Archive for November 2012

Lingering Headwinds Make Recovery ‘Disappointingly Slow’

November 26, 2012

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While various economic reports hint at improvements in the nation’s economy since the economic crisis was in full swing, improvement is meek and “recovery” seems too strong a word to describe the progress thus far. Federal Reserve Chairman Ben Bernanke calls the pace of recovery “disappointingly slow.”

 

In a speech before the New York Economic Club Tuesday, Bernanke pointed out some of the lingering headwinds preventing the economy from more momentous progress.

 

Significant among these headwinds is the housing sector itself.

 

To make his point, Bernanke quoted a few notable statistics.

 

“House prices declined almost one-third nationally from 2006 until early this year, construction of single-family homes fell two-thirds, and the number of construction jobs decreased by nearly one-third,” he said.

 

Home sales, prices, and construction have shown some forward movement this year, which Bernanke said is “encouraging” and expects to see residential investment become a “source of economic growth and new jobs over the next couple of years.”

 

However, a “powerful housing recovery” is still being prevented, and one of those obstacles is tight lending, according to Bernanke.

 

Outside the housing market, the credit and capital markets serve as another financial headwind for the nation’s economy. In particular, the financial situation in Europe has been and continues to be a cause of stress and uncertainty.

 

The third financial headwind Bernanke mentioned is U.S. fiscal policy. This concern can be divided into three major categories – the fiscal cliff, the federal debt limit, and monetary policy.

 

“Uncertainty about how the fiscal cliff, the raising of the debt limit, and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy,” Bernanke said.

 

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Recovery ‘Disappointingly Slow’

Fannie Mae Releases Forecast on Housing, Economy

November 25, 2012

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Given improvements seen in housing, Fannie Maerevised its housing forecast higher for 2012 and 2013 in its November economic outlook report.

According to the GSE, the fundamentals are set in place for a “solid” housing recovery, such as low interest rates, rising prices, and a labor market that’s healing.

Considering these developments in housing, the GSE’s Economic & Strategic Research Group anticipates single-family housing starts will jump 25 percent this year, then rise by another 22 percent in 2013.

Existing-home sales should also rise and see a 9 percent increase in 2012 and a 4 percent gain in 2013.

When combining new and existing-home sales, the increase is expected to be 10 percent this year and an additional 6 percent in 2013. And if there’s any risk in this forecast, Fannie Mae says it’s that housing demand may actually result in stronger housing activity than currently anticipated.

Based on the Federal Housing Finance Agency’s purchase-only index, home prices should see an increase of 2.9 percent for the remainder of 2012 and a 1.6 percent increase in 2013.

Fannie Mae was also optimistic about originations and expects originations to reach $1.81 trillion in 2012 and $1.54 trillion in 2013. The refinance share of originations should rise to 71 percent in 2012 before dropping to 62 percent in 2013, according to the report.

The 30-year fixed-rate mortgage is expected to stay low and average 3.5 percent in 2013.
The GSE also expects the Federal Reserve to continue buying $40 billion in mortgage-backed securities (MBS) each month through 2013.

Unemployment is expected to dip further into 2013 and fall to 7.6 percent. GDP is expected to grow at a rate of 2.2 percent in 2013.

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Fannie Mae Releases Forecast

Fiscal Cliff Concerns Hinder Consumer Confidence

November 25, 2012

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Consumer confidence hit the wall in November as Americans sweat the rapidly approaching fiscal cliff, according to monthly survey results released by Thomson Reuters and the University of Michigan.

The Thomson Reuters/University of Michigan Survey of Consumers showed confidence over the economy increased just 0.1 percent from October to November, hitting 82.7 on the Index of Consumer Sentiment. Preliminary data released earlier in November put the index at 84.9, and economists polled by Reuters expected a median index of 84.5.

As budget negotiations begin on Capitol Hill, it seems Americans are growing more concerned about looming tax increases and spending cuts.

“When asked to identify any recent economic news, consumers more frequently made unfavorable references to potential changes in future federal tax and spending programs as well as the inability of the political parties to reach a timely settlement,” a release issued with the survey said.

The November survey is one of only a handful in the past half century in which more consumers “spontaneously mentioned their uncertainty about government policies.” Other past occurrences were also related to taxes, spending, and the federal deficit. While consumers remain optimistic—the index is at its highest level in five years—“that optimism is contingent on the promise of no higher taxes, except on the wealthy.”

While the overall Sentiment Index was slightly above October’s 82.6 (and well above November 2011’s 63.7), the Expectations and Current Conditions sub-indexes moved in opposite directions: The Expectations Index slipped to 77.6 from 79.0 in October, while the Current Conditions Index rose to 90.7 from 88.1. Both components were well above last November.

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 Fiscal Cliff Concerns

Report: Repurchase Requests Stay High, but New Claims Move Past Peak

November 22, 2012

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An analysis released by Keefe, Bruyette & Woods (KBW) found representation and warranty costs for loan repurchases remained elevated in Q3.

New mortgage repurchase requests in the third quarter were mixed for companies that reported them, while outstanding requests were mostly higher.

According to the report, current losses can mostly be attributed to loans sold to the GSEs.

Fannie Mae repurchases totaled $2.02 billion in Q3, and its balance of outstanding repurchase requests increased to $16.2 billion from $14.6 billion in Q2, the report says. Meanwhile, Freddie Mac repurchases totaled $819 million, and its outstanding requests ticked up to $2.94 billion from $2.91 billion at the end of the second quarter.

The outlier in terms of buybacks was Bank of America, which reported a decline in new repurchase claims even as it expanded its rep and warranty loss reserves.

According to the report, new claims declined significantly to $4.98 billion from $8.21 billion in the previous quarter, falling more in line with first-quarter levels of $4.7 billion. At the time, BofA noted “that the sharp increase [in Q2] reflected both higher private label claims and GSE claims as a result of the company’s ongoing dispute with Fannie Mae.”

Because B of A is “in a unique position,” KBW’s analysts say they “tend not to extrapolate from their numbers.”

While KBW expects claims to remain elevated through next year, the firm notes that trends suggest new rep and warranty claims from the GSEs seems to have peaked in 2011. However, given the high level of outstanding requests, “lenders are likely to see elevated levels of provisions over the next year as well.”

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Repurchase Requests Stay High

Forty-One AGs Sign Letter Urging Congress to Extend Debt Relief Act

November 22, 2012

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Forty-one state attorneys general signed a letter Tuesday urging U.S. House and Senate leaders to extend the expiring Mortgage Debt Relief Act of 2007-. The attorneys general argued failure to extend the act would take away from the national mortgage settlement.

 

“Requiring a homeowner to pay income tax on forgiven or canceled mortgage debt would make the National Mortgage Settlement much less effective,” the letter states.

 

The act, which is set to expire December 31, 2012, allows taxpayers to be excluded from paying taxes on forgiven debt from a foreclosure, short sale, or loan modification.

 

In a release, Nevada Attorney General Catherine Cortez Masto explained the act is expiring at a time when homeowners are benefiting from the national mortgage settlement, which obligates five of the largest mortgage services to provide $20 billion in credited consumer relief. The relief must be provided within three years as of March.

 

“I urge Congress to extend this critical tax exclusion so that families in need are not stuck with an unexpected tax bill or deterred from participating in this historic settlement,” Masto said.

 

The letter also points out that failure to extend the act could lead to $1.3 billion in tax increases, according to the Congressional Budget Office.

 

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Forty-One AGs Sign Letter

Agencies Target Companies for Tactics Used in Mortgage Ads

November 22, 2012

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Two federal agencies partnered up to let certain companies know their mortgage advertising tactics may be unlawful.

 

On Monday, the Consumer Financial Protection Bureau(CFPB) and the Federal Trade Commission (FTC) announced letters were issued over “potentially” misleading advertisements that target veterans and older Americans. The CFPB sent about a dozen warning letters to mortgage lenders and brokers, and the FTC sent 20 letters to real estate agents, home builders, and lead generators.

 

The letters inform recipients that they may be violating federal law and urge review of the ads. The CFPB provided examples of warning letters to companies with mortgage ads targeting older Americans and veterans.

 

The agencies randomly reviewed about 800 mortgage ads promoting different services from a variety of sources. For example, the ads targeted potential customers for loans, refinancing, and reverse mortgages. The ads could be found anywhere including the web, newspapers, or on direct mail flyers.

 

Those targeted in the warnings are suspect of violating the Mortgage Acts and Practices Advertising Rule, or Regulation N, which prohibits misrepresentations in mortgage ads. Both agencies are granted authority to enforce the rule for non-bank mortgage advertisers.

 

Examples of potential violations the agencies found included ads suggesting affiliation with a government agency and ads offering very low fixed mortgage rates but with potentially misleading terms. The CFPB also says it found ads for reverse mortgages claiming no payments in connection with the product, even though reverse mortgages generally require monthly or other periodic tax or insurance payments, and may risk default if the payments aren’t made.

 

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Agencies Target Companies

JPMorgan, Credit Suisse Settle RMBS Charges for $416.9M

November 21, 2012

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JPMorgan Securities LLC and Credit Suisse Securities paid a combined $416.9 million to settle charges of misleading investors in the sale of residential mortgage-backed securities (RMBS), the Securities and Exchange Commission (SEC) announced.

According to the SEC’s complaint against JPMorgan, the bank misstated information about the delinquency status of mortgages that provided collateral for an RMBS offering it underwrote. JPMorgan received fees of more than $2.7 million, and investors sustained losses of at least $37 million on undisclosed delinquent loans, the SEC says.

JPMorgan is also charged for Bear Stearns’ failure to disclose its practice of keeping cash settlements from mortgage loan originators on problem loans that it sold into RMBS trusts. JPMorgan acquired Bear Stearns in 2008. The proceeds from this bulk settlement practice were at least $137.8 million, the SEC says.

JPMorgan agreed to pay $269.9 million to settle the charges. It did not admit or deny the charges.

“The SEC’s complaint makes allegations under the negligence-based provisions of the federal securities laws and does not include charges of intentional misconduct. J.P. Morgan is pleased to have reached agreement with the SEC to put these matters concerning RMBS behind it,” the bank said in a statement.

In Credit Suisse’s case, the SEC alleges the firm similarly failed to disclose its practice of retaining cash from the settlement of claims against originators for problems with loans sold into trusts. Credit Suisse also made misstatements in SEC filings about when it would repurchase loans from trusts if borrowers missed the first payment due, the agency says.

According to the SEC, Credit Suisse made $55.7 million in profits and losses avoided from its bulk settlement practice, and its investors lost more than $10 million due to the firm’s practices concerning first payment defaults.

Credit Suisse has agreed to pay $120 million to settle the charges. Like JPMorgan, the firm neither confirmed nor denied the allegations and pointed out in a statement that the SEC’s allegation was of negligence and not of intentional recklessness.

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JPMorgan, Credit Suisse Settle