A gloomy outlook from the NAR

The National Association of Realtors is adjusting its forecast for the housing market activity in 2007. Due to problems in the subprime lending sector, expectations for existing home sales in 2007 are lowered to 6.29 million, from an earlier forecast of 6.34 million. In 2006, sales reached 6.48 million. A month ago, the NAR predicted the median existing home price to drop by 0.7% this year. Realtors are now adjusting that number to 1%, which will result in a median price of $219,800. An increase of 1.4% is expected in 2008.

The median price of a new home will probably be reduced by $100 to $246,400, as opposed to earlier estimates of a 0.4% increase. New home sales are expected to reach 864,000 in 2007 and 936 in 2008. NAR expects the median new home price to gain 2.2% next year.

NAR believes the slowdown will be moderate, because unemployment is low, and household incomes are up. This “soft landing” will probably be followed by a gradual increase in home sales in the second half of the year, according to the NAR.

Bank of America’s new mortgage product

Bank of America now offers a no-fee mortgage to home buyers. The lender will not charge for loan applications, title insurance, appraisals and flood certifications. Private mortgage insurance, usually required when a borrower makes a down payment of less than 20%, will not be compulsory either.

Some costs, however, will still be paid by the borrower, including property insurance and taxes, recording taxes, and other services, such as home inspections.

Bank of America officials believe that mortgage borrowers are likely to take advantage of the bank's other services and less prone to switch lenders. Refinance loans and loans taken through mortgage brokers do not qualify for the program. To take out a no-fee loan, borrowers must have at least one account with Bank of America and obtain their loan trhough the bank's retail channels. The bank claims it has already issued $1 billion in no fee loans.

Meanwhile, the Fed Funds Rate, to which mortgage rates are tied, remains at 5.25%. The Fed decided to keep rates unchanged for the seventh consecutive time.

NovaStar accused of discrimination

On May 9, the National Community Reinvestment Coalition filed a lawsuit against NovaStar Mortgage, a subsidiary of NovaStar Financial, accusing the lender of repeatedly violating the Fair Housing Act. NovaStar is said to have repeatedly refused to provide financing for row houses, homes in Indian reservations and on houses that may be used to care for disabled adults.

Such practices are considered a discrimination against ethnic minorities and people with disabilities, because row houses tend to be occupied by African Americans and Latinos, and homes in reservations by Native Americans.

NovaStar called the charges “baseless”, and explained that row houses are associated with appraisal fraud, while homes located in reservations are governed by “different sets of laws”. The Coalition also intends to file lawsuits against other lenders involved in similar practices.

30-year mortgage rates edge down

Rates on 30-year fixed-rate mortgages averaged 6.15% for the week ending Thursday, May 10, according to Freddie Mac. A slight decline from last week’s 6.16% and even closer to this year’s lowest rate of 6.14%, reached in early March. At this time last year, 30-year fixed-rate mortgages were at 6.58%.

The decline was attributed to a weak employment report for April, which showed that a mere 88,000 jobs were created, the lowest level of growth since November 2004. Employment reports for the two previous months were revised downwards. Weak economic data, however, helped ease fears of climbing inflation, which drove interest rates down.

15-year fixed-rate mortgages carried the same interest as last week, 5.87%, while the five-year and one-year adjustable-rate mortgages edged higher, to 5.89% and 5.48% respectively.

Countrywide to hire staff

Countrywide intends to hire an additional 2,000 employees this year, the company announced on Monday. These additions will allow the lender to open 100 new branch offices, according to company CEO Angelo Mozilo.

What’s going on here? Countrywide is not doing that well financially, plus we officially have a slump in the mortgage market, plus most lenders are cutting staff and closing branch offices. Why is Countrywide suddenly hiring more people and opening new offices? Mr. Mozilo announced at the UBS Financial Services Conference on Monday that Countrywide intends to increase its market share and additional staff is needed to achieve this goal. And while it is true that Countrywide has managed to stay afloat so far, I don’t yet see how this is going to work.

Interest Rates Going Down

Average mortgage rates declined in the week ending Thursday, April 26, according to Freddie Mac. 30-year fixed-rate mortgages carried an interest of 6.16%, a slight drop from last week’s 6.17%. Current rates are approaching the lowest level for the year so far, 6.14%, recorded in early March. 15-year fixed-rate mortgages also decreased to 5.87%, down from 5.89 a week earlier. 1-year adjustable-rate loans had an interest rate of 5.43%, slightly lower than last week’s 5.45%. The 5-year hybrid ARM dropped to 5.88% from 5.92. Freddie Mac’s chief economist Frank Nothaft attributed the decline to weaker existing home sales in March and lower consumer confidence in April.

Rates are way below year-ago levels, when 30-year fixed-rate mortgages carried an average interest of 6.58%, 15-year mortgages were at 6.21%, 1-year adjustable-rate mortgages had a rate of 5.68% and 5-year hybrid ARMs averaged 6.21%.

Housing Lump Not Over Yet

And now, a sober look at the housing market from Freddie Mac’s CEO Richard F. Syron. Rising interest rates on high-cost mortgages could cause a spike in foreclosures in the next few years, he said in an interview with The Associated Press. He sees the mortgages issued in 2006 as “the most troublesome”, because of the loose lending standards that spread throughout the industry. Payments on these loans will only begin to adjust in the next few years, potentially causing yet another wave of delinquencies and foreclosures.

Freddie Mac and Fannie Mae, the two government-sponsored loan financiers and largest buyers of home mortgages, are currently developing programs to help keep troubled lenders in their homes. These will include new types of hybrid adjustable-rate loans with longer fixed-rate terms and mortgages with longer repayment terms. Freddie Mac also announced that it will purchase $20 billion in mortgages to help consumers avoid foreclosure. According to Syron, these measures will not suffice to save everyone. They’re rather aimed to help “individual people”. Reversing the market dynamics, however, will take a lot of time.

He also spoke at the “Housing Boston 2012” conference. He said zoning restrictions are standing in the way of providing affordable housing and that residents of established neighborhoods need to rethink their reasoning behind such restrictions. In cities like Boston, lack of supply makes Real Estate harder to afford.