. predicts that U.S. job losses will continue at least until the middle of 2010, meaning that mortgage delinquencies and repossessed homes will almost certainly continue rising.

“We would expect delinquencies and foreclosures to peak sometime after that, probably at the end of next year,” said Jay Brinkmann, the trade group’s chief economist.

The U.S. jobless rate in July was 9.4%, down slightly from 9.5% in June, a 26-year high. California’s June unemployment rate was 11.6%. July figures will be released today.

The employment troubles are compounding a messy situation for banks. Faced with a burgeoning backlog of problem loans, loan-servicing giants such as Bank of America Corp. and Wells Fargo & Co. have gotten off to a slow start on the Obama administration’s Home Affordable Modification program, recently released government statistics show.

Anxious borrowers who have contacted The Times complain that lenders lose their documents, pass them from employee to employee and make them endure unexplained delays.

They include Janet and Stan Hurwitz, who said they enjoyed pristine credit and good salaries before this recession turned their financial world upside down. Both now unemployed, they’re worried about exhausting their savings and losing their spacious Porter Ranch home.

Stan, 58, lost his job as an apparel sales representative in May and has pursued dozens of leads without success. Janet, a 53-year-old commercial pilot, has been unable to find work in the battered airline industry since returning from disability last summer.

The couple have pared expenses drastically and are trying to refinance their 6.25% mortgage to reduce their $2,789-a-month payment. But the Hurwitzes say that the mounds of paperwork they have sent out — to Bank of America, two government-sponsored home retention plans, credit and debt consolidation agencies and several elected officials — seem to have disappeared into a black hole.

“No matter what you send in, or where, it just disappears,” Stan Hurwitz said.

After The Times contacted Bank of America on Thursday about the case, the bank issued a statement saying it “has reached out to the Hurwitzes to apologize for their experience and to ensure they have a single point of contact to help them through these challenging times.”

“Despite our best efforts, there are limits to how far modification programs can go,” the Bank of America statement said. With unemployment rates so high, “even the most ambitious modification plan will not help when the homeowner has no income or prospects.”

The bank said unemployment benefits count as income under the Obama plan as long as they continue for nine months, adding that it is working with the government “to find solutions for at-risk homeowners who fall outside the eligibility requirements of the current program as well as the growing number of customers now unemployed.”

The mortgage bankers group said efforts to aid distressed borrowers, such as the Obama administration’s housing affordability program, are providing some relief but are not addressing all the problems.

“While the various loan modification programs continue to have an impact on holding foreclosure rates below where they otherwise would be, the issue is that many of the foreclosures involve homes that are vacant, borrowers who no longer have jobs, or loans where there was fraud involved,” Brinkmann said.

Another problem plaguing California and other hard-hit areas is the unprecedented decline in home prices. Falling values have left homeowners who purchased at the peak of the housing boom “underwater,” owing far more than their homes are worth. Even drastically reducing interest rates and paying borrowers bonuses to stay in their homes can have little lasting effect if it will be years before homeowner equity is restored, Economy.com’s Zandi noted.

“The idea [of the Obama plan] is to give homeowners a break so they can get through the recession and the falling housing market and, hopefully somewhere down the road, make full payments again,” Zandi said. “That’s going to be helpful, but as long as foreclosures keep rising and home prices keep falling, a lot of houses will be so far underwater that it makes no sense to bother modifying them — from the lender’s perspective and from the borrower’s.”

He said the Obama administration might reach its goal of having lenders offer 3.5 million to 4 million loan modifications — restructurings that lower rates, extend the time for borrowers to repay what they owe and, in some cases, suspend interest payments on part of the loan balance. But Economy .com is projecting that only half of those offers will result in actual modifications, “and they’ll be lucky if they get 1 million successful modifications out of that,” Zandi said.

If the problem worsens, the government and lenders may have to revisit some ideas that so far have proved untenable, such as finding a way to reduce the principal owed on large numbers of loans, he added.

The problems are especially thorny in California, Zandi noted, because unemployment is higher and home prices have fallen more than in most other states.

Still, he said, the Golden State should recover sooner than other hard-hit states including Nevada, Florida and Michigan because its economy is more diversified. Already, he noted, there are signs of stabilizing prices in areas such as San Francisco and Orange County, as buyers step in on the belief that California’s notoriously up-and-down housing market will eventually stage one of its famous recoveries.

scott.reckard@latimes.com

ron.white@latimes.com

Times staff writer Martin Zimmerman contributed to this story.

Sales in new-home communities of 10 units or more declined 26 percent in June 2009 compared with a year ago, the same percentage decline as in the prior month, according to the monthly CBIA/Hanley Wood Market Intelligence (HWMI) New Home Sales and Pricing Report.   Sales of single-family homes declined 38 percent, while sales of townhomes and “plexes”–duplexes, triplexes, etc.–decreased 16 percent, while sales of condominiums increased by 9 percent.

Compared with the same period last year, the median base price of homes sold declined 5 percent.

“This is still the third highest monthly sales total for the year, with all of the highest monthly totals coming in after the tax credit was enacted,” said Robert Rivinius, CBIA’s President and CEO.  “We need to keep this positive momentum going if our state hopes to start climbing out of this recession by year’s end, and we hope lawmakers take note of the success of the new home buyer tax credit and grant an extension when they return to wrap up this year’s legislative session. The tax credit has proven to generate new-home sales, and in turn job generating new-home construction, and getting an extension would go a long way towards putting more people back to work and reinvigorating the overall economy.”

]]>