DOJ launches real estate competition Web site

Real Estate Articles from Inman News

Site features commission charts, maps, agency reports
Wednesday, October 10, 2007

Inman News

The U.S. Justice Department's Antitrust Division today unveiled a Web site focusing on competition in the real estate industry that features a chart detailing commission trends and maps of states that have adopted policies that can restrict consumer rebates and some forms of brokerage services.

The site is intended "to educate consumers and policymakers about the potential benefits that competition can bring to consumers of real estate brokerage services and the barriers that inhibit that competition," according to a Department of Justice announcement today.

Another federal antitrust enforcement agency, the U.S. Federal Trade Commission, last year launched a Web site focusing on competition in the real estate industry.

The Justice Department is no stranger to research about real estate competition -- two years ago the agency filed a lawsuit against the National Association of Realtors trade group, charging that association-adopted policies for the online display and sharing of property information were overly restrictive. That litigation is ongoing.

Lucien Salvant, a National Association of Realtors spokesman, said today in response to the DOJ Web site, "The real estate market is competitive. Real estate is probably the most competitive industry in the world." He pointed out that the real estate industry is unique in that industry participants share vital information with their competitors.

Many of the comments at the Justice Department's Web site appear to be focused on state-level issues, he said.

Both the DOJ and FTC have engaged in actions targeting Realtor-backed state measures that restrict rebates or mandate minimum levels of service for real estate licensees, for example, and the FTC last year took action against a group of MLSs that placed restrictions on the online dissemination of property information based on the type of listing contract chosen by the sellers.

The estimated median commission paid by home sellers in 2006 was $11,672, and that amount has risen every year since it was $9,110 in 2001, according to the DOJ site.

"Unless broker costs were also rising sharply during this period of time, competition among brokers should also have held commissions in check even as home prices were rising," according to the Web site. Real estate commission rates are typically a percentage of the home's selling price.

"Over the past decade the average commission rate has remained relatively steady between 5 and 5.5 percent," the Web site states. "As a result, the actual median commission paid by consumers rose sharply along with the run-up in home prices."

In 2007, the median commission paid by consumers dropped to $11,302 from the 2006 level, while the median sales price of homes dropped from $230,059 in 2005 to $225,334 in 2006 and dropped to $218,184 in the first half of 2007.

According to the preliminary results of an annual profile of home buyers and sellers prepared by the National Association of Realtors, 70 percent of sellers say they negotiated their real estate commissions, Salvant said, adding that in 39 percent of cases the agent brought up the negotiability of commissions while in 31 percent of the cases the seller brought it up.

A map at the DOJ site lists 13 states that forbid buyers' brokers from rebating a portion of the sales commission to consumers, and a separate map displays eight states that require consumers "to buy more services form sellers' brokers than they may want, with no option to waive the extra items," according to text at the site.

The list of states with anti-rebate measures includes: Alaska, Oregon, Montana, North Dakota, Kansas, Oklahoma, Iowa, Missouri, Louisiana, Tennessee, Mississippi, Alabama and New Jersey. The list of states with so-called minimum-service measures includes: Idaho, Utah, Texas, Iowa, Missouri, Illinois, Indiana and Alabama -- Iowa, Missouri and Alabama appear on both lists.

A chart at the site compares the cost of full-service real estate companies that charge about a 5 percent commission to alternative business models that offer a buyer's broker rebate and/or offer a fee-for-service model.

"Consumers who live in states permitting them the option to choose innovative brokerage options, such as rebates or fee-for-service MLS-only packages, can potentially save thousands of dollars on commission payments," the Web site states.

The Web site notes that closing costs related to real estate transactions "are another area where robust competition is needed to protect consumers," and the DOJ's Antitrust Division "advises states to reject laws that prohibit nonlawyers from providing real estate closing services" to preserve competition between lawyers and nonlawyers.

Additional resources at the Web site include links to reports and hearings on the topic of real estate competition in the brokerage industry, as well as a list of DOJ enforcement actions.

***

NAR: Existing-home sales to fall 10.8% in 2007

Real Estate Articles from Inman News

Hefty declines expected for single-family housing starts
Wednesday, October 10, 2007

Inman News

The National Association of Realtors expects sales of previously owned homes to fall 10.8 percent this year compared to last year, and for prices to fall 1.3 percent, according to the group's latest annual forecast.

The Realtor group's forecast, prepared by Lawrence Yun, its senior economist, also anticipates a 27.1 percent drop in housing starts for single-family units, a 24 percent overall drop in housing starts, a 23.5 percent decline in new single-family home sales, and a 2.1 percent drop in new-home prices this year compared to 2006.

Yun's forecast calls for sales of 5.78 million previously owned homes this year, compared with 6.78 million sales in 2006. Existing-home sales are expected to grow 5.8 percent, to 6.12 million, in 2008 compared to 2007.

In its previous annual forecast, the Realtor group predicted that existing-home sales would drop 8.6 percent this year compared to 2006 and then rise to 6.27 million in 2008. That report also predicted a 1.7 percent drop this year in the median price of previously owned homes.

The latest forecast calls for housing starts to drop to 1.37 million this year compared with 1.8 million last year, and to drop 9.2 percent in 2008 compared to 2007, to 1.24 million. Single-family housing starts are expected to drop to 1.07 million this year compared with 1.47 million last year, and to sink another 13.7 percent next year to 922,000.

Sales of new single-family homes are expected to fall to 804,000 this year compared with 1.05 million last year, and to drop 6.4 percent next year to 752,000.

The median price of previously owned homes is expected to rebound in 2008, rising 1.3 percent compared to 2007, with the new-home median price rising 1 percent.

Yun said that despite the slowdown compared to 2006, this year is still on pace to be the fifth-highest year on record for existing-home sales, and "a lot of people are, in fact, buying homes," he stated. "One out of 16 American households is buying a home this year.

"The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs," he stated. The cutback in home construction "will help lower inventory and firm up home prices," he added.

The 30-year fixed-rate mortgage is expected to average 6.4 percent for the next two quarters and then rise to the 6.6 percent range in the second half of 2008. Additional cuts are expected in the Fed funds rate, according to the Realtor group's forecast.

Growth in the U.S. gross domestic product is expected to be 2 percent this year, below the 2.9 percent growth rate in 2006, and GDP is expected to grow 2.7 percent in 2008.

The forecast calls for the unemployment rate to average 4.6 percent this year, or level with the 2006 rate. Inflation, as measured by the Consumer Price Index, is expected to be 2.8 percent in 2007, compared with 3.2 percent last year. Inflation-adjusted disposable personal income is expected to rise 3.6 percent in 2007, up from 3.1 percent last year, according to the forecast.

Overnight real estate rates mostly flat

Real Estate Articles from Inman News

30-year fixed rate at 6.09%; 10-year Treasury yield at 4.65%
Wednesday, October 10, 2007

Inman News

Long-term mortgage interest rates barely moved Tuesday, and the benchmark 10-year Treasury bond yield rose to 4.65 percent.

The 30-year fixed-rate average held at 6.09 percent, and the 15-year fixed rate dipped to 5.71 percent. The 1-year adjustable dropped to 5.73 percent.

The 30-year Treasury bond yield was down at 4.86 percent.

Rates and bonds are current as of 7:15 p.m. Eastern Standard Time.

Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states. Points on these mortgages range from zero to 3.5.

In other economic news, the Dow Jones Industrial Average jumped 120.8 points, or 0.86 percent, finishing at 14,164.53. The Nasdaq was up 16.54 points, or 0.59 percent, closing at 2,803.91.

Stock figures are current as of 7:30 p.m. Eastern Standard Time.

Home prices slide in Sacramento, San Diego, D.C.

Real Estate Articles from Inman News

New monthly index reveals changes in price per square foot
Friday, October 05, 2007

Home prices fell in two thirds of the metro areas reported in a monthly home-price index released this week by real estate research firm Radar Logic.

Sixteen of 24 metro areas in Radar Logic's newly launched monthly housing market report experienced price declines during July compared to July 2006, with the most severe price drops in Sacramento, Calif., San Diego, Calif., and Washington, D.C.

The index is based on a 28-day aggregated value of a daily index, known as the Residential Property Index, or RPX, that is based on actual prices paid per square foot for U.S. residential real estate.

The price per square foot fell 12.7 percent in the Sacramento metro area during the 28-day period ended July 31, 2007, compared to the same period last year.

The price per square foot of homes fell 10.8 percent in San Diego; 10.2 percent in Washington, D.C.; 7.3 percent in Tampa and Detroit; 5.9 percent in Las Vegas, 5 percent in Miami, 3 percent in Minneapolis, 2.4 percent in Boston, 2.2 percent in Jacksonville and 1.9 percent in Phoenix during the reporting period in July compared to the same period last year.

"Of the top five metro areas that led the way during the housing boom of 2002 through 2005, four are showing declines," Radar Logic reported.

The price per square foot rose 9.2 percent in Seattle, 5.4 percent in Charlotte, 4.5 percent in New York City, 4.3 percent in Milwaukee, 2.7 percent in Atlanta, 0.4 percent in Chicago and 0.2 percent in Philadelphia during the 28-day period in July compared to the same period last year.

The monthly report also ranks metro areas based on changes in price per square over two-year and five-year periods ended in July.

The Seattle market had the highest appreciation in price per square foot over the past two years, followed by Charlotte at 11.3 percent, Philadelphia at 11 percent, Jacksonville at 9.8 percent and New York City at 9.7 percent. Sacramento had the biggest drop in price per square foot during that period, at 15.1 percent, followed by San Diego at 11.8 percent, Detroit at 10.4 percent, Washington, D.C., at 5.3 percent, and Boston at 3.8 percent.

During the five-year period ended July 31, 2007, Miami had the largest gain in price per square foot, at 92.7 percent, followed by Los Angeles at 91.3 percent, Las Vegas at 80.1 percent, Phoenix at 73.6 percent and Seattle at 72.5 percent.

Detroit had the slightest gain in price per square foot during that same five-year period, up 2.2 percent, followed by Columbus, Ohio, at 5.3 percent, Cleveland at 7.1 percent, Denver at 7.5 percent and Atlanta at 15.5 percent.

San Jose had the highest price per square foot among the 24 markets tracked in July 2007, at $465.40, Radar Logic reported, followed by San Francisco at $449.01 and Los Angeles at $389.70. Detroit had the lowest price per square foot among the reported metro areas, at $96.91, followed by Columbus at $99.45 and Charlotte at $100.86.

The report states that the development of condominium units has "impacted the overall pricing characteristics of each metropolitan area," as condo sales represented about 16.4 percent of all units analyzed in the July report and were an average of 24.1 percent more expensive than single-family homes on a per-square-foot basis.

"Three of the five leading condo markets were also the top three overall markets, including Charlotte, New York and Seattle," the report states. "Speculative metro areas comprised four of the five trailing condo markets, led by Sacramento, followed by Las Vegas, Jacksonville and San Diego."

Radar Logic's price index is an alternative to the Standard & Poor's/Case-Shiller home-price indices, which measure changes in home prices based on multiple sales of the same homes.

Below is a chart that compares the Radar Logic monthly price report for July with the July S&P/Case-Shiller report.

Metro areas
Radar Logic index % change July '06-July '07
S&P Case-Shiller index July '06-July '07

Seattle
9.2%
6.9%

Charlotte, N.C.
5.4%
6.0%

New York
4.5%
-3.8%

Milwaukee
4.3%
N/A

Atlanta
2.7%
1.2%

San Francisco
0.9%
-4.1%

Chicago
0.4%
-0.9%

Philadelphia
0.2%
N/A

Cleveland
-0.2%
-3.6%

San Jose
-0.7%
N/A

Columbus, Ohio
-1.1%
N/A

Los Angeles
-1.4%
-4.8%

Denver
-1.9%
-0.7%

Phoenix
-1.9%
-7.3%

Jacksonville
-2.2%
N/A

Boston
-2.4%
-3.4%

Minneapolis
-3.0%
-3.4%

Miami
-5.0%
-6.4%

Las Vegas
-5.9%
-6.1%

Detroit
-7.3%
-9.7%

Tampa
-7.3%
-8.8%

Washington, D.C.
-10.2%
-7.2%

San Diego
-10.8%
-7.8%

Sacramento
-12.7%
N/A


Sources: Radar Logic, S&P/Case-Shiller

***

Home purchases decline last week

Home purchases decline last week
Borrowing costs jump on 15-, 30-year loans, dive on adjustables
Wednesday, September 26, 2007

Applications for home-purchase loans dropped significantly last week as long-term interest rates climbed higher, the Mortgage Bankers Association reported today.

The market composite index, a measure of total mortgage application volume, was down 2.8 percent on a seasonally adjusted basis from mid-month, according to MBA. Leading the decline was a 7.3 percent drop in the index that tracks purchase loans, despite a 3.3 percent increase in the refinance index.

Interest rates on long-term loans increased for the second straight week, MBA reported, with the average contract interest rate on 30-year fixed-rate mortgages last week rising to 6.38 percent from 6.29 percent the week before and the 15-year fixed rate jumping to 6.06 percent from 5.99 percent.

The rate on one-year adjustable-rate mortgages (ARMs), however, tumbled to 6.09 percent from 6.39 percent during the period.

Points, which are loan-processing fees expressed as a percent of the total loan amount, averaged 1.15 on the 30-year loans, 1.12 on the 15-year, and 0.93 on one-year ARMs. These points include the origination fee and are based on loan-to-value ratios of 80 percent.

According to MBA, the uptick in refinancing activity boosted that segment's market share to 46.4 percent of total applications, up from 43.5 percent at mid-month. Despite the strong decline in the one-year ARM rate, the adjustable-rate share of applications dipped to 12.2 percent from 12.6 percent.

The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

***

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Falling home prices could dent economy

CAPITOL REPORT, Courtesy of MarketWatch

Consumers will be poorer, and probably won't spend as much
By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) - Just as rising home prices helped fuel the economic expansion of the past six years by making people wealthier, falling home prices could put a big dent in economic growth in the next few years by making them poorer.
At this point, few economists expect the economy to sink into a recession, but almost all of them agree that consumer spending would slow, perhaps significantly, if home prices were to fall.

With the number of excess homes rising amid falling demand, the negatives in the housing market will "continue putting downward pressure on prices," said Seamus Symth, an economist for Goldman Sachs, who says home prices were plunging at a 9% annual rate in the most recent data. Goldman expects home prices to fall 7% this year and another 7% next year.

The path of home prices could be the key to whether the economy grows or stalls.
"A big issue is whether developments in the relatively small housing sector will spread to the large consumption sector, perhaps through declines in house prices," San Francisco Federal Reserve Bank President Janet Yellen said in a recent speech. "Should the decline in house prices occur in the context of rising unemployment, the risks could be significant."

Economists are forecasting that home prices will decline more than 5% this year and nearly 4% next year, according to the latest survey by Blue Chip Economic Indicators. Those same economists expect consumer spending to slow from 3.1% last year to 2.8% this year and 2.3% next year.

While a cumulative 8% drop in home prices (after nearly doubling in the previous six years) doesn't sound so ominous, such a decline would be the largest since the Great Depression.

Sticky home prices

Because most owners are reluctant to sell at a loss unless they are forced to, it's extremely unusual to see nominal home prices fall. In economists' jargon, home prices are "sticky" on the downside, but not on the upside.

By comparison, prices in the stock market adjust quickly to new perceptions about values, as investors take their losses and move on. During market corrections, the volume of shares traded doesn't fall, because the market quickly finds a new equilibrium between supply and demand.

The housing market is completely different. Sellers don't quickly adjust their prices to a new market reality. And because prices don't fall to bring demand into balance with supply, the volume of houses sold plunges during a correction. Home sales are now down 23% from the peak more than two years ago. The housing market can take years to find an equilibrium. In most housing corrections, sales remain very weak until excess supply is worked off. Prices can be flat for years.

So why are prices falling now? There's every reason to believe that supply and demand are getting even further out of balance. The number of vacant homes is at a record level, and more new homes are coming on the market every day. Foreclosures are rising, further increasing supply. More adjustable-rate mortgages will reset to a higher monthly payment in coming months, pressuring more homeowners to sell or default.

At the same time, the rationing of credit is reducing demand. The subprime and Alt-A mortgage markets, which represented about 40% of mortgages last year, have almost completely dried up. Lenders are increasing their standards for approving a loan, and interest rates for jumbo loans have risen substantially.

The wealth effect

The difficulties in the mortgage market will not only depress home sales, it will also reduce consumer spending. In recent years, consumers have taken advantage of the mortgage market to withdraw and spend some of the equity they've built up in their homes,

"We've given people the ability to spend more, and it's going away now," said Paul Kasriel, chief economist for Northern Trust.
Economists can't agree on how much spending has been boosted by mortgage-equity extraction, also known as MEW.

Some theorize that each additional dollar of wealth (from appreciation in assets such as housing or stocks) boosts spending by about 3 cents. By that account, the $8.1 trillion gain in real estate values since 2001 added about $243 billion to consumer spending over those six years, an insignificant amount compared with the $46 trillion they've spent.

But other economists say extra housing wealth is more likely to be spent than extra stock market wealth. Former Fed chairman Alan Greenspan and Fed economist James Kennedy concluded in a study published in 2005 that consumers spent about half of what they took out of their homes, and invested the other half in home improvements.

According to Kennedy's unofficial Fed data, consumers have taken $2.2 trillion in equity out of their homes though refinancing their mortgage or through a home-equity loan since 2001.

MEW has been slowing for more than a year now and was only half as big in the first quarter as it was in 2005. The Fed will report on second-quarter MEW next week, but remember those numbers will be from before the credit crunch hit in August.

"To the extent that MEW has been dying, it is now officially dead," said Alec Crawford, a mortgage-backed securities analyst for RBS Greenwich Capital.
Households will also be hit with another piece of collateral damage from the credit crunch, Kasriel said. Cheap credit not only fueled the housing boom, it also fueled the leveraged buyout boom. Corporations have also been borrowing money so they can buy back shares from individuals.

In the past six years, corporations have bought back $1.3 trillion in shares, mostly from the household sector. The credit crunch will probably mean corporations will be buying fewer shares from households, at least for a while.

Relenting already

"Consumers are already relenting," said Mark Zandi, chief economist for Moody's Economy.com. With home prices falling, gas and food prices rising and job growth flat, "there's nothing supporting consumer spending at this point."
Sales of some durable goods have already fallen. "There's no purchase that's more discretionary than a Harley," Kasriel said.

The consumer is facing other headwinds too, of course. Energy prices and food prices are cutting into disposable incomes.

Job growth will be the wild card. There's already been a significant slowdown in hiring, but job losses have been scant. Jobless claims are flat.

"By far, the biggest risk is if businesses get skittish about hiring," said Zoltan Pozsar, an economist with Moody's Economy.com. "Consumption can chug along as long as people keep ahold of their jobs."

Rex Nutting is Washington bureau chief of MarketWatch.

Mortgage rates drop swiftly this week

Borrowers facing resetting rates hope lull will offer refi opportunity
Thursday, September 13, 2007

Inman News

Long-term mortgage rates dropped considerably this week following the release of August's dismal employment report, according to surveys conducted by Freddie Mac and Bankrate.com.

In Freddie Mac's survey, the rate on 30-year fixed-rate mortgages fell to an average 6.31 percent from 6.46 percent last week, and the 15-year fixed rate declined to 5.97 percent from 6.15 percent. Points, which are fees lenders charge for loan processing expressed as a percent of the loan, averaged 0.5 and 0.4, respectively, on the 30- and 15-year loans.

Adjustable-rate mortgages (ARMs) also saw a drop in rates, as the five-year Treasury-indexed hybrid ARM was down at an average 6.17 percent from 6.32 percent a week ago and the rate on one-year Treasury-indexed ARMs sank to 5.66 percent from 5.74 percent. Points on the five-year and one-year loans averaged 0.6 and 0.8, respectively.

"Interest rates on prime conforming loans fell across the board in the past week, with rates on 30-year fixed mortgages averaging 0.15 percentage points below the previous week's level," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement. "The drop in mortgage rates may give some relief to borrowers who are looking to refinance or purchase a home."

In Bankrate.com's survey, fixed mortgage rates plunged this week to four-month lows, with the average conforming 30-year fixed mortgage rate falling to 6.28 percent. Discount and origination points on these loans averaged 0.43.

The average 15-year fixed-rate mortgage popular for refinancing dropped by the same amount to 5.96 percent, according to Bankrate.com. Adjustable mortgage rates were lower as well, with the average one-year ARM inching lower to 6.2 percent and the average 5/1 ARM retreating to 6.3 percent.

Mortgage rates plunged following last Friday's lackluster employment report, Bankrate.com reported. Poor job growth figures raised concerns about economic health and helped push mortgage rates to the lowest point since May 2. Nervousness about the economy often drives investors toward the safe haven of Treasury securities, pushing both bond yields and mortgage rates lower. Rates for jumbo mortgages -- those above $417,000 -- declined by a similar amount, settling at 7.2 percent. While the spread between jumbo and conforming mortgage rates remains uncharacteristically wide, this spread has stabilized in the past two weeks.

Amid the turbulence in mortgage markets, fixed mortgage rates are still an attractive option for borrowers. Just two months ago, the average 30-year fixed mortgage rate was 6.82 percent, meaning that a $200,000 loan would have carried a monthly payment of $1,307. Now that the average conforming 30-year fixed rate is 6.28 percent, the same $200,000 loan carries a monthly payment of $1,235.

The following is a sampling of Bankrate.com's average 30-year-mortgage interest rates this week in some U.S. metropolitan areas:

New York - 6.31 percent with 0.28 point

Los Angeles - 6.41 percent with 0.66 point

Chicago - 6.31 percent with 0.13 point

San Francisco - 6.25 percent with 0.7 point

Philadelphia - 6.31 percent with 0.36 point

Detroit - 6.28 percent with 0.09 point

Boston - 6.38 percent with 0.22 point

Houston - 6.17 percent with 0.7 point

Dallas - 6.18 percent with 0.54 point

Washington, D.C. - 6.25 percent with 0.62 point

***

US 30-. 15-year mortgage rates lower

Thu Sep 13, 2007 11:36AM EDT

WASHINGTON (Reuters) - Average rates on U.S. 30- and 15-year mortgages fell in the latest week, mortgage giant Freddie Mac said in a survey on Thursday.

U.S. 30-year mortgage rates averaged 6.31 percent, down from 6.46 percent last week, while 15-year mortgages averaged 5.97 percent, also lower than 6.15 percent a week earlier.

One-year adjustable rate mortgages fell to an average of 5.66 percent from 5.74 percent last week.

Freddie Mac also said the "5/1" ARM, set at a fixed rate for five years and adjustable each following year, averaged 6.17 percent compared with 6.32 percent last week.

A year ago, 30-year mortgages averaged 6.43 percent, 15-year mortgages 6.11 percent and the one-year ARM 5.60 percent. The 5/1 ARM averaged 6.10 percent.

"Interest rates on prime conforming loans fell across the board in the past week, with rates on 30-year fixed mortgages averaging 0.15 percentage points below the previous week's level," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

"The drop in mortgage rates may give some relief to borrowers who are looking to refinance or purchase a home," Nothaft added.

Freddie Mac said lenders charged an average of 0.5 percent in fees and points on 30-year mortgages and 0.6 percent on the 5/1 ARM, both unchanged from last week.

They charged 0.4 percent on 15-year mortgages, down from 0.5 percent a week ago, and 0.8 percent on the one-year ARM, up from 0.6 percent.

Freddie Mac is a mortgage finance company chartered by Congress that buys mortgages from lenders and packages them into securities to sell to investors or to hold in its own portfolio.

Home-loan denial rate rose in 2006

WASHINGTON (Reuters) - More Americans had their home loan applications turned down in 2006 than a year earlier, although the majority continued to be approved, according to a report issued on Wednesday by financial sector regulators.

"Overall, the denial rate for all home loans in 2006 was 29 percent compared with 27 percent in 2005," a report by the Federal Financial Institutions Examination Council (FFIEC) said.

Nearly 8,900 lenders accounting for about 80 percent of home lending nationwide were covered by the survey.

The FFIEC includes governors of the Federal Reserve as well as the Federal Deposit Insurance Corp., National Credit Union Administration, Comptroller of the Currency and Office of Thrift Supervision.

They gather information that lenders are required to disclose under terms of the Home Mortgage Disclosure Act (HMDA) and analyze it to determine fair lending laws are met including requirements that lenders not discriminate by race.

In 2006, denial rates were generally higher for refinancings and for home-improvement loans than for home purchases, the FFIEC said. It attributed the difference to the fact that consumers buying homes faced more counseling and prequalification so that they were already screened before the loans were issued.

It also said denial rates were lower for government-backed loans than they were for so-called conventional loans, but were "especially high" in the case of applications to buy manufactured homes.

The FFIEC said that in 2006, as in the two prior years, black and Hispanic borrowers were more likely, and Asian borrowers less likely, to be offered higher-priced loans and that held true for both refinancings and home-purchase loans.

It found little difference in loan prices by gender.

Rise forecast in company default rates

By David Oakley, Financial Times

Published: September 11 2007 22:51 | Last updated: September 11 2007 22:51

Company default rates are forecast to rise nearly 300 per cent as the credit squeeze hits the wider economy and raises the prospect of a global recession.

Moody’s Investors Service warned that default rates among high-yield-rated companies – one of the best indicators of the health of the world economy – will rise sharply because of the turmoil in the money markets.

Mark Zandi, chief economist from Moody’s economy.com, said: “We may be in a recession in the US right now, although not in a technical sense as the downturn would have to last a few months. And if we aren’t in recession, the risks are as high as they have ever been since the last recession in 2001,” he said. “The subprime and money market problems have been a major blow to the US economy, undermining the already very fragile housing market.

“The risk is that this will hit consumer spending and business confidence.”

Moody’s predicts that the global speculative-grade default rate will rise from 1.4 per cent – meaning only 1.4 per cent of the companies rated have defaulted in the past year – to 4.1 per cent in a year’s time and 5.1 per in two years’ time.

Moody’s said Wednesday’s figure of 1.4 per cent was a 20-year low and showed that companies had so far stood up well to the recent volatility.

However, if the US slipped into recession, this figure could approach the all-time highs of about 12 per cent, last seen in 2001 after the dotcom crash and in the early 1990s when inflation spiralled out of control in both Europe and the US, economists said.

Willem Sels, head of credit strategy at Dresdner Kleinwort, said: “We believe there is roughly a 40 per cent probability that the US will go into a recession, so it is essential that the money market problems are solved quickly. If they aren’t, the probability of recession could rise further, with negative implications for the markets.” Although US and European companies had weathered the storms so far in the money markets, default rates are certain to rise as it becomes more expensive to refinance debt in a tougher market place where investors are demanding higher interest rates or returns to buy debt.

Andrea Zazzarelli, associate director of European default research at Moody’s, said: “The problems in the money markets will put companies at risk as they are facing higher costs to refinance debt. Those with strong balance sheets can still do so, but the weaker companies may be forced to default.” In Europe, the default rate stands at 2.9 per cent, compared with the US default rate of 1.4 per cent.

Libor hits high on cash rush

By Joanna Chung, Financial Times

Published: September 11 2007 22:35 | Last updated: September 11 2007 22:35

The cost of funds in the hard-hit interbank money markets hit peaks not seen for nearly a decade on Tuesday as the scramble for cash by financial groups showed little sign of easing.

An important borrowing benchmark for investors, the three-month London interbank offered rate (Libor), climbed to 6.90375 per cent in the sterling market, up from 6.89625 on Monday, leaving it 115 basis points above the Bank of England’s base rate of 5.75 per cent and at the highest level seen since November 1998.

The continuing rise of the three-month sterling Libor rate that is used by many financial institutions to fund their portfolios of securities, underlines the high demand from banks to secure liquidity for the next three months coupled with their efforts to hoard cash amid the squeeze in the credit and money markets. The problem could get more pressing given the large volume of asset-backed commercial paper due to expire in coming weeks.

The London money markets are expected to witness a spike in the volume of ABCP that is maturing on September 17, with much of that paper needing to be refinanced on Thursday, since it typically takes two days to settle ABCP notes. If the notes due to expire for the entire month – estimated to be worth a combined $160bn in the sterling, euro and dollar ABCP markets – are not rolled over, this will force the banks to extend liquidity lines to many ABCP borrowers, a prospect that has encouraged banks to hoard liquidity.

The European Central Bank on Tuesday confirmed plans to inject extra funds into the three-month money markets this week. Last week, the Bank of England said it would move to ease the pressure on overnight interest rates by supplying up to £4.4bn worth of additional funding on Thursday if needed. The ECB and the US Federal Reserve have in recent weeks taken repeated steps to ease pressures in the money markets.

The overnight money-market rates on Tuesday remained close to the ECB’s refinancing rate and the Fed Funds rate targets. However, Marc Ostwald, strategist at Insinger de Beaufort, said three-month rates in all three markets were abnormally high.

“Central bank liquidity provision is keeping overnight rates in check, but term money rates are still extremely high due to hoarding of liquidity by large commercial banks to ensure that they can cope with the demand,” he said. “There is a lack of confidence among lenders amid fear of what skeletons there are to come out of the cupboards of those institutions they are lending to.”

Jobs report puts mortgage rates in free-fall

Friday, September 07, 2007

By Lou Barnes
Inman News

Rates are in free-fall on news of an outright decline in August payrolls, and big downward revisions of the June and July reports.

Agency conforming mortgages are down to 6.25 percent, jumbos still sticky near 7 percent, and no change in availability: high-quality Alt-A still very pricey, as is any high-LTV lending.

I think the economic pattern is clear. For the last five weeks we have been in an uncontained credit crisis -- not a "liquidity" problem, but an evaporation of balance-sheet value exposing lenders, forcing fire-sales of collateral, and a sharp contraction of credit availability. The economic effects of this crunch lie ahead; it is far too soon for them to have undercut August payrolls, let alone June-July.

The payroll weakness is a separate event, a pre-recession signal all its own. Other data indicate considerable forward inertia in the economy, notably the twin surveys by the purchasing managers' association in August. However, a contraction in hiring is the definitive change, leading a general slowdown, leading layoffs, and marking the moment of diminishing inertia.

Now two strong forces will reinforce a third: the worst housing recession in a long time made worse by a credit panic; the credit panic spreading into a global affair far beyond mere mortgages; and the credit panic now getting its own shove from behind by an independently developing recession.

The Fed has either missed it all, misunderstood it all, or has no idea what to do about it. Yesterday's all-OK brigade of Fed speakers look ... say it: incompetent.

The Fed has tried for five weeks nothing but liquidity injections appropriate for a transient economic emergency, the '87 Crash, for example. This is neither a transient emergency nor a single-firm threat like LTCM in '98; we and the Fed have a systemic problem growing worse.

Examples: The president of the European Central Bank, Jean-Claude Trichet, last month announced its intention to raise its rate this month; yesterday he cancelled that intention and reduced forecast growth. One tough cookie in London, Holger Schmieding of BofA, said that Trichet made it clear that risks were far greater than the forecast reduction implied. Global risks: banks from Canada to Europe no longer trust each others' credit, bank-to-bank loan spreads widening toward lock-up.

The best indicator, the "TED" spread (short-term U.S. Treasury rates versus unsecured Eurodollar ones): Bloomberg reports opening to 2.4 percent, the widest since 1987 and on a percentage basis I think may be the widest ever measured.

What to do: As argued here, the only ways to stop a credit panic are 1) to let it burn itself out, 2) to mobilize government guarantee or re-underwriting transparency, or 3) cut the Fed's overnight rate as much as necessary, future inflation risk be damned, hoping to stay "ahead of the curve" but not too far.

#3 is all that's left, unless some #1 miracle should appear. #2 ... they don't have the brains or reaction time for.

So, in utterly self-interested glee, I am looking forward to the imminent rescue of housing outside the bubble zones, and a reduction of damage there. I don't know how deeply the Fed will have to cut its overnight rate (that will depend on the credit-panic/recession reinforcing spiral), but the 100-basis-point cut suggested two weeks ago by alert parties ... today looks like about half of what's coming.

It may take more weak data early in October to do the trick, but it is reasonable to expect fixed mortgages in the fives shortly, a boost to buyers and an escape for those who need a refinance escape. Better yet, ARM indices will drop tick-for-tick with the Fed, reducing re-set damage. Even though this rate decline may go deep, the advice here as always: take any deal that works, immediately.

If panic fades, the bond market and Fed will reverse in an instant.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

Darkest before the Dawn? Experts Call for another Year of Down Market

Courtesy of RISMEDIA:

By Eugene L. Meyer

RISMEDIA, September 5, 2007–Call it the perfect storm: Declining sales of new and used homes, huge inventories, price reductions, a credit crunch, and foreclosures. What seemed only months ago to be a long overdue and necessary correction, a return to a normal, more balanced market following years of giddy appreciation and home sales fueled by easy money, has turned sour, according to leading real estate industry experts.

And there is no soft landing in sight. Instead, the widely held view is that things will get worse before they get better.

“We’re going to have to live through the pain,” says Mike Bradshaw, Bank of America Senior Vice President for Realtor and Builder Mortgage Services. “We will unfortunately see more fallout of lenders. It will trickle down to both the real estate and the building industry.”

During the era of relaxed credit, many consumers who could not otherwise purchase homes were able to do so by making lower monthly payments for a period of time, after which interest rates and payments would dramatically increase. Such home buyers and the investors who bought such mortgage-backed securities counted on rising incomes and appreciation to offset any increases. While interest rates remained low, refinancing was also an option.

Over time, the number and percentage of such subprime mortgages rose. They were usually bundled and sold on the secondary market to investors seeking higher returns. But the risk was also greater. As the subprime market imploded, the fallout has spread to other sectors. Lenders have tightened eligibility requirements, not just to subprime borrowers but to others with good credit ratings. Jumbo mortgages, for amounts over $417,000, have become more difficult to obtain, with significant consequences for credit-worthy, upper-income buyers as well.

“The last 30 days have been kind of extraordinary, as you watch lenders exit the business and scaling back significantly on products,” says Bill Cary, executive vice-president and chief operating officer of Florida-based HFN, a division of Fidelity National Information Services that creates and manages mortgage companies for homebuilders and real estate firms. “Right now, the mortgage market is in a state of shock.”

“The fact that credit is tighter and not as available to as many people under the same terms will make it more difficult for individuals to get loans and could lead to further declines in the real estate market,” says James R. Panepinto, president of Pinnacle Professional Consulting Services, of Red Bank, New Jersey, which advises financial institutions, real estate firms and home builders. “Entire segments of the market have dried up for certain types of home buyers

“I think there’s plenty of blame to spread around, to the investor side of the business that bought the paper, the Wall Street firms that were securitizing the paper, the lending industry that was originating the paper. It’s clearly a situation where many participants were involved in extending credit on terms that were too generous.

“When the economy is strong and values are rising, there are pressures to increase home ownership from a lot of different stakeholders. Appreciation in the market certainly covers up a lot of excesses and practices in loan underwriting and origination. Clearly also in the market were instances where individuals or employees of lenders or various purchasing instruments ignored the rules that were there.”

The long-term good news, Panepinto believes, is that the “higher quality of [loans] being written and the tightening of standards should bode well for the market in general.” Eventually, he adds, “concerns about further deterioration in the quality of loans made, reflected in rising delinquencies and foreclosures, should ease off.”

How long will this take? Bradshaw estimates the real estate and mortgage industry is in for another 12 to 18 months of hard times. Then, he said, “There will be some stabilization and a healthier housing and lending market. The market will move forward on what’s better for the consumers.”

Large lending institutions, such as Bank of America, which retain and service many of their home loans, are faring better than mortgage brokers and others who sell their loans on the secondary market to securities firms, which in turn sell them to investors. The big banks are further cushioned because, having largely stayed out of the subprime market, they are not facing the need to foreclose on delinquent homeowners.

“We decided [subprime loans] were not prudent,” said Bradshaw, recalling a comment by Kenneth D. Lewis, his company’s CEO, that his institution is in the business of making homeowners, not taking homes back from people to whom it has extended credit.

The credit crunch has also affected new homes, with many builders canceling or ratcheting down projects they believe they could not now quickly sell. This, in turn, could have a domino effect, leading to layoffs in the large construction workforce sector.

However, cautions Panepinto, “Certainly, new home sales are very, very significant, but trends in existing home market are really the key thing to watch. Let’s remember that close to 90 percent of homes sold in this country are re-sales of existing homes. That’s really what drives the market.”

Says HFN’s Cary: “I think the light at end of the tunnel for everybody is when inventory gets back in line with demand. The markets have way of correcting themselves. This is not the first time we’ve gone thru a real estate downtown, and it won’t be last.”

The current crunch has underscored the importance for brokers of offering a multitude of core services to consumers, not just selling properties but also providing title insurance, home warranties, appraisals, and even mortgages. As with any investment portfolio, diversification can soften the blow if one sector falters, said Jeff Mandel, president of Prism Professional Solutions, a Charlotte, North Carolina firm advising financial services and real estate companies.

“Broker-owners used to like to talk about how it would be nice to have these value added services–such as mortgage, title, escrow,” Mandel says, “but the real estate market has slowed so rapidly, faster than brokers are able to shed fixed assets and expenses, that it’s absolutely essential.”

For brokers already facing lower revenues from declining sales, the credit crunch has hit hard. “Their need for positive returns out of these [other] services such as mortgages has never been more important to sustain their operations,” Mandel says. “But all of a sudden the money doesn’t exist in their mortgage operations. Many have seen either their partners go out of business or profits eroded to the point where they’re not deriving the returns expected or needed. The constituents I represent are having tough times…

“Number one, on the real estate side, companies need to buckle down, focus on their core strengths, make hard decisions to eliminate fixed overhead unnecessary for current market conditions, and apply fiscal discipline in ways not done before, to position themselves not only for today but for the future. They have to change what they can control.”

As with any economic upheaval, there will be winners and losers. While more than 100 mortgage loan companies have folded, large banks that have traditionally held onto most of their loans are getting more referrals from real estate brokers who had previously relied on less substantial lenders.

At J.P. Morgan Chase Home Loan Lending, loan originations are up 41 percent since July, and up 30 percent during the first two quarters of 2007, according to Sue Barber, senior vice-president for business development.

“We are seeing a good news story out of this current environment,” she said, “There is a very serious need for a lender who can still provide a full array of mortgage products, who has ability to directly lend as well as sell to the secondary market, a partner who has financial strengths and liquidity. Certainly we are receiving lot of inbound calls from lot of the national real estate companies, and there are a lot of the large regional independents reaching out to us.

“We are certainly happy Chase has the balance sheet and liquidity to fund directly, because conditions in the secondary market are challenging today. A lot has to do with the Chase brand. It signifies stability, financial strength. I think the consumer and real estate community are recognizing now more than ever they really need that. I think consumers are realizing they really want a long-term lending relationship.”

That is not to say that Chase hasn’t tightened its lending requirements. It has. “The main focus of all the tightening of credit standards we’ve done and the focus on strategy with sales force is to educate our consumers,” Barber said. “We are working on a simplified disclosure so customers completely understand how [their loan] works, how affects their monthly payments…

“I think the overall industry impact of tightening of credit standards will take some consumers out of the market. But tightening standards certainly will result in better performing mortgages and in turn have a more positive effect on the housing market.”

The subprime mortgage meltdown has had the paradoxical effect of bolstering some intermediary companies that can provide brokers with several lending sources.

“We run a multi-lender mortgage platform, so if you do business with us you’re not tied to just one lender or source of money,” said HFN’s Cary. “We have six [lending sources], including American Home Mortgage, which went bankrupt last month. We were able to take loans placed by our customers there and within a week we had those loans placed with other investors. So we were able to provide a solution.

“We kind of look at the market right now and say there are going to be winners and losers,” Cary said, “and we’re trying to become winners.”

Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.

Featured Listing: 506 E. Sycamore Street, Columbus, OH 43206

Featured Listing - 1295 Weisner Place, New Albany (Harrison Pond) Ohio 43054

Main Problem With Subprime Debt Is That It’s Hidden

Courtesy of John Browne, Financial Intelligence

There is growing evidence of subprime contagion, from within our domestic banking system and from banks as far away as Europe, Japan and Australia.

Meanwhile, legions of “cheerleaders” keep repeating that the subprime problem is small.

One recent CNBC item showed the subprime problem likened to just a small cupboard in a large house. Well, in size that may be correct.

The problem is that history is littered with examples of size being no indication of results. Two notable ones that come to mind are Lenin and his Bolsheviks who were very few in number, and Castro and his 17 henchmen in Cuba.

The problem with the subprime is that its tentacles are largely hidden, for three reasons.

Editor’s Note: Special Report: 5 Highest Yielding, Safest Investments
for 2007.

Firstly, derivatives such as Collateralized Debt Obligations (CDO’s) are sliced and diced so that the “toxic” subprime credits were mixed up, or bundled, together with triple-A credits.

This “bundling” confused not just the rating agencies but also many of the investors, who are still uncertain as to how much toxic waste they have and even who ultimately holds it.

This causes the assets of many highly leveraged financial institutions to become suspect and cause for great concern by potential lenders.

It is like the discovery of toxic waste in a giant batch of food. No one wants to eat any of the batch, no matter how impassioned the appeals and assurances of the producer that, “all is under control!”

Secondly, much of the investment in subprime mortgages and CDO’s was done by hedge funds and in the accounts of institutions, where valuations were done at cost or “informed estimate”, rather than at market, as no public market existed for such “privately” placed instruments.

The adjustment to a true “market price” of many of the assets of certain major financial institutions is a second cause of deep concern, out of proportion to the probable degree of subprime infection.

No one likes to come into physical contact with anyone close to someone who has succumbed to an infectious disease. The fear may eventually prove to be false, but for a time at least, it is all too real. Social contact, like financial markets, tends to seize up.

Finally, despite adopting genuinely independent investment strategies, many investors, including hedge funds, end up investing with a “common approach”. Today’s New York Times (NYT) contains a most interesting article on this very subject entitled, “Just How Contagious Is That Hedge Fund.”

The NYT article goes on to quote Lawrence G, Tint, an investment consultant and retired vice chairman of Barclays Global Investors as saying that he suspects that, “some hedge fund investors will be surprised that their funds lost money and because of problems in the subprime mortgage arena. That’s because those investors have been falsely assuming that just because their funds focused on completely different strategies—commodities, for example—they have no exposure to the subprime mortgage market.

So there you have it. The subprime market may be relatively small, but it is intertwined with the vastly greater credit and derivative markets.

Just as in CNBC’s “house” analogy, the room may be relatively very small, but if it is linked to the rest of a vast, tinder dry wooden house, a small fire in that room could soon affect the whole house.

We therefore urge our readers to ignore the siren voices of the cheerleaders, especially those representing interests that are either “long” the market or credit institutions.

We repeat our forecast made throughout the last year and more, that the housing bust will prove not just contagious but disconcertingly so.

Columbus Board of Realtor Statistics - July 2007

10 Tips for a Sleek Home Office

Decorate for an Efficient Work Space
© Victoria Foley

Feb 9, 2007

Using a little creative thinking can turn your home office into a modern and attractive work space that will be sleek enough to blend in with your decor and inspire you!
When setting up a home office, there are some things you know you need: pens, a printer, a telephone, a computer and a desk to put it all on. But how all of the necessities come together is what makes a work space your own. Organization and decoration are key tools in your home-office toolbox, so use them wisely.

No matter your budget, you can design a work space that will be as beautiful as it is functional. Many items you already own can be reassigned to desk duty if buying new doodads isn't on the agenda. Remember to follow your own taste before any trend - the idea is for your home office to be an extension of your home. Here are some tips for creating the right office for you.

LAYOUT First, look at the layout of the room. Think about where your desk should fit - will a window view distract you, or do you crave sunlight? Place furniture accordingly.
DESKTOP REAL ESTATE Your desk should be sized appropriately to the kind of work you do - if you mostly use the computer, a smaller table may suffice. If you like to spread out projects and use the desktop for writing, look into larger desks or tables.
COLOR SCHEME If your office is in a room of its own, think about a color scheme that will inspire you. Bright but tasteful colors such as french blue or spring green can creative a happy atmosphere without overwhelming your senses.
ACCENT COLORS If the walls are a more subdued hue and you can't paint, think accents. A piece of patterned or textured paper from an art store can dress up a bulletin board or tabletop. A colorful bedspread or slipcover can camouflage the guest bed or sofa and brighten the room.
BLENDING IN For home offices that need to blend into a larger room, consider the theme of the space. An upholstered armchair may work for a living room, while a simple wooden stool might be just right for the kitchen. Choose a desk or tabletop that complements the other pieces in the room without fading into the background.
STORAGE To streamline the look of your work space, look for storage options that hide your excess paper and files. A small plastic box in the closet can hold less-used supplies like tape and note cards.
ACCESSORIES Look for desktop accessories that can be repurposed from things you already have. Pretty glasses can double as pencil cups, serving dishes can hold paper clips and pushpins, and deeper pottery bowls can hold cords for electronics. Keep the items you use most in easy reach so you don't waste time searching for them.
BOOKS Decorative bookends can dress up your reference book collection. You can make almost any pair of heavy objects into a corral for your dictionary and thesaurus. Statuettes or trophies can substitute for more ordinary bookends if you like the look.
ART Wall art can add an extra dose of personality to your home office. Choose images that inspire you. Frame degrees and special photographs. Add a bulletin board where you can pin up motivational quotes or funny cards.
KEEP IT SLEEK However you choose to decorate, remember to keep clutter under control. Piles of disorganized papers make an otherwise stylish office seem unkempt and out of control. Likewise, try not to overload your desktop with photos and knickknacks. Keep it simple and clean to make the most of your home work space!