Credit scores can drop after getting loan help

By ALAN ZIBEL, AP Real Estate Writer Friday, March 19, 2010 Some homeowners who sign up for the government's mortgage assistance program are getting a nasty surprise: Lower credit scores. For borrowers who are making their payments on time but are on the verge of default, the Obama administration's loan modification program can reduce their credit score as much as 100 points. That makes it harder to get a loan and can present a problem when applying for a new job. Housing counselors say it's unfair, especially because the news often comes as a surprise to homeowners. "Why should people's credit be hurt even worse when they're trying to do the right thing?" said Eileen Anderson, senior vice president at Community Development Corp. of Long Island, a housing counseling group in New York. And many homeowners are angry that a program designed to help carries such a penalty, said Kathy Conley, a housing counselor with GreenPath Inc., a nonprofit group in Farmington Hills, Mich. "It's a feeling of being duped," she said. Still, the impact is far less severe than a foreclosure, where borrowers typically find their credit is in tatters for years. That's due to the cumulative impact of many months of missed payments and the foreclosure itself, which drags down a homeowner's' credit by 150 points or more on a scale of 300 to 850. To enroll in the Obama administration's $75 billion "Making Home Affordable" program, borrowers enter a trial period in which they make at least three payments. But some are finding out that their credit score takes a dive during this trial phase. It happens once their mortgage company notifies the three big credit bureaus — Experian, Equifax and TransUnion. For delinquent borrowers, the damage was done when they fell behind on their loans. But for homeowners who are having financial troubles but managing to pay their bills, a request for a loan modification is the first sign of difficulty. And that means a sharp drop in the borrower's credit score. The credit rating industry defends the practice. People who sign up for loan modifications would not be asking for help unless they were having severe money troubles, said Norm Magnuson, spokesman for the Consumer Data Industry Association, a trade group in Washington that represents the credit bureaus. "The consumer is going into the program because they're in a financial bind," he said. "Other lenders would need to be aware of that." The Obama administration acknowledges that enrolling in the program can hurt credit scores. But Meg Reilly, a Treasury Department spokeswoman, said that foreclosure "brings far more serious financial consequences for borrowers and their families." The credit score issue is an unexpected consequence of the program that has been plagued with problems and disappointing results since its launch last year. Only about 170,000 homeowners had completed the process as of February. Hundreds of thousands more are still in limbo. Jim Owens, 46, of Harrisburg, Ore., was accepted on a trial basis for the Obama plan last year. He and his family were in bad financial shape. They were barely able to pay the mortgage and utility bills. The main reason: After being laid off and unemployed for six months, he took a job as maintenance director at a retirement home. But it paid only around $25,000 year, about $10,000 less than his former job in a city public works department. He and his wife were also struggling with debt, after taking out a second mortgage four years ago to pay off debt and medical bills. Late last year, he was searching for a used sport-utility vehicle. He got a 30-day approval for $2,000 car loan. But that time ran out before he found a car, so he had to reapply for the loan. He was shocked to learn that, after signing up for the Obama plan, he was denied. "I should have been told," that this might happen, Owens said. "Without credit, you can't do a whole lot in life." A Citi spokesman, Mark Rodgers, said the company follows the Treasury Department's guidelines for reporting to credit bureaus. "We do not determine credit scores," said Rodgers, who declined to comment on Owens' case. The impact is worse for borrowers who enroll in the Obama program and are then ruled ineligible. If homeowners do manage to get accepted into the Obama program and have their loans permanently modified, lenders update the credit bureaus. The new status neither hurts nor helps the borrower's credit score. Over time, they can see their score increase. "The best way to build credit back is to continue to pay bills as agreed, to use credit wisely," said Tom Quinn, vice president of scoring solutions at Fair Issac Corp., which designed the well-known FICO score system.  "As time goes on, the score gradually increases."

Pace of house flipping picks up

Robert Selna, Chronicle Staff Writer

Tuesday, March 30, 2010

Lance Iversen / The Chronicle

Luis Jimenez bought and remodeled this home in Richmond, and he is now in contract to sell it at a profit.

When Luis Jimenez bought a two-bedroom house in Richmond from a bank last year for $46,000, he joined the ranks of Bay Area real estate investors, who in 2009, purchased homes in moderate-priced ZIP codes, siphoning off housing inventory and resuscitating neighborhoods hit by foreclosures - but also pushing out some first-time home buyers.
Jimenez, a handyman and construction worker, spent about $14,000 renovating the house and now is in contract to sell it for $110,000 after eight prospective buyers made offers.


Bay Area bidding wars were big news in 2005-06 at the height of the housing bubble. They were driven by buyers who feared they would lose out on the American dream if they didn't act fast, and by investors, who imagined no ceiling to rapidly rising prices.


Multiple offers made a comeback in 2009 and early 2010, but this time around they occurred mostly in below median-priced areas, and were propelled significantly by investors buying bank-owned properties.


A Chronicle analysis of sales data from MDA DataQuick, a San Diego real estate research firm, shows that house flipping activity - where a home is bought and quickly resold - increased from 2008 to 2009 in several Bay Area ZIP codes.


For instance, the Pittsburg ZIP code 94565 had 52 flip sales in 2009. In 2008, it had 13.
DataQuick defines a flip as a recently purchased home that had previously sold within 21 to 180 days prior. The firm's data do not capture homes bought at auctions.


But other figures show that investor buying at public foreclosure auctions also has boomed.
According to research firm ForeclosureRadar.com in Discovery Bay, the number of houses in the nine-county Bay Area purchased by investors at public auctions jumped from 122 in January 2009 to 637 in January 2010. February 2010 saw similar increases.

Types of investors

Investors are not monolithic. Some are individuals, similar to Jimenez, who pooled his funds with family members in hopes of getting a leg up. Others are investor groups and real estate investment firms that buy scores of homes in succession or all at once.


The characteristic the investors have in common is that they tend to pay cash, placing them a step ahead of buyers using mortgage loans, which often involve more paperwork and are less certain to come to fruition.


"We've seen a notable increase in investors over the past year," said John Robin, a Realtor with Keller Williams in the East Bay, who represents Jimenez and primarily works with investors. "At the beginning of 2009, there was a big spike in foreclosures and the places that had the biggest inflation in the boom had the biggest cuts."


Robin works with buyers who flip property and others who rent the houses they buy. He says his clients likely have elbowed out some first-time home buyers, but notes that they also have restored the health of neighborhood blocks that had become partly vacant, and forlorn.
While Jimenez's house in Richmond was up for sale, he and Robin decided to board up the windows to discourage squatters and break-ins.


"When foreclosures took hold of neighborhoods there were problems with squatters or they became like ghost towns," Robin said. "When homes are rented out, the tenants use the schools and supermarkets. ... It's better to have people in the homes than to have them empty."


Robin and others believe that the tide may ebb for investors in 2010. As more investors have descended on the market, fewer bank-owned properties have appeared on listings, suggesting that banks are either moving through their stockpile of foreclosures or dribbling them out more slowly as they try to modify loans of borrowers who have defaulted.


The Treasury Department also will soon start a program encouraging more transactions known as short sales, which are not popular with investors.


In a short sale, the lender allows a homeowner to sell a house for less than, or short of, what is owed on a mortgage. Owners seek short sales to lessen the credit damage that comes with a foreclosure.


Banks historically have resisted short sales because they require extra administrative work to analyze details, such as the owner's finances and property values, and they typically represent a loss of money.


Investors generally don't like short sales because of the lengthy process involved and the uncertain outcomes.


In 2009, banks added staff to handle the transactions. Wells Fargo, for instance, has hired 8,000 workers since the start of 2009 to manage short sales.


The Treasury program pays $1,500 to homeowners who move out, $1,000 to the servicing bank and another $1,000 to any second lien holders if a short sale is completed.


East Bay Realtor Kerri Naslund specializes in helping buyers with short sales. She is skeptical that banks will become more efficient with the transactions. Naslund, who focuses on Oakland, and also represents investors, said she has seen many instances in which an investor edged out a first-time home buyer.


"Investors stalk every property I see," said Naslund. "They fix places up for pennies on the dollar and then sell them to first-timers who have become frustrated by losing out on all the sales."

FHA help for investors

But although increased short sales may cool off investors, a different government policy may facilitate house flipping. As part of a recent change, the Federal Housing Administration reversed a rule and decided to allow government-insured mortgages for homes sold and resold within three months.


Previously, the FHA refused to provide mortgage insurance for homes resold within 90 days in order to prevent fraud. A common scam was for investors to purchase a house, make minor repairs and then sell it to a straw buyer who never planned to pay off the loan.
That kind of ploy artificially ramped up housing prices, left the FHA with inflated insurance claims, and made for vacant and blighted housing.


The FHA has said that it made the rule change - scheduled to last for one year - not to fuel an investor-driven market, but instead, in recognition of the fact that investors already are playing a key role in bringing foreclosures back to sale.


Jimenez plans to look for another home to buy in the coming weeks. For him, the equation is straightforward.


"It didn't cost that much to fix up the last house. I can do the work myself, and I made it better for the buyer and for myself."

E-mail Robert Selna at rselna@sfchronicle.com.

Economy in U.S. Preserves Biggest Gain in Six Years (Update1)

March 26, 2010, 9:06 AM EDT

By Timothy R. Homan(Adds economist comment in third paragraph.)

March 26 (Bloomberg) -- The U.S. economy expanded at a 5.6 percent annual rate in the fourth quarter of 2009, and corporate profits climbed, setting the stage for gains in employment that may broaden and preserve the expansion.

The rise in gross domestic product, while smaller than the government’s previous estimate issued last month, marked the best performance in six years, figures from the Commerce Department showed today in Washington. Company earnings increased 8 percent, capping the biggest year-over-year gain in a quarter century.

“Profits are a leading indicator of the economy and suggest continued growth and likely job gains in the second quarter of this year,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said in a note to clients after the report.

Caterpillar Inc. and Boeing Co. are among manufacturers seeing demand strengthen as business investment, consumer purchases and exports keep climbing, indicating the recovery is being maintained this year. Federal Reserve Chairman Ben S. Bernanke, citing “weak” labor and housing markets, yesterday said the world’s largest economy still needs low interest rates to sustain growth.

Stock-index futures trimmed earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.3 percent to 1,165.8 at 9:02 a.m. in New York. Treasury securities were little changed.

Less Than Anticipated

The downward revision last quarter reflected larger decreases in commercial construction and stockpiles, and a smaller gain in consumer spending than estimated last month.

For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946.

Fourth-quarter corporate profits, reported today for the first time, increased by $108.7 billion to $1.47 trillion. Earnings jumped 31 percent from the same period in 2008, the biggest such increase since 1984.

Inventory Boost

Efforts to stabilize inventories provided the biggest boost to growth last quarter, contributing 3.8 percentage points to GDP.

Business investment in new equipment advanced at a 19 percent pace last quarter, the biggest gain since 1998. Spending on structures, including office buildings and factories, dropped at an 18 percent pace.

A Commerce Department report this week showed companies ordered more long-lasting goods from factories in February, driven primarily by bookings for commercial aircraft, machinery and metals. The gains suggest the manufacturing rebound will keep propelling the recovery even as commercial construction continues to slump.

Boeing, seeking to reclaim its title as the world’s biggest commercial-plane maker, said this month it will boost production of its largest jets to meet increasing demand. There has been a “dramatic pickup” in air-freight shipments and passenger travel in the past four to five months, marketing chief Randy Tinseth said in a March 19 interview.

Hiring Pickup

Caterpillar, the world’s largest maker of construction equipment, also said this month it plans to hire 500 workers starting this year to expand a generator plant in Newberry, South Carolina. Caterpillar has started recalling some workers in Indiana and other states after cutting more than 19,000 jobs last year amid the recession.

Consumer spending, which accounts for about 70 percent of the economy, rose at a 1.6 percent pace last quarter, compared with the 1.7 percent rate forecast by economists and a 2.8 percent gain in the prior three months. Spending added 1.2 percentage points to GDP. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.

Purchases in the third quarter received a boost from the government’s auto-incentive program that offered buyers discounts to trade in older cars and trucks for new, more fuel- efficient vehicles. The plan expired in August.

Auto sales this month may exceed a 12 million annualized pace, an improvement from February, according to analysts at J.D. Power & Associates and Edmunds.com. Gains in retail sales for January and February signal consumer spending will contribute more to GDP in the first quarter of 2010.

Jobs Needed

The job market is one part of the economy where a recovery has yet to take hold. Payrolls fell by 36,000 last month after a 26,000 drop in January. The U.S. has lost 8.4 million since the start of the recession in December 2007, the most of any slowdown in the post-World War II era.

Payrolls probably increased this month, according to the median estimate of economists surveyed before a Labor Department report due April 2.

“The economy continues to require the support of accommodative monetary policies,” Bernanke said yesterday in testimony to the House Financial Services Committee.

Responding to questions, Bernanke said the “unemployment situation is very weak,” with 40 percent of the jobless being out of work for a long time, and the housing market is “still quite weak.” Policy makers this month reiterated a pledge to keep the target interest rate on overnight loans between banks low for “an extended period.”

--With assistance from Julie Alnwick in New York, Keith Naughton in Southfield, Michigan, and Shruti Date Singh in Chicago. Editor: Carlos Torres

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net

Mortgage rates inch up, but stay below 5 percent

Associated Press

Posted: 03/25/2010 09:31:51 AM PDT

Updated: 03/25/2010 09:31:51 AM PDT

McLEAN, Va. — Mortgage rates moved slightly higher but remained just below 5 percent this week, as a Federal Reserve program that has maintained rates near record lows prepares to end.

The average rate on a 30-year fixed rate mortgage inched up to 4.99 percent this week from 4.96 percent last week, mortgage finance company Freddie Mac said Thursday.

Rates on 30-year fixed mortgages fell to a record low of 4.71 percent in December and have hovered around 5 percent since. Rates have been kept down by the Fed's $1.25 trillion program to buy up mortgage-backed securities issued by Freddie Mac and sibling company Fannie Mae.

The Fed's program is set to end March 31. Some analysts fear that mortgage rates could rise once the program ends, weakening the fragile recovery in housing and the overall economy.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day, often in line with long-term Treasury bonds.

This week, the average rate on a 15-year fixed-rate mortgage was 4.34 percent, up a bit from 4.33 percent last week, according to Freddie Mac.

Rates on five-year, adjustable-rate mortgages averaged 4.14 percent, up from 4.09 percent a week earlier. Rates on one-year, adjustable-rate mortgages rose to 4.20 percent from 4.12 percent.

The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.

The nationwide fee for the four loans in Freddie Mac's survey averaged 0.6 of a point.

White House proposes new aid to homeowners

By David Streitfeld 

New York Times

Posted: 03/25/2010 09:48:33 PM PDT

Updated: 03/26/2010 07:37:46 AM PDT

WASHINGTON — The Obama administration will announce today a broad new initiative to help troubled homeowners, potentially refinancing several million of them into fresh government-backed mortgages with lower payments.

The escalation in aid comes as the administration is under rising pressure from Congress to resolve the foreclosure crisis, which has put millions of Americans at risk of losing their homes. But the programs are likely to spur protests among those who have kept up their payments and are not in trouble.

A major element of the new program, according to several sources who spoke on the condition of anonymity, will be to encourage lenders to write down the value of loans for borrowers in modification programs. Until now, modification programs have focused on lowering interest rates.

Another major element will involve the government, through the Federal Housing Administration, refinancing loans from borrowers whose home value has sunk below what they owe on it. More than 11 million homeowners are in this position, known as being underwater. That aspect of the plan would apply even to borrowers who have not fallen behind in their mortgage payments.

Investors who own the loans would have to swallow losses but would probably be assured of getting more in the long run than if the borrowers went into foreclosure. The FHA would insure the new loans against the risk of default.

Many details of the administration's plan remained unclear Thursday night, including the precise scope of the new programs and the number of homeowners likely to qualify.

This much was clear, however: The plan could put taxpayers at increased risk. If many additional borrowers move into FHA loans, a new downturn in the housing market could send that government agency into the red.

The FHA has already expanded its mortgage-guarantee program substantially in the last three years as the housing crisis deepened, insuring more than 6 million borrowers. Sources said the agency would receive $14 billion in funds from the Troubled Asset Relief Program, cash it could dangle in front of financial institutions as incentives to participate in the new program.

A third element of the White House's housing program will require lenders to offer unemployed borrowers a reduction in their payments for a minimum of three months.

An administration official declined to speak on the record about the new programs but said they would "better assist responsible homeowners who have been affected by the economic crisis through no fault of their own."

The plan would essentially supplant the government's earlier mortgage modification plan, announced a year ago with great fanfare. It has resulted in fewer than 200,000 people getting permanent new loans. As many as 7 million borrowers are seriously delinquent on their loans and at risk of foreclosure.

The news was greeted with cautious enthusiasm by groups that have tracked the foreclosure crisis and tried to assist communities and underwater homebuyers.

"It sounds really good, and I'm not used to saying that," said Kevin Stein of the California Reinvestment Coalition in San Francisco.

He said "the two main weaknesses" of the existing federal Home Affordable Modification Program were that it didn't reduce the mortgages of underwater homeowners, and didn't help borrowers who were underemployed or unemployed and would have difficulty qualifying for a loan modification.

"It seems they have taken these issues to heart," Stein said. "It's unclear how many people will qualify — that's the one hesitation. We're not sure how broadly these initiatives will reach."

Martin Eichner, with Project Sentinel in Sunnyvale, said the proposals sound good but he would like to see the details.

"It has to help significant numbers of people, and there has to be enforcement," Eichner said.

"These plans always look great in the first news release, but we've often been disappointed in the performance. To the extent that lenders write down principal balances, that would be a significant improvement," he said.

Eichner said the home affordable effort also needs an enforcement mechanism. "Without any real consequences, day to day we see lenders ignoring what we think are pretty clear rules under the current making home affordable program."

While the number of foreclosure-related filings is beginning to flatten or decline, the number of borrowers who are seriously distressed is rising. In the fourth quarter, the number of households at least 90 days past due on their mortgages swelled by 270,000, according to a report issued Thursday by the Office of the Comptroller of the Currency.

"The government is seeking to persuade people to stay in their homes by aligning the mortgage debt with the asset value, which is the only viable path to real housing stability," said one person who was briefed on the government's plans. Several people who described the plans would speak only on condition of anonymity, since they had not been authorized to disclose details ahead of a White House briefing scheduled for this morning.

Staff writer Pete Carey contributed to this story.

A Good Time to Buy? Yes, But No Need to Rush

• 
  
• MARCH 27, 2010, 12:47 AM ET

Wall Street Journal

By Nick Timiraos

Today’s look at the high-end housing market reveals how more sellers are beginning to get more realistic about home prices and cut deals on million-dollar homes.

Many housing economists say that for borrowers who can get a mortgage and who have stable incomes, pulling the trigger on a house they like makes a lot of sense right now. (Of course, they also note that the days of buying high-end properties as high-yield investments are history, at least for the time being).

But while there are certainly opportunities at the high end, buyers shouldn’t feel a need to rush because the market is still oversupplied. And those who do make purchases need to be realistic about the potential for some future price declines. “There’s still going to be more pressure on this market for the next couple of years,” says T.J. Culbertson, a real-estate agent in Beverly Hills, Calif.

On the other hand, as mortgage rates are low for those who can get financing. “If you’re waiting because you think the price might get better, well, the mortgage rate could go in the wrong direction,” says John Burns, a real-estate consultant based in Irvine, Calif. He says it could be a good time to buy generally speaking in markets where values have returned to 2003 levels.

While some borrowers are worried that they’ll buy a new house only to see it decline in value, that’s a much bigger concern primarily for first-time buyers. Those who already have homes could also see the price of their current home fall in value.

The high end of the housing market didn’t see nearly the same spectacular appreciation as the bottom of the market, which has dropped much more sharply and is now showing signs of stabilization. In San Francisco, prices on homes for the bottom third of the market (currently homes under $325,000) have fallen 57% from the peak, returning to levels last seen 10 years ago, while for the top third of the market (currently more than $600,000), prices are down 23% to 2004 levels, according to the Standard & Poor’s/Case-Shiller home price indexes. But prices rose by 4% over the last three months of 2009 at the bottom end, compared to just 0.5% at the high end.

One big headwind facing the high end: it’s harder to qualify for a loan than it used to be, which has reduced the pool of potential buyers. The market for million dollar homes was fueled during the height of the housing bubble by exotic mortgage payments that allowed high leverage. Now that those products are gone, banks are back to requiring much bigger incomes.

But the economic downturn has seen a big drop in the number of high-income earners. The number of households with gross taxable income of more than $200,000 fell to 2.8 million last year, according to estimates by Moody’s Economy.com, down from 4.57 million households in 2007.

Another headwind that faces the market: distressed sales. At the high end, more borrowers who took out exotic mortgages that will adjust to higher payments in the coming year or who have been holding out by living off of reserves begin to capitulate.

One problem is that many homeowners at higher price points aren’t realistic about prices and wait too long to pursue a short sale, where a home is sold for less than the amount owed, says Maggie Navarro, a real-estate agent in Pasadena, Calif. “It’s very, very difficult for these people to believe they’ve had such a severe reversal of fortune,” she says. “The higher-end people are so much less realistic than sellers on the more modest end of the scale.”

Some markets have had relatively few sales, leaving borrowers unsure about how much their property has fallen in value. Many homeowners don’t “have a clear opinion of how far their house is underwater,” says Mr. Burns.

Brandon Knapp's Market Update 4/1/10

http://www.mmgweekly.com/w/index.html?SID=89e3b2c88ef35d68afff6abeb34bec4c