Realty Check

Patti McConville | Getty Image FHA’s higher income borrowers are a relatively recent phenomenon.

The Federal Housing Administration, the government insurer of home mortgages, is often credited with saving the home finance market during the worst of the latest housing crash.

When no one else would lend to lower-income borrowers, the FHA stepped in, its share of mortgage originations rising from around 3 percent during the height of the housing boom to close to 40 percent of the home purchase market at the height of the crash.

That was not without a very high price.  » Read More

The median price of an existing home that sold in April of this year was $177,400, an increase of just over ten percent from a year ago. That is the biggest price jump since January of 2006. The difference between now and then, though, is the 2006 price jump was real, this latest spike is not.

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“This is a mix of home issue,” warned National Association of Realtors chief economist Lawrence Yun, who usually tries to see the positives in all housing numbers. “There is an acute inventory shortage in Phoenix, Las Vegas, Ft. Myers,” Yun explains.

As we reported here on the Realty Check last month, a lack of distressed supply, that is foreclosures and short sales, is pushing overall home sales lower. That’s because the majority of the sales action for the past few years has been on the low end of the market.

Now, as banks try to modify more delinquent loans to comply with the recent $25 billion mortgage servicing settlement, and as investors rush in to buy distressed properties and take advantage of the hot rental market, the distressed market is drying up.

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As real estate investors rush to buy distressed properties and reap the rewards of a still-heating rental market, two distinct phenomena are suggesting caution, perhaps extreme caution.

Paul J. Richards | AFP | Getty Images

The first is in sales of foreclosed homes that the banks now own (REO) and short sales (when the home is sold for less than the value of the mortgage, with the bank eating the loss).

With banks looking to unload not only homes they’ve repossessed but homes with delinquent mortgages, they are courting more investors.

Reports of bidding wars are growing louder, but home prices are not moving higher with all the action. In fact, most homes sold in April received just two or three offers and sold for below list price, according to a new survey from Campbell/Inside Mortgage Finance.

“The average price for non-distressed properties declined 1.5 percent from March to April, while the average price for short sales dipped 1.7 percent. For damaged REO [bank-owned] the average price fell 1.4 percent and for move-in ready REO the average price slipped 0.3 percent,” according to IMF’s HousingPulse.

The high share of distressed property sales, (47.9 percent of all home sales on a three-month running average) is contributing to downward price pressure, but appraisals are also holding the market back.

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Foreclosure activity in April fell nationally to the lowest level since the summer of 2007, but government intervention and the recent $25 billion mortgage servicing settlement are now changing the face of the crisis.

Foreclosure filings, which include default notices, scheduled auctions and bank repossessions, fell 5 percent in April from March, according to a new report from RealtyTrac, and are down 14 percent from April of 2011. One in every 698 U.S. housing units had a foreclosure filing during the month.

“Rising foreclosure activity in many state and local markets in April was masked at the national level by sizable decreases in hard-hit foreclosure states like California, Arizona and Nevada,” said Brandon Moore, CEO of RealtyTrac in a release. “Those three states, and several other non-judicial foreclosure states like them, more efficiently processed foreclosures last year, resulting in fewer catch-up foreclosures this year.”

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A new report came out this morning with a curious headline: “Foreclosure Activity Declines, Hurting Investors.” I read it twice. You would think declines in foreclosure activity would be a good thing, that is, would help, not hurt. Not in this bizarre housing market. The report is from Foreclosure Radar, a foreclosure sales and analytics website.  » Read More

The nation’s homebuilders are feeling far better again, after an unusually warm winter wreaked havoc with the usual traffic and sales trends. Builder confidence jumped five points in May on the National Association of Home Builders’ sentiment index, after dropping four points in April.

AP

“Builders in many markets are reporting that buyer traffic and sales have picked back up after a pause this April,” said NAHB chairman Barry Rutenberg in a release.

The index now stands at 29. Fifty is the line between positive and negative sentiment.

Builder confidence had been rising steadily throughout the fall and winter, with the exception of the April blip. While the two components of the index measuring buyer traffic and current sales surged strongly, sales expectations over the next six months were not quite as bullish, although still in the positive.

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CNBC.com

As part of his “To Do List,” President Barack Obama visited Val and Paul Keller on Friday. The White House described them as “responsible” homeowners who owe more on their mortgage than their Nevada home is currently worth.

They owe $168,000 on their mortgage, but their Reno home is currently valued at $100,000.

The president is doing so to, “help demonstrate a concrete and tangible example as to why this broader push [to refinance] is so important not only for millions of Americans but for our economy,” said Shaun Donovan, secretary of Housing and Urban Development, in a conference call with reporters before the event.

During that call, Donovan used the words “responsible homeowners” more than a dozen times, in describing whom the administration’s proposed refinance programs should help.

It is not the Kellers' fault that home prices in Reno are down 52 percent from the peak, right? The Kellers bought their house 14 years ago, and they have not been late on a mortgage payment, according to Donovan. They were able to take advantage of the newly expanded government refinance program through Fannie Mae and Freddie Mac for severely underwater borrowers, and they are in fact putting some of their savings on the monthly mortgage toward paying down principal.

But were they responsible?

The Kellers bought their home before the height of the housing boom. The trouble I’m having understanding this whole scenario is that the median home price in Reno is actually 7 percent higher today than it was 14 years ago. If the Kellers had a “responsible” loan, that would be a 30-year fixed, in which case they should have paid at least some principal on the loan over the last 14 years. And didn’t these “responsible” borrowers, the Kellers, put some money down on the home?

We went looking: According to Washoe County records, the Kellers purchased their home in June 1998 for $127,000. So why do they have, according to the White House, a $168,000 mortgage?

White House officials now confirm to CNBC that the Kellers did a cash-out refinance in 2007, when their home had appreciated to $250,000. Again, it’s not illegal, but are these the “responsible” borrowers that the administration is looking to help? They took out a $178,000 loan, using the $51,000 to pay down debt on the family construction business, so Paul could retire. Had they not taken that money out, and continued paying on the original mortgage, they would not be underwater today.

“This is a family, first and foremost, that has met their responsibility, remained on time with their mortgage and used their equity in their home in a way that so many Americans do, to send their kids to college, support a small business or save for retirement,” said Donovan, whom we contacted after learning of the refinance. “They deserve the chance to benefit from these record low interest rates because they have met their responsibilities.”

Another administration official familiar with the Kellers’ case says the couple were responsible because despite the incredible runup in home prices, they did not take all the equity out of the house. “She did not use her home as an ATM in the sense that we saw during the crisis, because she didn’t cash out all of the equity leaving her no cushion. She had a 71 percent LTV (loan to value ratio), or 30 percent equity in her home. That is by almost any definition a very responsible position to be in,” he added. In the past, Obama has criticized borrowers, who at the peak of the housing bubble, pulled money out, referring to it as using their house as an ATM.

LTV, Donovan and the other administration official claim, is not a minor issue. So it seems they are defining “responsible” as a borrower who maintains an equity cushion in the house, even when that house price has nearly doubled in just eight years.

“This was truly 100 year flood, and so lots of people who had 20, 30, 40 percent equity in their homes now find themselves underwater,” says the White House official, who also commends the Kellers for not walking away from their mortgage.

Questions?  Comments?  And follow me on Twitter @Diana_Olick

The Realtors say it, the home builders say it, and now the chairman of the Federal Reserve is saying it: “Some creditworthy borrowers are still having trouble getting a mortgage.”

Loose mortgage underwriting is largely blamed for the housing crash, and as a result the credit markets have swung in the opposite direction, some say too far.

“You’ll see fewer willing lenders at 660 than you do at the top end of the scale,” notes Bankrate.com’s Greg McBride, referring to FICO scores (Fair Isaac Corporation).

Twenty five percent of Americans today have a FICO credit score lower than 650, and twelve percent more are below 700. While the Federal Housing Administration (FHA), the government’s mortgage insurer, is supposed to be serving borrowers with lower credit scores, the average FICO for an FHA loan in March was 701.  » Read More

A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.

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“If people get these things and toss them, they won’t be eligible,” says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.

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I spent much of this week in Atlanta, which is currently one of the worst housing markets in the nation. Atlanta home prices are down 17 percent annually, according to the S&P/Case-Shiller Home Price Index, thanks to a glut of distressed properties.

Foreclosures are plentiful in Atlanta, and as in other highly distressed markets, investors are swooping in, some buying in bulk, to take advantage of the hot rental market. Another new trend helping to alleviate all the distress is short sales.

Short sales (selling the home for less than the value of the loan) are rising across the nation, and while they have yet to overtake foreclosure numbers in Atlanta, they are in fact up 120 percent from a year ago, according to RealtyTrac.

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