Key Indicator Down Again

Key Indicator Down Again 

The escrow industry is joined at the hip with the mortgage and real estate industries for most all home purchase or refinance transactions; thusly what happens in the latter two will impact us in the escrow business.

With that in mind seeing any indicator that the overall housing industry is slowing down may be reason for concern.  According to the National Association of Realtors® Pending Home Sales Index (PHSI), pending home sales for existing homes were down again in October; this marks the fifth consecutive month for declines in the PHSI.

Why the possible concern?  The PHSI is a forward-looking indicator based on signed contracts with the sale usually being closed or finalized within one or two months.  As a leading indicator pending home sales can give a good prognosis of where the overall housing industry may be headed.

The PHSI slipped 0.6 percent to 102.1 in October from an upwardly revised 102.7 in September, and is 1.6 percent below October 2012 when it was 103.8. The NAR says the index is at its lowest level since December 2012 when it was 101.3.

NAR chief economist, Lawrence Yun, stated, “The government shutdown in the first half of last month sidelined some potential buyers. In a survey, 17 percent of Realtors® reported delays in October, mostly from waiting for IRS income verification for mortgage approval.”

Yun added that, “We could rebound a bit from this level, but still face the headwinds of limited inventory and falling affordability conditions. Job creation and a slight dialing down from current stringent mortgage underwriting standards going into 2014 can help offset the headwind factors.”

Yun was also cautionary in regards to the outlook for 2014 pointing out that new mortgage rules that are to go into effect in January could delay the approval process, also noting that another government shutdown would harm both housing and the economy.

On a positive note the NAR projects that annual existing-home sales will likely be nearly 10 percent higher this year than in 2012, totaling just above 5.1 million units sold, the NAR also expects a comparable volume in 2014.



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Housing Affordability Declines

Housing Affordability Declines

Data from the latest National Association of Home Builders (NAHB) Housing Opportunity Index (HOI) shows that housing affordability declined in the third quarter.  The NAHB states that the primary contributing factors for the affordability decline were “strengthening” home prices and rising interest mortgage interest rates.

According to the NAHB, the criteria for the Housing Opportunity Index (HOI) “is a measure of the percentage of homes sold in a given area that are affordable to families earning the area’s median income during a specific quarter.”

On a national basis HOI data reveals that 64.5 percent of new and existing homes sold between the beginning of July and end of September were affordable to families earning the U.S. median income of $64,400.  These stats are a decline from the second quarter of this year when 69.3 percent of new and existing homes sold were affordable to median-income earners; this is the biggest HOI decline since the second quarter of 2004.

NAHB Chairman Rick Judson stated that, “Housing affordability is being negatively affected by a ‘perfect storm’ scenario. With markets across the country recovering, home values are strengthening at the same time that the cost of building homes is rising due to tightened supplies of building materials, developable lots and labor.”

Additionally, David Crowe, Chief Economist for NAHB, noted that the decline in affordability was also due to “higher mortgage rates and the more than year-long steady increase in home prices.”  He explains that though affordability has come down from its peak in early 2012, “the index still means a family earning a median income can afford 65 percent of homes recently sold.”  Articulating further he explains that “some of the decline in the affordability index could be the result of a loss in some more modest priced home sales as tight underwriting standards have limited the purchases by moderate income families.”




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Existing-Home Sales Decline

Existing-Home Sales Decline

Data from the National Association of Realtors® (NAR) reveals that sales of existing homes in October have declined for the second straight month, while home prices continue to see double-digit year-over-year gains due primarily to “constrained inventory.”

Sales figures for existing-homes are released by the NAR on the 20th of each month, so data for November sales will be released later this month.  The NAR states that total existing-home sales figures denote completed transactions that include single-family homes, townhomes, condominiums and co-ops.

According to NAR data total sales fell 3.2 percent to a seasonally adjusted annual rate of 5.12 million units for October, down from 5.29 million in September.  Though a decline for the second month in a row, total existing-home sales are 6.0 percent higher than the 4.83 million-unit level in October of 2012. Sales have remained above year-ago levels for the past 28 months.

NAR chief economist, Lawrence Yun, indicated that a slowdown could be occurring when he said. “The erosion in buying power is dampening home sales,” he said. “Moreover, low inventory is holding back sales while at the same time pushing up home prices in most of the country. More new home construction is needed to help relieve the inventory pressure and moderate price gains.”

A partial breakdown of the sales figures show that distressed homes, which includes foreclosures and short sales, accounted for 14 percent of sales in October, which was unchanged from September, while they totaled 25 percent in October 2012.  Additionally, “Nine percent of October sales were foreclosures, and 5 percent were short sales. Foreclosures sold for an average discount of 17 percent below market value in October, while short sales were discounted 14 percent.”

Gains in the median price of existing-homes were partially credited due to the smaller share of distressed sales. The NAR says that the national median existing-home price for all housing types was $199,500 in October; this was up 12.8 percent from October 2012. The median price increase is the 11th consecutive month of double-digit year-over-year increases.






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Escrow Failures

Escrow Failures

California is but one of many states that require the use of escrow services as essentially the final stage in most real estate transactions.  In some cases transactions can “fall out of escrow,” with the homebuyer failing to close on the hoped for purchase transaction.

Though the term “falling out of escrow” may give the impression that the failure to close is the “fault” of the escrow company or officer, the truth of the matter is that most failures involve an assortment of other problems.

Mortgage and Real Estate analyst, Dan Melson, tries to classify the different reasons for escrow failure as being, “failures of qualification, failures of the property itself, and failures of execution.”  Though these are his categorizations, they do help communicate the varied problems that can occur during the escrow process.

Melson states that the failure for the buyer to qualify for financing is the single most common reason for escrow failure.  The buyer’s inability to qualify for financing is a problem that has to be resolved with the buyer’s lender and loan officer, and are not issues that the escrow company or officer can resolve.

As noted above, the second category of reasons escrow fails are “failures of the property.” Failures of the property often have to do with defects or problems that are disclosed during the inspection process.  If the owner is unable, or does not want to correct the problem then the buyer will most likely see the transaction fail.

Issues with the properties title can also fall into this second category.  Melson says, “If the seller can’t deliver clear title, the title company won’t insure it, the lender won’t lend the money, and any rational buyer should want to walk away.”

Failure of execution simply means that someone didn’t do their job.  This failure could include the seller, buyer, real estate agent, loan officer or anyone else with a responsibility to fulfill some detail or contingency of the escrow instructions.  It’s vital that all responsible parties take quick action of their specific tasks to insure timely and exact fulfillment of each escrow instruction.









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Consumer Confidence & Spending

Consumer Confidence & Spending

The latest data released from The Conference Board shows that consumer confidence in the economy fell in November, “dragged down by greater concerns about hiring and pay in the coming months.”  Consumer confidence reached its lowest level in seven months.

Conference Board data indicates that the Consumer Confidence Index (CCI), fell from 72.4 in October to 70.4 in November.  The CCI has fallen almost 10 points in the last three months when it registered 80.2 in September.

The precipitous drop from September to October was attributed to the government shutdown, while November’s decline may be due to consumers looking forward for the next six months.

USA Today noted that since consumer spending drives 70 percent of economic activity, “Less optimism among Americans could slow the holiday shopping season and weigh on economic growth.”  However, they stated that despite the CCI decline in October from September consumer spending actually increased slightly in October from the previous month.

Positive data from a Gallup Poll shows consumer spending for November increased over October.  Gallup stated that, “Americans spent $91 daily in November, up from $88 a day in October, making it the highest amount for November in the past six years. Gallup noted that its daily spending poll results exclude “normal household bills and major purchases such as homes or cars.” It reported its first measurement of consumers’ daily spending amounts in 2008.”

More from the Gallup data shows that, “November 2013’s $3 daily spending jump from the previous month equals the biggest increase from one month to the next since the fall of 2010, when Americans spent $66 a day in November, up from October 2010’s $63.”

Gallup adds, what most any consumer would expect, by saying that December is traditionally the highest-spending month of the year.  They note that the stronger than expected November 2013 consumer results indicate that, “the coming month [December] could be the strongest for spending that Gallup has measured since 2008.”

It is projected that economic growth for the October to November fourth quarter will be around 2.0 percent.  This figure will be a decline from the third quarter, July to September, figures of 2.8 percent economic growth.


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JPMorgan nears for mortgage settlement of $13 billion with the U.S. Agency

JPMorgan nears for mortgage settlement of $13 billion with the U.S. Agency

NEW YORK – The biggest bank of the nation is close for shelling out a largest ever penalty due to one company. This is first ever in American history.

The Justice Department of U.S. is about to finalize an agreement with JPMorgan Chase & Co. of about $13 billion. The settlement is being done for the faulty investments made in mortgage. The financial crisis happened in 2008 led to the situation.

The announcement on final deal is expected to be made by Tuesday, said by an unauthorized person publicly.

Various State and Federal Agencies are going to share the amount of $13 billion. Kamala D. Harris the California Atty. General and Eric Schneiderman the New York Atty. General are also going to be a part of this negotiation.

The financial crisis gobbled up making JPMorgan face the troubles due to the soured loans and its gargantuan settlement that occurred. The two banks that faced the troubles along with JPMorgan are Bears Stearns and Washington Mutual.

Thomas Gorman, who has been an enforcement attorney earlier, said that this is a big win as the government is successful in making the settlement of $13 Billion. He further said that the whole credit goes to the regulations of Government taken in this case. Gorman is now a private practitioner in Washington.

Out of total $13 billion it is the homeowners who have been earmarked an amount of $4 billion for the foreclosures. An U.S. Attorney Benjamin Wagner is going to forestall a prime lawsuit in Sacramento. This lawsuit is involved in doing investigations in the mortgage investments JPMorgan sold itself.

In the recent months JPMorgan has been bedeviled with Legal woes. Recently the bank disclosed that $23 billion is kept aside for meeting the litigation costs. It further disclosed there can be a rise in legal tab by $6 billion additionally. It is expected that this agreement would help the management of the bank so that less focus is required on litigation. According to Gorman, this is a big step forward for JPMorgan.

According to another person familiar with this negotiation, said that the probe of parallel criminal by Wagner will remain unaffected by the negotiation.

The legal experts are predicting that the settlement of JPMorgan might serve like a template to the other banks. This would give the banks an idea regarding taking action in crisis era and cross hairs.

The federal government gets strengthened about their case when the U.S. prosecutors scored victory in Manhattan against the civil frauds case on Bank of America Corp.

The Government used the law that was used in 1980s during the loan and savings crisis.


Arthur Wilmarth Junior said that it’s not expected that this will bring a stop in all this with JPMorgan. He is a professor of law at the University of George Washington.

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Freedie Mac offset the bailout cost and pays $30.4 billion

Freedie Mac offset the bailout cost and pays $30.4 billion

WASHINGTON: In 2008, government seized the firm Freddie Mac that deals with mortgage finance. The company along with its sibling firm Fannie Mae is all set to pay $30.4 billion treasury dividends and offset the bailout costs. According to the Company it is tax write-down recalculation made on the assets that made the upcoming huge payment possible in dividends. With this the company can make a payment of $71.345 billion to the “Treasury Department”.

In the taxpayer assistance the company received an amount of $71.336 billion. But none has been recovered since 2012 as housing market.

In the terms of bailout it is clearly mentioned that the dividend payments that Freddie Mac and Fannie Mae are going to make cannot be reduced. With the improvement happened in the housing market the payments have become possible. This offsets bottom-line costs payable to government.

According to the report given by Freddie, the company made a profit of $6.5 billion in its eight-quarterly profit of July-September period. In its second quarter the company made a profit of $4.9 billion.

In combination the two companies received bailout money of $187.5 billion. With the dividend payments of Third Quarter the company would make a payment of $185.3 billion to the Government.

According to Fannie Mae’s report on Thursday, with the profit of third quarter i.e., $8.7 billion the company would pay $8.6 billion for the Treasury dividends. The company from the taxpayer assistance received an amount of $116.1 billion and would pay about an amount of $114 billion towards the dividends.

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October sees rise in prices and fall in sales for Bay Area homes

October sees rise in prices and fall in sales for Bay Area homes

Sales for Bay Area homes dropped from last year but the prices have shot up again last month in the already expensive area.

According to research by Data Quick, average home prices in nine-county San Francisco Bay increased by 29.7% in a year and a 1.8% jump are noticed from September to October to reach $539,750.

About 7,595 properties including condos and newly built homes are sold this year. Though this number is 3.9% less compared to last year sales, there has also been improvement of 6.4% compared to September.

With the fall in distress property sales, the overall home sales have come down from 35% to 14% in a year that mainly comprised of foreclosed and short sales.

According to John Walsh, the President of Data Quick, the market is gradually coming back to stability, however, that is unlikely to happen very fast.

With improvements in the real estate market, prices have shot up all over the State along with the Bay Area; however, the additional catalyst can be the growth in tech industry. High salaried employees of this sector have aided the rise in price.

In spite of the market conditions, sale prices In the months of June and July, 2007, do not reach their peak of $665,000.

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Prices Increase and sales drop for U.S. existing home

Prices Increase and sales drop for U.S. existing home

The fall in sales of existing homes in October all over the nation can be attributed to the fall in affordability of people.

According to a statement of the National Association of Realtors in Wednesday, it was the second consecutive month in September where a fall by 3.2% in sales of town homes, condos, pre-owned family homes and co-operatives is estimated a yearly rate of 5.12 million.

In his statement, Chief Economist of the association Mr. Lawrence Yun expressed that the main reasons for prices hike and fall in home sales all over the country are low inventory and fall in buying power.

There has been an increase in the average sale prices by 12.8% in October last year to last month’s $199,500 which is still higher by 6 % than October 2012.

With the fall in home sales by 1.8% in September, the demand for those homes has already deteriorated. Where a balanced market has a six month supply, it was 4.9 months in September which means there would be a five month supply if sales are made at October rates.

There has been a fall in sales everywhere, with West witnessing a 7.1% from September which is a fall below their last year record.  Though the effects of partial government closure in October on sale prices is still unclear, the recent sales records show a month or two old contract agreement buyers and sellers.


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Cynics of Mortgage-Bond Start Early

Cynics of Mortgage-Bond Start Early

With speculations in the market for sudden shutdown of the encouragement plans provided by the Federal Reserve last spring, there was a rise in interest rates and also fear of decline in the roaring commercial mortgage market.

When rates actually rose, the market slowed temporary slowdown, however it also revived quickly. Wall Street is currently targeting investors for sale of commercial mortgage securities amounting to as high as $90 billion which is the largest since year 2007 and almost double the $48.4 billion in 2012. Though mortgage interest rates are at least a percentage higher compared to last spring, CMBS have been strong in their issuance

According to a publication by Commercial Mortgage Alert, most of CMBS issuance shows that old mortgages are being refinanced by new loans since July which clearly suggest that property owners are worried about further rise in interest rates and hence are interested for refinancing of their properties.

With the increase in mortgage sales there have been concerns regarding underwriter standards. According to Doug Mazer, real estate capital markets head of Wells Fargo & Co., the improvements in the borrowing market have been better than expected and it is also good news for owners of properties.

There is a major difference between the commercial mortgage securities market and the residential mortgage market. Inside Mortgage Finance are of the view that due to rise in rates, property owners stopped refinancing thus lowering residential mortgage sales to $460 billion in the second and third quarter which is a fall by 18.6%.

There is also difference how landlords and homeowners view refinancing. Landlords are in some cases compelled to refinance whether rates are attractive or not since they use mortgage backed securities for financing that take about 10 years to mature.

News from Federal Reserve has confirmed their curtailing program for progressive measures with the improvements in the economy which is very likely to lead to interest rate hike. These measures will also affect a residential mortgage program.

According to Larry Kravetz, CMBS head of finance, Barclays, people do not know when rates will be up again and are looking forward to utilize the window period before the curtail program of the Federal reserve is in action.



RD Olson Development’s founder Mr. Robert Olson who recently did a refinancing of $ 30 million from Royal Bank of Scotland Group PLC at 5% interest on a construction for a construction at Marriot Courtyard built by his company near Calif, Santa Barbara is of the view that it is not advisable to completely rely on the fact that rates will stay low. He also added that the next refinancing is due after two years and the current rate he got is considered good for hotel construction loans.

According to Edward Shugrue, the CEO of  a commercial property investor company named Talmage LLC, investors have very high interest in bonds and those having appetite for high yield can go for CMBS with yields as high as 3.72% , which is at times higher by at least one percent compared to Treasury securities that have same maturity period.

As per results of rating firm Standard & Poor’s Ratings Services, the growing interest in bond investments have led to poor standards of lending like mortgages on low value properties and loans with interest only payments for long periods such as 10 years. These loans are found to constitute half of the deals made in 2013.

In Peter Eastham’s view, in charge of commercial mortgage ratings at Standard & Poor’s, the sudden increase in competition has surely led to fall in loan granting standards.

Example may be quoted of a recent $1 billion deal of commercial mortgage backed securities made by Goldman Sachs Group, where they had a loan of $ 60 million by a firm named Rialto Mortgage Finance that was mainly based on a lease for Banana Republic and on rents. About 6 million dollars were kept in the event of a signed lease. The loan comprised of $7.9 million in rents or 30% more of the revenues generated by the mall in the last year.

For the reason of an old investor-borrower CMBS dispute, a loan included in the deal was removed after selling bonds related to that loan to the investors. Now, the investors are looking to extract an extra 0.12 % from another CMBS deal made the same day.

In spite of all the positive and negative speculations doing the rounds, the year 2014 looks brighter with analysts predicting issuance of as high as $100 billion in the next year.

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