Freddie Mac and Fannie Mae Housing Finance Giants Receive $5.1 billion from JP Morgan

Freddie Mac and Fannie Mae Housing Finance Giants Receive $5.1 billion from JP Morgan

JP Morgan had been facing severe claim issues with Freddie Mac and Fannie Mae Housing Finance Giants who were backed by the government. The claim issues were solved when JP Morgan agreed to pay a sum of $5.1 billion to both the housing finance giants.

There were also further talks with the Department of Justice and the claims could be more expensive for JP Morgan if similar claim issues erupted.

J P Morgan purchased Bear Stearns in 2008. The dispute was that JPMorgan had sold low quality mortgages and securities that created problems later.

Freddie Mac and Fannie Mae Housing Finance Giants invested in these mortgages policy in 2008 and went thru tremendous financial problem when investments in housing nosedived in 2008 and had to seek governmental help of being bailed out.

The final settlement of this claim issue was announced by Federal Housing Finance Agency who in 2008 had helped both the housing giants from a financial washout.

Edward DeMarco heading Federal Housing Finance Agency mentioned that the claims proved that they were responsible to the ordinary tax payers and the assets of these tax payers were conserved thru this settlement. It also added great stability in the marketplace and this was essential.

Edward DeMarco also maintained that this $5.1 billion claim issue was a significant step to attend the various claim issues that were present for a long time. JP Morgan did not undertake any responsibility of doing anything wrong when selling the specified mortgages issues.

Other JP Morgan Claim Problems

$4 billion would be paid by JP Morgan to settle the wrongly representation of mortgage backed securities of Bear Stearns in 2008. As the specified quality levels of the mortgages sold to Fannie and Freddie were not met, JP Morgan would buy back it for a sum of 1.1billion dollars.

JP Morgan maintained that this settlement was a broader effort on their part to solve the problem of mortgage securities and how the government reacted towards the solution. This settlement also reflected the great efforts of governmental agencies like Department of Justice to name a few.

Washington Mutual was taken over by JP Morgan in 2008 after it had crashed when taken over by Federal Deposit Insurance Corporation. The query as to what would happen to the pending reimbursement claim to WaMu is not clear. This basic problem has lead to other issues with the Department of Justice and it is preventing JP Morgan from solving any expensive settlements. WaMu securities were of nearly $1.15 billion, as a part of FHFA or Federal Housing Finance Agency settlement.

The shares of JP Morgan have gone up a little over 20% this year. This was early recognized of as rumors. Federal Housing Finance Agency in 2011 sued around 18 banks over mortgage securities being misinterpreted and JP Morgan was the fourth bank in the list.

UBS in $885 million settled an agreement with Federal Housing Finance Agency in July. Federal Housing Finance Agency also settled with GE and Citigroup but the sum settlement was not disclosed.

JP Morgan being the biggest bank in the country was able to bear the cost of the settlement and it had $2.5 trillion as assets and $21.3 billion as annual income in the year 2012.

There were other legal issues faced by JP Morgan. It paid $1 billion for the London Whale debacle and $80 million over credit card issues.

The bank was alleged to manipulate electric prices in Midwest and California and had to pay $410 million to settle the claim charges. In China also it was involved in various malpractices related to hiring.

The legal expense for the bank was massive and this ate into the third quarter revenue. The CEO Dimon said that this loss was very painful and they would be many more litigation costs that would eat into the earnings of other quarters in the coming years.

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Educated Americans Unable To Buy New Homes Due to Debt Problems

Educated Americans Unable To Buy New Homes Due to Debt Problems

The current slow economy and poor employment opportunities have made it impossible for the young educated Americans to invest in any new home project. The other core reason is that they have already undertaken loans earlier.

The bad economy has caused these educated learners to have bad credit scores, as they are unable to pay back the loans that they have already undertaken. Thus with bad credit scores they cannot invest in any other types of mortgages, especially new homes for themselves.

Most money lenders calculate the money that is pending from these educated students and try to extract as much as possible. With more students paying their debt loans, the scenario in investing in new home loans seems bleak.

More graduates are now living with their parents

There was a time when graduates would seek options for new homes. But today the scene seems to have reversed. There are a growing percentage of students who have graduated recently and are staying with their parents or planning to stay with their parents. An online survey has estimated this student percentage to be around 36%. Thus these graduated students are saving on their expense and with time be able to build a credit history.

But currently the percentage of graduated students investing in new homes is low. The age group mainly affected is between 18 yrs to 32 yrs old students and the percentage stands around 34.3% in March this year.

For the first time ever, non graduates were investing more in new homes then graduate students according to an estimate made by New York Federal Reserve.

Loan problems faced by students

Most students like Danilla Di Martino are of the opinion that the salary they are earning is much lesser then the salary needed to pay their current mortgage loans. Danilla DiMartino who works as an accountant in a PR firm graduated in 2012 and earns around $33,000 but she has a debt of $33,000. When she makes her monthly payment of 700$ debt payment, she is left with no option but stay with her parents.

Pending Heavy Student Loan Amount

The other realistic problem faced by educated students is pending student loans which are heavy on their credit scores. Shane McClelland a divorce attorney makes a great salary as a 27 year old. But he has a heavy student loan of $200,000 pending. This makes him difficult to invest in a new home, despite the fact that he is earning well. Here he has to make a monthly payment of 2000$ and this stretches and limits his standard of living. Shane also had a bad experience in a loan agency where he was refused to fill up a simple loan sanction form because of his current debt condition.

Expensive school loans making problems to get new loans

Danielle DeBacker has a heavy schooling debt of $80,000 which makes her live a frugal life and does not own a car. But she had expensive education and is currently doing a job as a research co coordinator in the clinical field.  She feels that she can own her home only after her 30’s.

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Understanding Credit Scores (Pt 2)

Understanding Credit Scores (Pt 2)

In the fist blog we looked at the five criteria for evaluation that is used to establish a consumer’s credit score, but there are other factors that a consumer needs to know to better understand credit scores and scoring.

Factors that do not impact a person’s credit score include age, salary, race, education, and religion.  Consumers should check their credit reports at least once annually in order to be sure that it remains healthy and free of errors.  If problems exist here are some tips for improving that score.

A borrower should always pay their bills on time; late payments can cause serious damage to a credit score especially if it is a repeated pattern.  If the borrower has an existing mortgage they should contact their lender immediately if they are having trouble meeting their payments, and they should not forget to contact their other creditors as well.

If a borrower does become late in payments they should do their utmost to be sure that none of these debt accounts goes to collections.  Once an item goes to collections it stays in the file for seven years.

Use existing credit wisely.   Borrowers should try to pay down credit cards if at all possible. Carrying high balances on credit cards can severely affect ones credit score. Ideally a consumer should owe no more than 30% of an existing credit limit.  This shows lenders that the consumer has viable credit and knows how use it wisely without over extending themselves.  Consumers often, and erroneously, believe that completely paying off credit cards will improve their credit scores; it can have the opposite effect.

The 30-percent rule also is a good target for consumers relative to their over all monthly debt obligations compared to their income.

Consumers should not make the mistake of opening new credit accounts just prior to applying for a home loan.  Buying new furniture, home appliances or even a new auto on credit is one of the surest ways to damage a credit score, at least temporarily, prior to applying for that home mortgage.

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Understanding Credit Scores (Pt 1)

Understanding Credit Scores (Pt 1)

Even though a borrower’s credit score is not the only criteria that lenders look at when considering a loan approval, it is essential that borrowers do everything to keep their scores healthy.

A borrower’s credit score is drawn from a FICO® based scoring system that was developed for the mortgage industry by Fair Isaac & Company over two decades ago.  Scores can range from a low of 300 to a high of 850, and are based on a scoring methodology that looks at five key factors.

According to FICO about 35% of the credit score is based on a consumer’s payment history. This could include credit cards, retail accounts, installment loans and mortgages.  Factors considered are how late were the payments, how much was owed, how many late payments and how recently they occurred.

Another 30% of the total score is based on amounts owed by the borrower.  FICO looks at the amounts owed on all your accounts, the number of accounts with balances, and how much of the available credit is being used. The more a consumer owes compared to their credit limit, the lower their score will be.

The length of the credit history determines another 15% of the total score.  Just as it indicates, what counts here is how long the accounts have been established.

The next 10% of the total score focuses on new credit.  If the borrower has recently applied for or opened new credit accounts, the credit score will weigh this fact against the rest of the borrower’s credit history. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by looking at the length of time over which inquiries occur. If a borrower needs a loan, they should do the rate shopping within a focused period of time, such as 30 days, to avoid lowering the FICO score.

The last 10% of the score deals with the types of credit the borrower has.  FICO looks at the mix of installment loans, mortgages, retail accounts, credit cards and finance company accounts.    Continued in the next blog.

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Top Wealth & Health Markets

Top Wealth & Health Markets

According to the Local Market Monitor (LMM) from RealtyTrac® (RT), certain states offer more optimal opportunities for homeowners to enhance their personal “wealth and health” relative livable communities.  RT claims that the LMM survey shows that certain communities in California, Texas, North & South Dakota, Utah, North Carolina, Tennessee, Montana, Wyoming, Iowa and Arkansas are the “top markets” that can best enhance a homeowner’s options relative to wealth and health. See the website listed below for charts that show the specific communities and criteria in the ratings.

The survey is divided into five broader categories under Lifestyle, Disease, Environment, Economy and Real Estate with these being further sub-divided into more specific criteria for consideration.  In evaluating the livability of the major markets RT comments that, “Affordable homeownership with significant upside, robust economic growth and an active outdoor lifestyle are meaningful factors for all homebuyers, especially for families looking to relocate [to] other parts of the country.”

In regards to the outlook relative to the real estate wealth environment for these markets RT observed that, “Home prices bottomed out in most local markets over the past couple of years and are now on the upswing.  In many places this upswing will be significant because prices are well below the levels that are ‘normal’ – not boom levels but the levels that local income can support.  Put an economic recovery on top of that, add very little construction in the past five years, and you have a highly favorable situation for anyone looking for sustained increases in home value.”  Additional factors in determining the overall wealth score included lower-than-average unemployment and high foreclosure discounts.

Ingo Winzer, President at Local Market Monitor, notes that, “Despite the somewhat modest national recovery, there are plenty of local markets with excellent economic growth and good potential for the long run. These are places where you’ll like to live, not just because investments in real estate or local businesses are more likely to be successful, but because they are dynamic places.”

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September Foreclosure Update

September Foreclosure Update

Data from the latest U.S. Home Equity & Underwater Report from RealtyTrac® (www.realtytrac.com), “the nation’s leading source for comprehensive housing data,” shows that rising home prices are having a continued positive impact for homeowners with distressed mortgages.

The report reveals that currently there are 10.7 million residential homeowners nationwide, representing 23 percent of all residential properties with a mortgage, that are “deeply underwater” and owe at least 25 percent or more on their mortgages than what their properties are worth.

Though those numbers are still way outside the norm, they are substantially below the 12.5 million properties, representing 28 percent of all properties at the time, that were deeply underwater one year ago, and also are lower than the 11.3 million properties (26 percent of all properties) in the same condition in May of this year.

Better news is that rising home prices have helped another 8.3 million homeowners so that their mortgages now are “either slightly underwater or slightly above water, putting them on track to have enough equity to sell sometime in the next 15 months — without resorting to a short sale.”

Defining further the “slightly underwater or slightly above water” criteria RT says the loan to value (LTV) ratio for these 8.3 million properties have LTVs from 90 to 110 percent, meaning they have between 10 percent positive equity and 10 percent negative equity. The 8.3 million properties represent 18 percent of all U.S. homeowners with a mortgage as of the beginning of September.

Daren Blomquist, vice president at RealtyTrac stated that, “Steadily rising home prices are lifting all boats in this housing market and should spill over into more inventory of homes for sale in the coming months.”

Bloomquist adds that, “nearly one in four homeowners in foreclosure has at least some equity, giving them a better chance to avoid foreclosure without resorting to a short sale — assuming they realize they have equity and don’t miss the opportunity to leverage that equity. Even homeowners deeply underwater have reason for hope, with about 150,000 each month rising past the 25 percent negative equity milestone — although it will certainly take years rather than months before most of those homeowners have enough equity to sell other than via short sale.”

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Loan Modifications Help Recovery

Loan Modifications Help Recovery

According to a recent report from Hope Now and data from the U.S. Treasury Department, loan modifications are being credited with helping to strengthen the housing recovery by decreasing the number of delinquencies and foreclosures nationally.

Currently loan modifications can be acquired from mortgage servicers using proprietary programs or by using the government’s Home Affordable Modification Program (HAMP).

For the month of July mortgage servicers provided an estimated 50,000 homeowners with proprietary loan modifications, with an additional13,183 homeowners receiving HAMP modifications, according to data from the U.S. Department of Treasury.

The 63,000 plus modifications for July makes the number of permanent loan modifications total more than 6.6 million since 2007.  During the same time period, approximately 5.36 million homeowners have received proprietary loans modifications.

So far this year the total number of loan modifications is approximately 519,000, this compared to an estimated 378,000 foreclosure sales reported for the year to date.  Since HAMP began reporting in 2009, more than 1.2 million homeowners have received modifications through the federal program.

Data from the Hope Now report reveals that there has been a large annual decrease in foreclosure sales.  In the first seven months of 2012 there were 485,000 foreclosure sales compared to 378,000 during the same period this year.

Hope Now Executive Director Eric Selk says, “Loan modifications and short sales continue to outpace foreclosure sales. Through the first seven months of the year there have been approximately 80,000 less foreclosure sales compared to the same time period in 2012.”

However, data shows that foreclosure sales increased for the month of July, with approximately 59,000 foreclosure sales completed. This figure is up 14% from the previous month of June, when 52,000 sales were completed. Foreclosure starts rose slightly also, with approximately 102,000 recorded in July compared to 98,000 in June, an increase of about 5%.

Short sales remained unchanged at approximately 26,000 on a monthly basis. Since the beginning of the Hope Now initiative in 2009, an estimated 1.32 million short sales have been completed.

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Housing Recovery Index

Housing Recovery Index

According to a new survey index released by RealtyTrac® (RT), “the nation’s leading source for comprehensive housing data,” the housing market in America has “shifted to recovery mode” in the last 18 months.

RTs Housing Market Recovery Index (Housing MRI), its “first-ever” release, is based on calculations of seven different factors relating to the health of the real estate market.  These factors include evaluations of the unemployment rate, underwater loan percentages, foreclosure activity percent change from peak, distressed sales percent of total sales, institutional investors share of total sales, cash purchases share of total sales, and median home price percent change from bottom. (www.realtytrac.com)

RT ranked 100 major U.S. metros based on the established criteria for the total recovery index and found that assorted markets in California, New York and Florida are leading the housing recovery, while certain other select markets in Maryland, Pennsylvania and Illinois are seen as lagging the furthest behind in the recovery.

The above seven factors were indexed for each market with national averages used as a baseline, and all seven indexes being averaged to calculate a total recovery for the index. Data from the index is available for more than 900 additional metro areas nationwide.

Daren Blomquist, vice president at RealtyTrac says that, “Median home prices have bottomed and are now rising in all 100 ranked markets.  Likewise, foreclosure activity is past its peak in all 100 ranked markets — although foreclosure numbers have been rebounding recently in some areas where a more lengthy judicial process created a backlog of pent-up foreclosure activity.”

Bloomquist also notes that the housing market has “clearly” shifted to a recovery mode as home prices have risen consistently while foreclosures have fallen “closer to pre-bubble levels.”  However, he does add that symptoms of the distress in the markets still linger in some metro areas in the form of a high percentage of underwater borrowers and distressed sales.

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Homebuyer Traffic Slows

Homebuyer Traffic Slows

According to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, the US housing market may be starting to “lose some steam” after seeing strong growth since the beginning of the year.

Data from the August HousingPulse survey shows that there has been a slowdown in traffic for “all three groups of homebuyers,” including current homeowners, first-time homebuyers and investors.  Analysts can use buyer traffic as an indicator of future home sales activity.

Current homeowners have been the largest group of home purchasers in this year’s housing mark, and it is this segment of the market that has seen the sharpest decline in traffic for potential home purchases according to the HousingPulse Homebuyer Traffic Index.

Along with current homeowners, the first-time homebuyer segment of the market also saw a decline in traffic activity.  It should be noted that in spite of the slowdown in homebuyer traffic for both of these segments of the market, “both current homeowners and first-time homebuyers groups are still posting relatively strong traffic numbers.”

Though current homeowners saw the sharpest decline in traffic activity, it was the Investor segment of the market that was the only segment to score blow 50 in the Homebuyer Traffic Index.  A score below 50 indicates, “traffic dropped below what is considered a “flat” traffic level,” while a score above 50 indicates that traffic activity is still positive.

Another part of the HousingPulse survey called the Distressed Property Index (DPI), shows “a continuing slide in the share of distressed properties – real-estate owned and short sales – in the housing market.”  The Distressed Property Index is a measure of distressed properties as a share of total home purchase transactions.  The DPI fell to 25.4 percent in August, based on the three-month moving average.  The August DPI of 25.4 percent was not only down from a distressed property share of 35.8 percent as recently as last March, “but also the lowest level ever recorded by the HousingPulse survey.”

“Anecdotal” reports from real-estate agents indicate that higher mortgage interest rates are reducing home purchases in some parts of the country, however, recently mortgage interest rates have fallen, as of this writing, due to Fed action on delaying the stimulus “tapering” for now.

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Existing Home Sales Increase

Existing Home Sales Increase  9-25-13

The most recent monthly data from the National Association of Realtors® (NAR) shows that sales for existing homes increased in August reaching the highest level in six-and-a-half years.  The NAR also reported that median homes prices have now had double-digit year-over-year increases for nine consecutive months.

Total existing-home sales, which the NAR says are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.7 percent to a seasonally adjusted annual rate of 5.48 million in August.  The figures for August increased from 5.39 million units in July, and are 13.2 percent higher than the 4.84 million-unit level in August of last year.

Last months sales were the highest since February 2007, when they hit 5.79 million.  Existing-home sales have remained above year-ago levels for the past 26 months.

The median existing-home price nationally for all types of housing was $212,100 in August, increasing 14.7 percent from August 2012. This is the strongest year-over-year price gain since October 2005 when the median price rose 16.6 percent, it also marks 18 consecutive months of year-over-year price increases.

Distressed homes, which include foreclosures and short sales, accounted for 12 percent of overall August sales; this is down from 15 percent in July, and is the lowest share since monthly tracking began in October 2008.  Distressed-home sales were 23 percent in August of last year. Ongoing declines in the share of distressed sales are considered a good sign for the market.

Unfortunately first-time buyers continue to decline as a share of the overall number of home purchasers.   First-time buyers accounted for only 28 percent of purchases in August, down from 29 percent in July and 31 percent in August 2012.  In a normal market, first-time buyers account for around 40 percent of home purchases.

When total existing-home sales data is broken down it reveals that single-family home sales rose 1.7 percent to a seasonally adjusted annual rate of 4.84 million in August up from 4.76 million in July.  These sales were 12.8 percent above the 4.29 million-unit pace in August 2012.

The same data shows that existing condominium and co-op sales rose 1.6 percent to a seasonally adjusted annual rate of 640,000 units in August up from 630,000 in July, and are 16.4 percent above the 550,000-unit level a year ago.

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