Tuesday, February 27, 2007

Class action against NovaStar

Various law firms are beginning to file lawsuits seeking class action status on behalf of NovaStar stockholders who’ve purchased stock between May 4, 2006 and February 20, 2007. The company is believed to have knowingly concealed the following facts: its projections were based on defective assumptions about loan delinquencies, because internal controls weren’t operating; its financial statements were misstated due to improper accounting practices which did not allow for loan losses; NovaStar would have to tighten its underwriting guidelines which would result in lower origination volumes and therefore lower earnings; the company could not guarantee it would maintain its taxable income and its Real Estate Investment Trust (REIT) status.

The company’s stock closed at $8.48 on Friday, according to the New York Stock Exchange website. Earlier in the week, its shares traded at $17.33. The press has named the NovaStar depreciating process a “free fall” and there’s reason enough: various investors say they suspected something wasn’t right long before the news came out and now anyone who still holds these stocks is trying to get rid of them.

On February 20th, the company announced it earned negative income in the fourth quarter of 2006, sending shares of subprime lenders on a rollercoaster ride downwards. It seems that stockholders in the subprime sector are starting to treat bad news on any company as an indicator of hardships in the entire industry, even though we’re often told that each company’s accounting policies and financial practices are different. Thus when a company goes down it drags other subprime lenders with it. This happened when New Century said it had overstated its earnings for 2006 due to accounting mistakes and it happened again last week after NovaStar reported financial loss in 2006. The free fall has so far caused several companies to lose half their value and I wonder, where is the bottom? Another lending company, Eagle First Mortgage, was shut down over the weekend, so how many more will have to collapse before the market is back on track? And how long is it going to take?

Meanwhile, the ABX.HE index, which tracks credit default swaps (CDS) on subprime mortgage-backed securities, fell to a record low of 69.39 on Friday, down from more than 90 earlier in February. As subprime lenders go bankrupt or report poor results, investors have begun to avoid purchasing these securities and indexes take a plunge.

Monday, February 26, 2007

Mortgage rates slide again

30-year fixed-rate mortgage rates dropped to 6.22% this week, from 6.30% last week. This is the lowest level since mid-January, when it averaged 6.21%. According to analysts, the drop reflected a relative weakness in the real estate industry, illustrated by reports of slowing new home construction. Housing starts fell 14.3% in January to the lowest reading since 1997, sparking concerns that the declining housing market may have a serious impact on economic growth. The drop was in part due to large numbers of unsold inventories currently on the market.

15-year fixed rates also dropped this week, reaching 5.97%, compared to 6.03% last week. 5-year adjustable rates fell to 5.96% from 6.01 a week earlier. One-year ARMs dropped from 5.52% to 5.49%.

Lower mortgage rates will make new homes more affordable, so there’s hope this will help absorb the oversupply of unsold houses. But will low rates be around for long enough to really influence the market? This week’s drop is definitely caused by changing circumstances, and yet home prices have to drop further before balance is restored. When and how this is going to happen is not entirely clear, as increasing sales volumes tend to push home prices up as well, so if houses begin to sell faster again, sellers won’t be willing to cut prices.

Friday, February 23, 2007

Shares of subprime lenders tumble

On Wednesday, February 21st, a number of subprime lenders saw their shares tumble in response to news of financial instability at NovaStar, the 19th largest subprime lender. NovaStar stocks dropped 39% since the news came out, to reach $10.68, as shares of New Century Financial declined 7% to $17.45 and those of Countrywide Financial went down 2.4% to $40.66.

Stocks of nearly all subprime mortgage lenders have been falling sharply during the past few months, as a response to deteriorating market conditions, but they are not the only sign of trouble in subprime lending. Approximately 1 out of 10 sub-prime mortgages has defaulted by the end of 2006, and banks are forcing mortgage companies to repurchase the bad loans. Since a large percentage of mortgages originated in 2006 are either “stated income” (which means that borrowers don’t have to provide proof of their income) or “interest-only” (where borrowers can pay the interest alone for a certain initial period), the risk of delinquencies is incredibly high and investors are pulling their funds out of the subprime mortgage market.

Now that lenders are tightening their underwriting standards, origination numbers are slowing down, but so are loan purchases by banks. HSBC announced it would have to spend more than expected on loan repurchase, New Century reported 4th quarter loss and said it would have to restate its income for the previous 3 quarters due to accounting mistakes, Accredited and NovaStar posted loss in the 4th quarter as well. Countrywide is stronger financially but high numbers of delinquencies will affect its stability too.

This is yet another installment in the wave of bad news that flooded the subprime market since the end of 2006. As lenders adhere to higher standards, loan origination volumes drop but loan quality increases. Loan providers predicted a tough 2007, but for some it proved tougher than expected. Several dozen smaller lenders have closed down or been sold recently in the challenging market environment. LoanCity closed seven branches, leaving 5 still operating, due to a “softer market”. Wells Fargo is cutting 250 jobs at its Fort Mill, S.C., offices, because lower origination volumes are expected due to tightening of policies.

The current situation is a challenge for subprime lenders, but it will eventually lead to improvements in the industry sector altogether. As the housing market shrinks, so does the demand for mortgage loans and some companies find themselves with little or no work to do. By the end of the year, we’ll probably see stricter mortgage standards and fewer lenders still operating in the new market realities.

Thursday, February 22, 2007

NovaStar reports fourth-quarter loss

On Tuesday, February 20, NovaStar, a residential lender and mortgage real estate investment trust, announced loss of $14.4 million or 39 cents per share in the last quarter of 2006. A year earlier, the company reported earnings of $26.4 million, or 84 cents a share. In after-hour electronic trading NovaStar’s shares dropped 33% to $11.81.

Earnings for 2006 were $66.3 million, a remarkable 50% drop from $132.5 in 2005. Loan origination was up 20% in the fourth quarter of 2006, and 21% higher than 2005 levels for the entire year. NovaStar specializes in subprime mortgages and, as default rates increase, it is forced to repurchase the bad loans it sold to banks earlier. This type of problem is increasingly affecting subprime lenders, who loosened their underwriting guidelines in 2006, allowing the issuing of high-risk loans. Now that borrowers are defaulting, mortgage companies are forced to buy those loans back, suffering further loss and reducing earnings estimates.

So is NovaStar the next New Century? According to Scott Hartman, Chief Executive Officer at NovaStar, probably not. Even though the repurchase requests were at record levels in the fourth quarter of 2006, the company believes its cash and available liquidity of $154 million will cover the risk for all loans sold to date. To ensure better results in 2007, the company is tightening its underwriting guidelines, enhancing the appraisal review process and avoiding loans that carry “unacceptable levels of risk”

Nevertheless, next year’s dividend could fall to $4 from $5.60 in 2006. According to company officials, there may be little to no taxable income from 2007 through 2011. The management is currently evaluating whether it is in shareholders’ best interest to abandon the company’s REIT (real estate investment trust) status, given the restrictions it imposes on the company’s operations. For 2007, NovaStar believes it will meet the REIT distribution requirements of distributing at least 90% of undistributed 2006 taxable income.

This news may be a bitter pill to swallow for NovaStar investors, but it is not as bitter as the one New Century shareholders got. It seems the end of subprime lending, or at least a significant contraction, is near.

Wednesday, February 21, 2007

Freddie Mac among “Best corporate citizens”

Freddie Mac is listed among the 100 Best Corporate Citizens for 2006, a list compiled by Business Ethics magazine for the eighth time, and also published in CRO magazine for the first time. The 100 Best Citizens are selected out of approximately 1,100 publicly held U.S. companies included in the Russell 1000, S&P 500 and Domini 400 indices. The statistical analysis was designed by Sandra Waddock and Samuel Graves of Boston College. KLD Research & Analytics, an independent investment research firm in Boston, collects data on each company and assigns points for strengths and weaknesses in 8 categories: community, corporate governance, diversity, employee relations, environment, human rights, product and total return on investment (averaged over three years). Each category is given equal weight in the final scoring. Issues like environmental protection, human rights, and serving the community in both traditional and innovative ways are of special importance in compiling the list.

Freddie Mac ranks 28th, followed by Google Inc. (number 29) and 3M Co. (number 30). One of its rivals, Wells Fargo & Co., ranks way lower, landing at number 46. Corporate responsibility and serving the community are among Freddie Mac’s top priorities, one of its major aims being providing affordable housing and low-cost loans. It seems the company’s efforts are being recognized and appreciated.

The “100 Best Corporate Citizens” doesn’t list perfect companies. Many of the corporations in it are involved in various scandals and have their own problems, but by acting as “good citizens” and showing responsibility for the environment, their employees and the world as a whole, they distinguish themselves from their peers. High standards and embracing social issues have ranked Freddie Mac among the top 100.

Well, the list did not present many surprises, but it was quite interesting to find out who ended up in the top 10. Here is the link: http://www.thecro.com/files/100BestGatefold.pdf. With increasing challenges predicted for 2007, let’s hope Freddie Mac maintains high performance standards and responsible practices.

Tuesday, February 20, 2007

New Construction Fell 14% for January

According to a report issued by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD), new construction fell 14.3% in January, to levels 37.8% below January 2006 figures.

This news is not surprising, after reports of high unsold inventories indicated an oversupply of new houses that just don’t sell anymore. Last month, builders were refusing to start new projects and did everything possible to get rid of new houses, including cutting prices and offering various incentives to buyers. Large numbers of new homes remained unoccupied and many builders lost their jobs, so it’s natural that fewer new houses were constructed. Housing starts are expected to decrease in 2007, helping reduce the number of vacant homes waiting for buyers. As supply diminishes to match demand, the market will become more stable and predictable.

And while these numbers indicate positive trends for the Real Estate industry and the economy as a whole, they may be devastating on a company or individual level. Waiting for the storm to pass may not work for any home builder, because the market is expected to stabilize at below-boom levels, thus forcing some companies out and making others cut staff.

Friday, February 16, 2007

Slumping prices and climbing sales

A report issued Thursday, February 15, 2007, indicated a 2.7% slump in home prices in the fourth quarter of 2006 as compared to a year earlier. This marks a record year-over-year price drop in the housing market and comes after a 1.0% drop in the third quarter. This trend is the natural consequence of the current market situation and it is accelerating. I believe prices need to drop even more before the Real Estate business regains its balance, but these numbers already look like good news for consumers and economists – not for agents and home builders though.

Meanwhile, the National Association of Home Builders published its Housing Market index, indicating a 5% rise in builders’ confidence in market conditions since January, when it was 35%. Economists had predicted the index to remain unchanged, but it has reached its highest reading since it was 42 in June 2006. In September, it dropped to 30, a 15-year low. Nevertheless, if the Index remains below 50, this means that the number of builders who view the market as poor is higher than the number of builders who’re satisfied with the current situation.

Well, the index reflects housing dynamics as lower energy prices and mortgage rates, combined with growing employment and household income have caused an increased buying demand. Builders have been cutting prices and offering sales incentives for months, and these measures are finally yielding results, even though the loss incurred by slumping prices is often quite substantial. If unsold inventory is reduced significantly, this will help stabilize both the market and prices. For now, however, the environment is still challenging for all Real Estate and mortgage businesses.

Thursday, February 15, 2007

Lenders to emphasize mortgage quality

Fremont General corp., the seventh-largest subprime mortgage lender in 2006, announced it would no longer provide the so-called “piggyback” mortgages which usually cover some 20% of a home’s cost and are added as second lien to the original mortgage. They have been widely used as a means of avoiding Private Mortgage Insurance and buying property without making a down payment. The decision was announced to mortgage brokers in an e-mail earlier this week.

If collateral is sold, lenders who provide “piggyback” mortgages receive any of the proceeds only if the property sells for more than the balance on the original mortgage. With the current market’s low demand and falling prices, they can seldom hope to regain their money. In many cases, borrowers who finance 100% of the home’s value with loans, walk away from their homes, often leaving lenders with properties that are worth less than the mortgage amount.

Lenders are tightening their standards and denying credit to borrowers with weak reports. They’re introducing stricter underwriting processes, demanding more proof of income and at least a minimal down payment. Accredited Home Owners said it will no loner provide some of the riskier types of loans and announced that incentive plans for its sales staff will from now on focus on loan quality, rather than volume.

High default levels have led to bankruptcies among lenders, who’ve had to buy back their bad loans from the financial institutions these loans are usually sold to. Accredited Home Owners has repurchased 1% of the loans it sold in 2006, up from 0.83% in 2005 and 0.64% in 2004, and hopes the repurchase activity will decline later in 2007.

Shares of various subprime lenders plunged late last week after some reports of financial loss in 2006 were issued, but many marked a slight increase on Wednesday.

What this all means is, they’re finally realizing exactly how risky those loans are, something experts have been talking about all along. When consumers with less than stellar credit are allowed to borrow 80% and more of their home’s worth without providing any proof of their income, who’s to guarantee that the loan will be repaid? Especially in a market where prices are artificially raised by speculator activity, it’s clear that those “affordable” loans can turn and bite their own originators – which they are doing now.

They kept “educating” consumers on how to borrow more without making down payments or paying PMI by using the so-called “piggyback” loans and “interest-only” mortgages and now they’ve decided the risk is too high and they can’t handle the delinquencies. I’d ask why anyone didn’t warn those people before it was too late. And what were banks thinking when they were lending their money to consumers who clearly were unable to repay these loans and preferred not to worry about it until they were forced to. It seems the money lenders earned on interest and fees on those loans wasn’t enough to cover the losses incurred by depreciation. Well, it seems that the “big players” will survive current challenges, but numerous smaller companies have already left the market.

Let’s hope that healthier lending policies will help stabilize the market, even though it’s hard to find out how exactly that’s going to happen, since housing will become even less affordable for subprime buyers, and if those 10-17% leave the market, we’ll have even lower demand, further decreasing prices and unsold new homes.

Wednesday, February 14, 2007

Rise in mortgage applications

U.S home mortgage applications rose 1 and a half percent last week, fueled by an increase in mortgage refinancing. Is this a good sign about the health of the U.S housing sector? I doubt it. First time mortgage applications are still way down despite the recent uptick in refinance loan applications. A look at the four week moving average shows it was still down 1.6 percent for the month.

Most expensive places to live

The cost of living depends on rent, gas, food prices, taxes, the state of local economy and other variables. Among the most expensive places to live in the US are Boston, San Jose, Washington D.C., New Haven, California’s Orange County, Seattle, Los Angeles, Philadelphia and San Diego, but New York beats them all. Its Manhattan area has a standard of its own. With condominium prices averaging $1.2 million and rent costs more than $2500 a month, it is undoubtedly the most expensive – and largely luxurious – place to live in. Housing costs make up for some 69% of all living expenses, which are more than twice as high as the national average. Strong economy and job growth are the reason for the strength in rental markets. Being the country’s most densely populated county and the home of the New York Stock Exchange, Manhattan is one of the largest and most important business spots in the U.S., and high prices on food, property, gas and services simply gravitate to those. Entertainment, luxury apartments and world-famous residents all contribute to its reputation of an expensive, modern and most importantly, pleasant place to live in.

San Francisco comes as a runner-up, with average rent of a little more than $1,600 and a life cost 98.7% above the mean. The Internet revolution produced many high-income businesses in the city, leading to an escalation in household income and property prices. With its diverse art scene and thriving nightlife, it attracts tourists and visitors, which contributes to higher living standards.

The most expensive cities are also on the list of America’s largest cities, and no wonder: the factors that boost a city’s population often lead to higher living costs as well. Historical and cultural landmarks which attract large numbers of tourists can also boost a city’s income – and the cost of living. Large corporations’ headquarters and centers of business activity can also be a factor, as they allow for higher rent and property prices which then lead to higher costs on anything else.

For an average worker, living in an expensive city is more or less like living anywhere else. They get higher salaries and spend them on more expensive coffee, transportation, rent and all other living costs. For well-off citizens, an expensive city offers diversity, better services and more entertainment. This lavish lifestyle means even small things like beverages and ready-to-eat food can be sold for more, and prices on just about everything go up. Large shopping malls and posh boutique stores also contribute to raising the cost of living, by increasing the inflow of tourists and the car rental costs that come with them. Towns in Alaska are also mentioned among the most expensive, simply because of shipping costs for all the conveniences of modern life – and some tourist attractions.

When basic living expenses are so much higher than the countrywide average, entertainment and recreation can become even harder to afford, in spite of living in a city that has a lot to offer. In short this means that with the benefits of a big city come the drawbacks. Nevertheless, people will keep visiting these cities for all the fun they provide, even if sandwiches and taxi rides are overpriced there.

A Better Outlook for "New Century"

Chris Brendler, an analyst with Stifel Nicolaus upgraded New Century from “Sell” to “Hold”, saying the company still has enough cash to handle its current tough situation. He called liquidity concerns, which led to last week’s 43% drop in stock prices, “premature”. Before last week’s disaster, Stiefel Nicolaus’ opinion of New Century was quite negative, which means they foresaw trouble ahead.

According to Brendler, New Century has $360 million in cash and $17 billion in borrowing arrangements, 50% of which aren’t utilized and it seems that the company will be able to manage. It is still unclear how badly the adjustments to mortgage value will affect New Century, but analysts believe it will be able to wriggle out of its financial fix.

New Century shares rose 2.9% to $17.70 in pre-market activity, as other subprime lenders’ stocks climbed an average of 0.5%. These include Countrywide Financial, IndyMac Bancorp and Novastar Financial.

Nevertheless, the outlook for subprime mortgage lenders remains challenging, as delinquency rates on high-risk loans rise.

Tuesday, February 13, 2007

Subprime lenders worried by high default rates

Last week some serious problems in the subprime mortgage business became evident, as a number of lenders announced higher-than-expected losses. HSBC officials said the company’s US division reported rising defaults, and New Century declared its financial results for 2006 contained accounting errors and overestimated the company’s earnings. Shares of subprime lenders saw serious declines throughout the week, exacerbating the situation for mortgage companies.

The subprime sector has been especially productive recently, with lenders looking to close as many loans as possible and allowing for lower mortgage quality. As delinquency rates begin to rise, they’re likely to start tightening their standards and raising interest rates on high-risk loans. This means that many borrowers will be unable to access credit, which may lower housing sales.

An estimated 17% of home purchases are now made using subprime loans. If these consumers are left out of the housing market, the effect will certainly be felt throughout the industry, but it’s hard to quantify the impact. The overall delinquency rate was 4.7% in 2006, up from the historic low of 4.4% in 2005. Probably not all subprime borrowers will leave the market, and economists say the reduction shouldn’t be a big problem for the industry.

Experts are optimistic in their forecasts and believe that the economy will remain stable throughout 2007, and the housing market will start to improve later in the year. Freddie Mac forecasters say the economy won’t be dragged down by the slumping Real Estate industry.

Monday, February 12, 2007

More trouble for New Century

After disclosing accounting errors on Wednesday, February 7th, New Century Financial Corporation lost nearly half its market value, as its shares dropped from a little more than $29 on Wednesday to $16.61 two days later. The company announced that it would have to restate its financial results for the first three quarters of 2006. The results had not accounted for loans returned by New Century’s investors and for their depreciation, due to the higher risk they present.

Like many lenders, New Century sells its loans to banks, to be packed into mortgage-backed bonds. The investors can send the loans back if a borrower is delinquent on his/her payments. In 2006, the company failed to account for the increasing number of payment defaults and the depreciation of returned loans. It announced that a 20% decrease in loan production is expected in 2007, in contrast to its earlier predictions of flat growth.

Since New Century shocked its investors with the news of its bad financial situation, a number of law firms filed shareholder securities class action lawsuits on behalf of investors who purchased the company’s shares between April/May 2006 and February 2007. These complaints allege that the company issued misleading statements regarding its business activity and overstated its earnings. One of the law firms will be appointed by court to prosecute the securities fraud action on behalf of the shareholders.

Saturday, February 10, 2007

Real Estate Agents Are Leaving The Real Estate Business

In November 2006 David Lereah, chief economist of the National Association of Realtors, predicted that the number of Realtors will drop by 6-8% in a year. This finally seems to be happening, as sales slow down and agents are no longer able to earn six-digit incomes as they used to do in 2004 and 2005. Sales started declining in 2005 but the number of agents kept growing until it reached the record of nearly 1.4 million in 2006. Today, too many agents are working for an industry where sales are contracting.

According to some estimations, there are 20 to 25% more agents than needed in the industry. Companies are considering reducing staff and agents themselves are turning to alternative careers. And while former agents are often happy with the job change, where they typically are able to secure a better income, so are agents who stay in the business as competition is waning.

This trend is likely to continue for quite some time now, as the industry shows further signs of decline. After a government report of lower-than-expected job growth in January was issued, interest rates on 30-year and 15-year fixed-rate mortgages dropped the week ending Thursday, February 8th. The one-year adjustable-rate mortgages dipped to 5.49% from 5.54% the week before. Interest rates decline for the first time since early December 2006.

Frank Nothaft, chief economist and vice-president at Freddie Mac, said the company expects the interest rates on 30-year mortgages to average 6.3 to 6.5% in 2007. This means essentially flat or slightly increasing rate throughout the year, which will probably lead to a decline in refinance activity.

Several smaller subprime lenders have closed down recently, including Mortgage Lenders Network USA Inc. and Wachovia Corp.’s EquiBanc Mortgage unit. New Century Financial said new loan volume is declining and reported fourth-quarter loss for 2006. Shares of HSBC, New Century Financial Corp., Countrywide Financial and Novastar dropped on Thursday, after predictions of lower mortgage activity were announced.

Thursday, February 8, 2007

IndyMac Buys The "New York Mortgage Company"

The New York Mortgage Trust (NYMT) announced Wednesday, February 7th, that it has entered into an agreement to sell the retail mortgage banking platform of its subsidiary, the New York Mortgage Company (NYMC), to IndyMac Bank. The deal is expected to close by the end of March, earning NYMT an estimated $12.1 million. According to Steven B. Schnall, NYMT’s Chairman, the reason behind the sale is mainly the “significant contraction in the market” and the challenges it poses for the business.

IndiMac will hire the majority of NYMC’s employees, acquiring its 32 offices in 11 states, including all loan officers and all mortgage applications in process at the time of closing.

Steven B. Schnall, current Chairman, President and co-CEO of NYMT, revealed that the acquisition is a result of preliminary discussions over the past several months. It was also announced that, upon closing, Mr. Steven Schnall will resign his current position to be replaced by Mr. Steve Mumma, currently a member of NYMT’s executive team. Mr. Schnall will be appointed non-executive Chairman of NYMC as a part of IndyMac.

New York Mortgage Trust, a Real Estate Investment Trust (REIT), originates a broad spectrum of residential loan products, focusing mainly on prime loans. It is planning to sell its wholesale mortgage banking business as well, and is considering selling the entire company.

Alarming rates of housing vacancy

The national homeowner vacancy rate has reached 2.7% in 2006, up from 2.0 in 2005, reported the Census Bureau. This is the highest level on record in four decades, the number of vacant homes for sale reaching 2.1 million in the final quarter of 2006. The excess in supply continues to grow and may result in price decreases. After a 13% decline in new home starts in 2006, new construction will have to be reduced further in 2007, as sellers struggle to sell vacant homes.

This news may mean that the housing rebound economists have been hoping for is not yet in sight. The market has shown some signs of stabilization in the past weeks, with sales marking a slight increase and the numbers of unsold houses declining. However, the latter numbers may have been due to home owners temporarily retreating from the market in hope for better prices in the future rather than diminishing inventories. As production is cut down and properties are converted to rentals, vacancy rates are likely to go down in the months to come.

The high demand for new homes in recent years was mostly due to speculative activity and as investors leave the market, the demand drops, leaving new houses unsold. In a normal market the number of homes sold is essentially equal to that of homes bought, because owners sell their residential property and purchase another house to live in. A speculator-driven market does not operate this way: when vacant homes are sold, this doesn’t necessarily lead to another purchase. The condo market, which saw some of the highest speculator activity, faced even graver consequences, with vacancy rising from 7% in the first quarter of 2006 to 11% in the third.

Vacancy numbers have varied throughout the country, ranging from 3.0% in the South, to 2.0% in the Northeast. The housing market has presented a number of surprises lately and analysts find it hard to predict how exactly the current situation will be resolved.

Tuesday, February 6, 2007

Freddie Mac sets record in 2006

Freddie Mac closed the record-breaking $28.8 billion in new multifamily business transactions in 2006, the company announced yesterday, Feb. 5th. This volume marks a 10% increase over the $26.2 billion in 2005. Approximately $1.2 billion came from targeted affordable housing products which finance state subsidized apartments. Approximately 478,000 apartment homes for families with low to moderate income were financed by Freddie Mac’s multifamily transactions.

Michael C. May, senior vice president of Freddie Mac’s Multifamily Sourcing Division said they are “very proud” of the success, which was achieved by streamlining the processes, enhancing many of the products and “by being more flexible and innovative”.

Freddie Mac has provided more than $147 billion for financing over 48, 000 multifamily properties since the introduction of the Program Plus network in 1993. $500 million were invested in low-income housing in 2006.

In January, the company’s economic outlook for 2007 was published, which highlighted three major economic trends: higher levels of refinance activity, diversification of the refinancing market, and lack of affordable housing. These trends are believed to influence the Real Estate market and the mortgage activity throughout the country. The market share of adjustable-rate mortgages will probably drop due to low interest on fixed-rate mortgages. The mortgage activity is likely to decline altogether, in spite of high refinancing expectations.

Freddie Mac was established by Congress in 1970 to support homeownership and rental housing. The stockholder-owned corporation finances single-family and multifamily residential mortgages and currently holds a 15% market share.

Monday, February 5, 2007

Appraisers forced to distort numbers

With the spring/summer home buying season on the verge of beginning, problems associated with Real Estate fraud and data falsification become more pressing.

A recent survey pointed out that 90% of appraisers have been pressured to raise property valuations. The survey was conducted by October Research and involved 1, 200 appraisers from all the 50 states, District of Columbia and Puerto Rico. An identical survey was carried out in 2003, when only 55% of appraisers admitted they’d been pressured to adjust the results of their valuation.

With home prices sliding, everyone in the industry is trying to work out a better deal, and an appraiser may lose the assignment if he/she refuses to cooperate. Mortgage brokers and agents are listed as the top sources of pressure, but sellers, lenders and even buyers have also been reported to attempt to influence the final results.

If an appraiser’s estimate is considered unsatisfactory, customers may refuse to work with him/her and some appraisers fear they might lose their positions. Loan brokers are constantly calling appraisers asking if a certain property’s worth can be evaluated at the sales contract price; and if a lower number is arrived at, the appraiser may not get paid for the work.

Most appraisers refuse to knowingly submit inflated valuations, but the real solution is probably a legislative measure that would make forcing appraisers to inflate or otherwise adjust estimations illegal.

Friday, February 2, 2007

Mortgage rates move higher

Following recent financial reports indicating steady economy growth, the rates on 30-year fixed mortgages rose to 6.34%, the highest level since October 2006. Freddie Mac reported that the rates on other types of mortgages also increased, the 15-year fixed-rate mortgage reaching 6.06% and the one-year ARMs 5.54%.

The 30-year fixed rate is nearing the October 2006 levels, when it was at 6.40% in the week ending Oct. 26th. The rise occurs after reports of steady financial growth were issued earlier this week. The economic results of the last quarter of 2006 were better than expected and economists hope this will influence the housing market which is slowly beginning to stabilize.

Surprisingly, delinquencies are becoming more frequent in spite of a relatively strong economy. Mortgage companies are beginning to take measures to prevent serious problems. They’re warning their customers of upcoming rate adjustments and calling borrowers within days after a missed payment. Banks provide information and assistance in dealing with mortgage payments and even allow some borrowers to refinance their ARMs into a different loan at no cost. According to Mark Zandi, chief economist at Moody’s Economy.com, the increased levels of delinquencies may be due to a weaker housing market and the widespread use of adjustable-rate mortgages, which are now beginning to adjust.

To avoid foreclosure costs, banks allow their clients to sell their properties for less than the due amount and forgive the remaining debt. This method is called a short sale, and helps borrowers avoid having a foreclosure on their credit reports.

A group of major lenders are planning a national advertising campaign, beginning this spring, which shall promote a toll-free number (888-995-HOPE) for mortgage and homeownership counseling.

Thursday, February 1, 2007

Rates Remain Unchanged For The 5th Time

The Federal Open Market Committee, also known as the Fed, decided to maintain the Fed Funds Rate on the meeting which took place Jan. 30-31st. The housing market has shown signs of stabilization and the rate remains the same at 5.25%. The next Fed meeting is scheduled for March 21st.

The decision to keep the rate unchanged comes as no surprise to many, but mixed reports arriving throughout January have raised some doubts among analysts. After several consecutive rate hikes, the rate hasn’t changed since August 2006. Rates are expected to remain stable throughout 2007 and a cut is not improbable later this year.

This news comes together with reports that refinance and purchase mortgage applications have increased during the week ending January 26. The Mortgage Bankers Association has released last week’s Market Composite Index, which compares mortgage loan application activity from week to week. The news causes economists to assume that the housing market has at last reached the bottom and is now beginning to stabilize. The situation is favorable for buyers, as long-term interest rates remain low and sellers decrease prices and offer free improvements in order to get rid of the unsold inventory that’s accumulated lately.

The Fed Funds Rate is the rate at which banks lend to each other and it directly influences credit card interest rates, home equity lines of credit and adjustable-rate mortgages, because their interest rates are often tied to the index itself or its derivatives.