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Study Finds Evidence of Gender Discrimination in Loan Approvals

Women are less likely to be approved for mortgage loans than their male counterparts, even when loan-to-income ratios are equal, according to a new study from the Woodstock Institute, a Chicago-based, nonprofit research and policy organization. The findings reveal an 8 percent disparity between the likelihood of a woman and man with similar loan-to-income ratios receiving a purchase loan and a 21 percent disparity among approval rates for male and female refinance applicants.
For the full article, please click on the link below.
http://www.themreport.com/articles/study-finds-evidence-of-gender-discrimination-in-loan-approvals-2013-03-14

Fed Governor: Consumer Protections May Come with a Cost

As the industry prepares to implement the Consumer Financial Protection Bureau’s (CFPB) new ability-to-repay rules, Federal Reserve Governor Elizabeth Duke warns new consumer protections may come at a cost to the industry as lower-quality-credit borrowers are precluded from the housing market. As the broader economy continues to improve, household formation will increase, according to Duke, “but if credit is hard to get, these will be rental rather than owner-occupied households.”
For the rest of this article, please click on the link below.
http://www.themreport.com/articles/fed-governor-consumer-protections-may-come-with-cost-2013-03-12

New Report – California in Crisis: How Wells Fargo’s Foreclosure Pipeline Is Damaging Local Communities

A new report issued by ACCE (Alliance of Californians for Community Empowerment), the Center for Popular Democracy and the Home Defenders League called California in Crisis: How Wells Fargo’s Foreclosure Pipeline Is Damaging Local Communities, shows a $3.3 billion loss to community wealth and state and local coffers from impending Wells Fargo foreclosures.

The report recommends:

1.       Wells Fargo should commit to a broad principal reduction program.

2.       Wells Fargo should report data on its principal reduction, short sales, and foreclosures by race, income, and zip code.

3.       Wells Fargo should immediately stop all foreclosures until the first two demands are met.

Federal Housing Finance Administration Details Objectives for 2013

While Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), anticipates the gradual reduction of the GSEs in the housing market, he does not believe either Fannie Mae or Freddie Mac will exit conservatorship and return to the private sector. As such, FHFA’s goals for this year expand on last year’s three main goals of building an infrastructure for the future of the secondary market, contracting the GSEs’ role in the market, and maintaining the GSEs’ foreclosure prevention and credit availability efforts.

For the full article, please click on the link below.
http://www.themreport.com/articles/fhfa-head-details-objectives-for-2013-2013-03-05

QM Critics: Mortgage Rule to Set Up Another Meltdown

In an article released March 3, Edward Pinto and Peter Wallison, two fellows at the American Enterprise Institute (AEI), assert that the QM rule is “simply another and more direct way for the government to keep mortgage underwriting standards low.” While the two authors acknowledge that the rule’s provisions–described by them as “draconian”–would “probably have addressed the problem of low underwriting standards,” they say the lack of down payment or credit history requirements doom it to failure.

To read the full article, please click on the link below.
http://www.themreport.com/articles/qm-critics-mortgage-rule-sets-up-another-meltdown-2013-03-05

Credit Union Earnings Rise to All-Time High in 2012

Federally insured credit unions brought in record-high earnings last year, the National Credit Union Administration (NCUA) reported. NCUA reported earnings of $8.5 billion across the industry in 2012, the highest annual figure ever posted. Earnings last year were 36.1 percent higher from the $6.3 billion reported in 2011. The rise in earnings came largely from reductions in loan loss reserves, “a positive sign of improving economic conditions,” NCUA said in a release.

Read more by clicking the link below.
http://www.themreport.com/articles/credit-union-earnings-rise-to-all-time-high-in-2012-2013-03-04

Fannie Mae: Federal Budget Woes Unlikely to Stop Growth

Even with tax hikes and spending cuts creating a significant headwind to the economy, Fannie Mae’s Economic & Strategic Research Group is maintaining its outlook for slow and steady growth in 2013. On the housing front, continued lean inventory and the increase in rate of household formation bode well for homebuilding activity and residential construction employment, the outlook says, giving housing an opportunity to contribute even further to economic growth.
For the rest of this article, please click on the link below.
http://www.themreport.com/articles/fannie-mae-sequestration-debt-ceiling-unlikely-to-stop-growth-2013-02-21

Your New Landlord Works on Wall Street Hedge Funds are Snatching up Rental Homes at an Alarming Rate

BY DAVID DAYEN

Housing analysts have been giddy for the past year about the comeback of their industry, whose collapse led to the Great Recession. Sure, 2012 was actually the third-worst year for housing ever—but it still beat 2010 and 2011. New and existing home sales, housing starts, and prices jumped in 2012, and experts expect an even stronger recovery for 2013.

It’s clear why people are so excited: Housing typically leads economic recoveries. As more people build equity in their homes, they feel more free to spend disposable income and increase economic activity, a phenomenon known as the “wealth effect.” So a bullish outlook for housing would seemingly augur a long-awaited recovery to Main Street. But the more you look into it, the clearer it becomes that it’s not being driven by the typical American families who lost their homes in the economic crash. In fact, it’s being fueled by the banks and hedge funds whose speculation caused that crash in the first place.

If you’ve signed a lease in the past year, there’s a good chance your landlord wears a tailored suit and works on Wall Street. One of the hottest trends in the financial sector is known as “REO-to-rental.” Over the past couple years, hedge funds, private equity firms and the biggest banks have raised massive amounts of capital to buy distressed or foreclosed single-family homes, often in bulk, at bargain prices. Their strategy is to convert them to rental units for a while before reselling them when prices appreciate. The Wall Street firms are scooping up properties in the hardest-hit areas, promising high returns for the rental revenue streams—up to 10 percent annually —and starting bidding wars that have driven up some prices well above national averages. It’s the next Wall Street gold rush, with all the warning signs of a renewed speculative bubble.

The investment market for REO, which stands for real estate-owned properties (i.e. owned by the bank, typically after a foreclosure), really heated up in 2011. In that year, according to Wall Street analyst Graham Fisher & Co., investors made 27 percent of all home purchases, a number right in line with the housing bubble years of 2004 and 2005. Numbers for 2012 have not yet been released, but indications show it accelerated, particularly in areas with the highest foreclosure rates. Hedge funds and private equity firms seek out foreclosed properties at public auctions, or purchase them through short sales, where a bank agrees to let an underwater buyer sell the home for less than the balance of his or her mortgage. The cheap, often damaged homes usually cost between $100,000 and $150,000, and the investors pay in cash. They routinely promise their backers annual returns from the rental revenue income of anywhere between 6-10 percent, and they typically offer a share of the profits when they eventually flip the homes.

According to a recent JPMorgan Chase report, Wall Street has already raised or committed as much as $10 billion for REO-to-rental, enough to purchase 15 percent of all bank-owned homes. The hedge fund Blackstone, a market leader with at least $2.7 billion in purchases already, announced in November the intention to buy $100 million worth of homes every week, with $1 billion in homes just in the Tampa Bay area. JPMorgan Chase recently put money from wealthy clients into the purchase of 5,000 single-family homes for rent in Arizona, California, Nevada and Florida, the so-called “sand states” which saw the greatest collapse during the foreclosure crisis. One study from the Urban Strategies Council showed that 42 percent of all homes that fell into foreclosure in Oakland, California between 2007 and 2011 have gone to investors. “Anybody here in Florida can see the rental signs; they’re everywhere,” said Michael Olenick, a housing data analyst based in the West Palm Beach area.

Government policy has helped this along: Mortgage giants Fannie Mae and Freddie Mac have pilot programs to sell their foreclosed properties for rental conversion in bulk. But these programs have proven slow and unwieldy, so Wall Street firms have made the lion’s share of the purchases directly. And they have all begun to compete with one another for the rapidly dwindling inventory. “It’s hard to find a private equity firm on the planet that doesn’t have a strategy in this space,” said Gary Beasley in January at a conference of the American Securitization Forum. Beasley is chief executive of the Oakland, California-based Waypoint Homes, an early adopter of REO-to-rental, purchasing thousands of single-family homes since 2011.

By picking up blighted property caused by the foreclosure wave, investors could theoretically help the market, as well as the communities, heal. “It breaks my heart what the subprime crisis did to neighborhoods,” said former FDIC Chairman Sheila Bair. “We do need buyers to come into the neighborhoods and commit capital to their revitalization.”
But the typical owner of a single-family property for rent is a local mom-and-pop business with a stake in the community who manage properties as a primary vocation. They tend not to be owned by a Wall Street investor thousands of miles away, with no history of being landlords and a rigid bottom line to meet. “I’ve lived in single-family rentals all my life,” says Shabnam Bashiri, an organizer with Occupy Our Homes Atlanta, one of the hottest markets for REO-to-rental, with estimates of 40 percent of all purchases going to investors. “If I have a problem getting my rent in some month, I can call my manager, and let him know what’s going on.” In the case of Wall Street investors, you have an absentee landlord, and in the worst-case scenario an absentee slumlord.

“The banks and GSEs need to be careful about selling to folks who will make superficial repairs and flip the property,” cautioned Sheila Bair. But early signs of how investors are handling the properties are not encouraging. For the most part, they have partnered with large property management companies to deal with day-to-day operations. The houses they purchase often come to them in substandard condition. And the management companies, with thin profit margins of their own, tend to renovate as little as possible before seeking renters.

“I’ve talked to contractors working in these properties,” said Bashiri. “They will put in random extras, like a faucet above the stove, just little bells and whistles. They won’t fix the structural integrity of the homes. They’ll do just enough to make them presentable to charge what they want.” In cases where investors purchase an already-occupied property, Bashiri says, they give the family an immediate notice to either vacate or pay a new rental price, one that’s often hundreds of dollars higher. Maintenance and upkeep has been spotty, particularly because the investors have purchased over a wide geographical area—in some cases hundreds of miles, from the inner cities to the suburbs—spreading the property managers thin.

A couple hedge funds, like the respected firm Och-Ziff, have already fled the REO-to-rental space, claiming that returns were not as high as expected. But others who stay to seek the returns could make life really miserable for renters, especially in areas without strong tenant protections (like suburban areas that experienced lots of foreclosures). In one case, Riverstone Residential, the property manager for Blackstone, has partnered with the credit reporting bureau Experian to compile a national database of all the payment histories of their tenants, meaning that one late rent payment could haunt a renter throughout his or her financial life. “It will become harder to be able to rent without meeting the investor guidelines,” said Bashiri. “They’re trying to institutionalize the single-family rental market, subjecting it to the demands of investors rather than the market.”

Moreover, this is distorting the housing markets in these communities. Investors rushed into Phoenix to snap up foreclosed homes, buying 36 percent of all properties in August 2012. That number coincided with a big run-up in prices; Phoenix home prices shot up 34 percent year-over-year in November, according to one estimate. There is no logical reason why Phoenix home prices should have moved this much based on the fundamentals, absent the factor of speculative investor purchases. And a spectacular run-up like that absent a real economic boom is a prelude to a crash, as we saw during the financial crisis.

This trend has occurred practically everywhere the REO-to-rental investors have intervened, including several markets in California, Tampa, Orlando, Charlotte, Las Vegas, Chicago and Atlanta. The rising prices have only accelerated the purchases, as the investor groups competing with one another try to secure as many properties as possible before the window closes. First-time home buyers and shoppers looking to get into the market have found it difficult to compete, getting outbid by the investors. “It’s weird that we have this housing recovery with no homeowners involved,” said Bashiri of Occupy Our Homes Atlanta.

It begs the question of whether the incipient housing recovery itself is artificial, driven up by the investor gold rush. A recent research note from RadarLogic makes the point that there’s no reason to believe that the run-up in institutional investor demand will somehow connect to future household demand, especially given stagnant wages and tighter mortgage standards. As the Financial Times’ Stephen Foley wrote, “the risk is that the flippers represent an overhang of inventory that will keep a lid on prices, as they trickle their properties out into the market.” After all, the eventual investor strategy is to sell the homes. If prices continue to escalate in these markets, investors will not be able to meet their returns and will look to sell more quickly. If they dump large segments of their properties onto the market at once, they’ll create a glut in supply. “That has the potential to unleash a new wave of declining home prices,” says Michael Olenick, the housing data analyst.

Analysts insist that REO-to-rental does not represent a bubble, that the rental revenue streams will satisfy investors and prevent a mass sell-off. But any disruption in the economy would affect the market for rental housing, leading to longer vacancies and lower returns on investment. And the textbook definition of a bubble consists of speculation chasing an appreciating asset. This is precisely what we have in REO-to-rental. In the words of analyst Josh Rosner of Graham Fisher, “the speculative boom has returned.”Investors have begun to pull out of one of the leading edge markets, Phoenix, as most of the foreclosed properties worth purchasing have been snapped up. The big run-up in prices there could collapse as demand collapses, depressing prices and putting the recovery in jeopardy. And any economic downturn would increase rental vacancies and send this entire market reeling. We may not only have a bubble, but already the beginnings of a bust.

One sign that this resembles a speculative bubble is that REO-to-rental has become a new asset class. Real Estate Investment Trusts (REITs), kind of a mutual fund for real estate that eliminates tax liability for the issuers, have been established as a conduit for capital formation. REITs like Silver Bay and Altisource Residential went public in December 2012, and many of the Wall Street firms buying in this space expect to create public REITs in the near future. They promise dividends from the rental income for their investors in the 5-7 percent range, though other investment groups promise even higher returns. In a time of low interest rates, that’s an attractive option. There’s a dearth of investable assets for institutional investors,” says Josh Rosner. While investors have questions about the long-term viability of bulk rental property management, the money keeps flowing into the space.

Perhaps worst of all, Wall Street has begun to explore the option of securitizing the rental revenue, much in the way that they used mortgage-backed securities to ramp up capital in the bubble years. Three separate REO-to-rental trusts appeared on the market, under the administration of Wells Fargo, in the past couple months. These are non-public offshore trusts that are unregistered with the SEC, and in all likelihood have no credit ratings, as the rating agencies have this time shied away from rating an unproven product. But they’ve attracted enough interest to move forward.
Data from the Federal Reserve Bank of New York shows that securitization inevitably leads to riskier behavior. There’s no reason on earth financial institutions should be able to convince investors again that, through sophisticated alchemy, they can slice the rental revenue pools into tranches and guarantee returns no matter the vacancy rate or the economic climate. But we’ve seen this movie before, and the first one ended rather badly.

That’s perhaps the strangest part of this affair, how eerily similar it all feels. Then as now, market-watchers shrugged off warnings of an unsustainable housing bubble, caused in part by speculators chasing short-term profits. There’s far less excuse for such nonchalance this time, coming just a few years after we saw the precise consequences of the bubble, and the means by which it grew. Michael Olenick, the data analyst, sums it up this way: “Yesterday, flippers were the villain; today, they’re the heroes.”

David Dayen is a freelance writer based in Los Angeles.

Freddie Mac Sees Room for Growth in Housing

While housing activity remains near historical lows, Freddie Mac is taking a more optimistic view: There’s still plenty of room to grow. This glass-half-full viewpoint was reflected in the GSE’s forecast for housing in 2013, especially for housing starts, which are projected to increase to 950,000 units this year–22 percent higher than 2012 levels. The GSE also expects prices to increase 3 percent in 2013 and 2014, while sales are forecast to rise to an annual rate of 5.45 million and 5.80 million, respectively.
For the full article, please click on the link below.
http://www.themreport.com/articles/freddie-mac-sees-room-for-growth-in-housing-2013-02-15

Senators Revive Refinance Bill

Two U.S. senators reintroduced legislation designed to open up competition and limit barriers to refinance for qualified homeowners who are otherwise left without options. Senators Robert Menendez (D-New Jersey) and Barbara Boxer (D-California) reintroduced The Responsible Homeowner Refinancing Act of 2013, a bill that would allow homeowners to take advantage of low interest rates by reducing or removing certain refinance requirements.
To read the full article, please click on the link below.
http://www.themreport.com/articles/senators-revive-refinance-bill-2013-02-11