Tuesday Report, March 29, 2011
Special to the Texas Low Income Housing Information Service
As sales of new homes drop to record levels and create the specter of a continuing recession, new Federal rules take effect April 1 that will dramatically change mortgage practices. Mortgage brokers will get a flat rate for sales, thus eliminating their incentives to obtain higher prices for homes. Banks are already protesting the change and while Republicans prepare their own reforms that restore incentives to sell high.
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Housing raises US recession alert
By James Saft Reuters March 26, 2011
If housing is the primary force behind the U.S. economic cycle, then the recession early warning bells just started ringing.
Sales of new single-family homes recorded a shocking fall in February, tumbling by 16.9 percent, to a seasonally adjusted 250,000 annual rate, hitting the lowest such figures since records began in 1963.
New home sales are down 28 percent compared to a year ago and the inventory of unsold new homes is now equal to 8.9 months of sales.
Even more amazingly, in a nation with more than 110 million households, there were just 19,000 single family home sales for the month on a raw unadjusted basis.
Put simply, far from being an engine of growth after several years of contraction, investment in housing looks to be a drag on the economy in 2011.
“We continue to believe that this dip in housing will translate into a double dip on the overall U.S. economy, further rolling forward any stimulus-exit plans set by the Fed, and setting the stage for an announcement of QE3 in July,” said said Douglas Borthwick of Faros Trading. “Jobs and housing remain the focus for the Fed, and both areas continue to face severe difficulties.”
The problems lie not just with new homes. The overall picture is of a housing market slouching its way into a double-dip slump.
Sales of existing homes also fell last month, by a less precipitous 9.6 percent, down 2.8 percent from a year ago.
Mortgage Brokers Decry Loan Payment Reforms
By Chris Arnold NPR March 29, 2011
New federal rules go into effect on April 1 that will change the way mortgage brokers across the country can make money. They will no longer be allowed to earn a bigger commission for giving a customer a loan with a higher interest rate.
Consumer groups are applauding the change, but the mortgage industry says the rules are unfair and could drive lots of smaller brokers out of business.
In the past, a broker arguably had an incentive to steer potential homebuyers or existing homeowners who want to refinance their house into a loan with a higher interest rate. Of course, many honest and reputable mortgage brokers would never mislead their clients.
“They’ve basically received a kickback from the lender,” says Ira Rheingold, the executive director of the National Association of Consumer Advocates in Washington, D.C. He says mortgage brokers have “made more money when they were able to stick you with a loan that was worse than what you otherwise would have qualified for.”
GOP lawmakers to unveil own plan to wind down Fannie Mae, Freddie Mac
By Zachary A. Goldfarb Washington Post March 28, 2011
A month-and-a-half after the White House announced its plan to wind down Fannie Mae and Freddie Mac, House Republicans on Tuesday plan to introduce their own.
According to congressional sources familiar with the matter, a series of eight bills by Republicans will call for hiking fees charged to borrowers in two years and taking other steps to shrink the companies’ footprint in the housing market.
The bills will call on Fannie and Freddie to begin to sell their massive portfolios of mortgage investments, which keep rates low, and would take away other advantages enjoyed by the companies that banks and private-sector firms don’t have.
They would also formally end requirements that Fannie and Freddie direct a portion of their business to low- and moderate-income housing (these have been suspended for several years) and pay the employees of the companies only what counterparts in the federal government earn.
What’s striking about the new GOP plan is that in many ways it mirrors the Obama administration’s approach to shutting down the taxpayer-backed mortgage giants but only on a faster timetable.
What’s also notable is that neither the administration nor the GOP is prepared to endorse a long-term model to replace Fannie and Freddie, which together with the Federal Housing Administration guarantee more than 90 percent of new mortgage loans.
5 Ways the Government Screws Up Housing Finance
The Atlantic March 27, 2011
For all the debate surrounding the causes of the financial crisis, one thing is for sure: the government made a huge mistake guaranteeing mortgage financing giants Fannie Mae and Freddie Mac. These big pseudo-private firms were exposed to a huge number of bad mortgages, for which taxpayers are stuck with a still-growing bill of $150 billion. Advocates for a government role in housing finance say that the government can learn from Fannie and Freddie and do a better job in the future. Skeptics disagree, saying that, by its nature, the government can’t succeed in accurately pricing mortgage risk.
This is the contention by American Enterprise Institute scholars Peter J. Wallison, Edward Pinto, and Alex J. Pollock in a new paper on housing finance policy reform. It urges that government exit housing finance, except for a small, on-balance-sheet effort to help promote home ownership to lower- and middle-income Americans. It contends that the government doesn’t have the ability to accurately price risk, and the private market does. Therefore, it should no longer guarantee the bulk of U.S. mortgages.
Freddie Mac says mortgage rates rise a bit
Los Angeles Times March 24, 2011
Fixed mortgage rates edged higher this week on worries that inflation may increase, according to Freddie Mac’s latest weekly survey of what lenders are offering consumers.
The survey, taken Monday through Wednesday, showed the offering rate for a 30-year fixed-rate mortgage averaged 4.81%, up from 4.76% the week before, with buyers paying 0.7% of the loan balance in upfront fees and points to lenders.
The 15-year fixed-rate mortgage averaged 4.04% with 0.7% in lender fees, up from 3.97% last week.
Variable-rate loans had slightly higher start rates as well, according to Freddie Mac.
The rates are extremely low by historical standards. Freddie Mac economist Frank Nothaft said they were up this week because the inflation data for February came in higher than expected.
Despite favorable mortgage rates, the news from the housing market has been poor, with homes sales down and new construction falling to a snail’s pace.
For U.S. homes, a giant spring clearance sale
Housing market’s weakness can be seen in barrage of incentives offered to buyers.
By Michelle Conlin Associated Press March 26, 2011
In suburban Chicago, it’s paradise to be a homebuyer.
At the Millbrook Pointe development in quaint and pristine Wheeling, a $269,000 brick-and-stone townhouse comes with $25,000 in free upgrades, including wood-burning fireplaces, all-stainless steel kitchens and marbled bathrooms tricked out with double-bowl vanities and whirlpool soaker tubs.
Down the highway at the Patriot Place golf course villas in Bolingbrook, buyers are lavished with lawns sodded to perfection, absurdly low seller financing and a year of free insurance that will pay the mortgage if you lose your job.
At the Sunset Ridge estates, the amenity bonanza gets even more surreal: Buy a customizable colonial for as little as $170,000 and get a brand-new, $17,000 Chevy Cruze. The 2011 model. For free.
Spring for home sellers is like Christmas for retailers — peak season. Normally, that might mean a few giveaways. But a new car? “Obviously, business has been soft,” said Kim Meier, president of KLM Homebuilders, the company offering the promotion.
The festival of upgrades on new homes — especially in the housing markets that were savaged by the subprime meltdown — is queasy confirmation of just how much the housing market remains the sickest part of the U.S. economy.
New-home sales plunge in February to record low
Sales fell 16.9% from January and were down 28% from a year earlier, the Commerce Department said.
By Alejandro Lazo Los Angeles Times March 23, 2011
New-home sales in the U.S. hit a record low in February and registered their slowest pace, adding to concerns that any recovery in the housing market is still a long way off.
Sales fell 16.9% from January and were down 28% from a year earlier, the Commerce Department said. Sales have fallen month over month for the last two months.
The data, adjusted for seasonal variations, showed the nation on a pace to create 250,000 units this year. The government report follows one Monday by the National Assn. of Realtors showing that sales of previously owned homes dropped 9.6% in February.
Demand for housing has been weak ever since a tax credit for buyers expired last year. With unemployment still high and foreclosures plentiful, the market probably will remain in the doldrums for the foreseeable future, economists said.
Abbott joins in objection to mortgage servicers settlement plan
Some in state attorneys general group oppose forcing banks to reduce loans for troubled homeowners.
Austin American-Statesman March 23, 2011
Five months after he joined the attorneys general of the 49 other states in investigating foreclosure and mortgage servicing practices, Texas Attorney General Greg Abbott is objecting to a settlement plan the group has put forth to resolve the investigation.
Abbott joined Attorneys General Kenneth Cuccinelli of Virginia, Pam Bondi of Florida and Alan Wilson of South Carolina in raising concerns about documentation requirements and loan-principal reductions in the plan, which was sent to the nation’s largest mortgage servicing companies on March 3.
The objections were detailed in a letter to Iowa Attorney General Tom Miller, who is leading the inquiry. The attorneys general of Alabama, Nebraska and Oklahoma sent Miller a letter March 16 letter with similar objections.
A Dream Still Deferred
By Thomas Sugrue New York Times March 28, 2011
AT first glance, the numbers released by the Census Bureau last week showing a precipitous drop in Detroit’s population — 25 percent over the last decade — seem to bear a silver lining: most of those leaving the city are blacks headed to the suburbs, once the refuge of mid-century white flight.
But a closer analysis of the data suggests that the story of housing discrimination that has dominated American urban life since the early 20th century is far from over. In the Detroit metropolitan area, blacks are moving into so-called secondhand suburbs: established communities with deteriorating housing stock that are falling out of favor with younger white homebuyers. If historical trends hold, these suburbs will likely shift from white to black — and soon look much like Detroit itself, with resegregated schools, dwindling tax bases and decaying public services.
As the Walls Come Down
Artist Jan Tichy plans to memorialize Cabrini-Green as it falls.
By Brian Costello Chicago Reader Maqrch 26, 2011
The Chicago Housing Authority plans to start tearing down the vacant building at 1230 N. Burling next Wednesday. If that happens—the demolition has already been postponed once—March 30 will be a historic day. The 134-unit apartment complex scheduled to go under the wrecking ball is the last of the Cabrini-Green public housing high-rises.
Cabrini-Green is the stuff of legend and infamy, and discussion about what it meant is sure to go on and on. The place has come to epitomize the folly of urban renewal—and maybe of modernism itself, which, some argue, has been dying a slow death since Saint Louis’s Pruitt-Igoe projects came down in 1972. Cabrini-Green was the scene of the 1992 thriller Candyman, the 70s sitcom Good Times, and the political theater of Mayor Jane Byrne’s three-week residency in 1981. People everywhere associate it with crime, drugs, gangs, squalor, broken elevators, and violent death.
But for tens of thousands over the decades since the first Cabrini residences were built in 1942, it was home.
San Francisco master plan for housing up for vote
By Will Kane San Francisco Chronicle March 24, 2011
Seen as the bible for future development in San Francisco, the Planning Commission is set to take up an oft-delayed master plan for housing that calls for a little more density in western San Francisco and for the community to become more involved in the planning process.
The plan, which is more a policy guide than a binding plan for development, has been two years in the making. If it is approved today, it would renew San Francisco’s commitment to build new affordable housing near transit while still preserving the low-density character of many neighborhoods.
That balance has frustrated both sides. Housing advocates say the plan doesn’t do enough to address San Francisco’s critical shortage of cheap housing, while neighborhood preservationists say replacing homes with apartments will ruin San Francisco.
Defending the Mound
Town fights to preserve its slice of paradise
By LaJuana Hale Denton Record-Chronicle March 28, 2011
FLOWER MOUND — Ever since this former frontier settlement was incorporated 50 years ago, town officials and residents took pride in protecting their slice of rural paradise along Grapevine Lake.
Town leaders fashioned one master plan after another to protect surrounding ranches, open landscapes, clusters of live oaks and other “ecological resources” from the threat of urbanization as the town flourished, eventually becoming one of America’s fastest-growing cities in the late 1990s.
The town even installed a wrought-iron fence around the town’s namesake — a 50-foot-high mound brimming with wildflowers — to protect the area. But a new intruder looms — bulldozers plowing up the old prairie to make way for gas wells, compressor stations, storage tanks, drilling pits and pipelines.
Homelessness down from 2009, survey results show
By Kathleen Thurber Midland Reporter-Telegram March 24, 2011
Although the number of homeless individuals in Midland is down from its height in 2009, advocates said affordable housing remains the barrier to obtaining self-sufficiency for many.
The 2011 Midland Homeless Coalition survey found there were 223 individuals living in shelters or on the street in late January. That’s down from the 306 individuals reported without homes in 2009 but still shows a need in the community remains, chairwoman of the coalition Linda Hamblin said.
In 2010, 163 individuals were classified as homeless through the survey. However, Hamblin said, during even years the group only counts those living in shelters, which is why the totals typically are lower in those years.