By Lorraine Woellert and John Gittelsohn
June 14 (Bloomberg) -- The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.
Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts. “It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry. Fannie, based in Washington, and Freddie in McLean, Virginia, own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise. How deep in the hole Fannie and Freddie go depends on unemployment, interest rates and other drivers of home prices, according to the companies and economists who study them.
‘Worst-Case Scenario’
The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens. If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple. Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage. “One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.
Unfinished Business
A 20 percent decline in housing prices is possible, said David Rosenberg, chief economist for Gluskin Sheff & Associates Inc. in Toronto. Rosenberg, whose forecasts are more pessimistic than those of other economists, predicts a 15 percent drop. “Worst case is probably 25 percent,” he said. The median price of a home in the U.S. was $173,100 in April, down 25 percent from the July 2006 peak, according to the National Association of Realtors. Fannie and Freddie are deeply wired into the U.S. and global financial systems. Figuring out how to stanch the losses and turn them into sustainable businesses is the biggest piece of unfinished business as Congress negotiates a Wall Street overhaul that could reach President Barack Obama’s desk by July. Neither political party wants to risk damaging the mortgage market, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and White House economic adviser under President George W. Bush. “Republicans and Democrats love putting Americans in houses, and there’s no getting around that,” Holtz-Eakin said.
‘Safest Place’
With no solution in sight, the companies may need billions of dollars from the Treasury Department each quarter. The alternative -- cutting the federal lifeline and letting the companies default on their debts -- would produce global economic tremors akin to the U.S. decision to go off the gold standard in the 1930s, said Robert J. Shiller, a professor of economics at Yale University in New Haven, Connecticut, who helped create the S&P/Case-Shiller indexes of property values. “People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.” Congress created the Federal National Mortgage Association, known as Fannie Mae, in 1938 to expand home ownership by buying mortgages from banks and other lenders and bundling them into bonds for investors. It set up the Federal Home Loan Mortgage Corp., Freddie Mac, in 1970 to compete with Fannie.
Lower Standards
The companies’ liabilities stem in large part from loans and mortgage-backed securities issued between 2005 and 2007. Directed by Congress to encourage lending to minorities and low- income borrowers at the same time private companies were gaining market share by pushing into subprime loans, Fannie and Freddie lowered their standards to take on high-risk mortgages. Many of those went to borrowers with poor credit or little equity in their homes, according to company filings. By early 2008, more than $500 billion of loans guaranteed or held by Fannie and Freddie, about 10 percent of the total, were in subprime mortgages, according to Fed reports. Fannie and Freddie also raised billions of dollars by selling their own corporate debt to investors around the world. The bonds are seen as safe because of an implicit government guarantee against default. Foreign governments, including China’s and Japan’s, hold $908 billion of such bonds, according to Fed data.
‘Debt Trap’
“Do we really want to go to the central bank of China and say, ‘Tough luck, boys’? That’s part of the problem,” said Karen Petrou, managing partner of Federal Financial Analytics Inc., a Washington-based research firm. The terms of the 2008 Treasury bailout create further complications. Fannie and Freddie are required to pay a 10 percent annual dividend on the shares owned by taxpayers. So far, they owe $14.5 billion, more than the companies reported in income in their most profitable years. “It’s like a debt trap,” said Qumber Hassan, a mortgage strategist at Credit Suisse Group AG in New York. “The more they draw, the more they have to pay.” Fannie and Freddie also benefited by selling $1.4 trillion in mortgage-backed securities to the Fed and the Treasury since September 2008, bonds that otherwise would have weighed on their balance sheets. While the government bought only the lowest-risk securities, it could incur additional losses.
‘Hard to Judge’
Treasury Secretary Timothy F. Geithner has vowed to keep Fannie and Freddie operating.
“It’s very hard to judge what the scale of losses is,” Geithner told Congress in March.
One idea being weighed by the Obama administration involves reconstituting Fannie and Freddie into a “good bank” with performing loans and a “bad bank” to absorb the rest. That could cost taxpayers as much as $290 billion because of all the bad loans, according to a May estimate by Credit Suisse analysts. At the end of March, borrowers were late making payments on $338.4 billion worth of Fannie and Freddie loans, up from $206.1 billion a year earlier, according to the companies’ first- quarter filings at the Securities and Exchange Commission. The number of loans more than three months past due has risen every quarter for more than a year, hitting 5.5 percent at Fannie as of the end of March and 4.1 percent at Freddie, according to the filings.
Surge in Delinquencies
The composition of the $5.5 trillion of loans guaranteed by Fannie and Freddie suggests that the surge in delinquencies may continue. About $1.98 trillion of the loans were made in states with the nation’s highest foreclosure rates -- California, Florida, Nevada and Arizona -- and $1.13 trillion were issued in 2006 and 2007, when real estate values peaked. Mortgages on which borrowers owe more than 90 percent of a property’s value total $402 billion. Fannie and Freddie may suffer additional losses as a result of the Treasury’s effort to prevent foreclosures. Under the program, banks with mortgages owned or guaranteed by the companies must rewrite loan terms to make them easier for borrowers to pay. The Treasury program is budgeted to cost Fannie and Freddie $20 billion. The companies have already modified about 600,000 delinquent loans and refinanced almost 300,000 more, in some cases for an amount greater than the houses are worth. The government is using Fannie and Freddie “for a public-policy purpose that may well increase the ultimate cost of the taxpayer rescue,” said Petrou of Federal Financial Analytics. “Treasury is rolling the dice.”
Republican Phase-Out
If the plan works and foreclosures fall, that could help stabilize Fannie’s and Freddie’s balance sheets and ultimately protect taxpayers. “Avoiding foreclosures can be a route to reducing loss severity,” said Sarah Rosen Wartell, executive vice president of the Center for American Progress, a Washington research group with ties to the Obama administration. Loans issued since 2008, when the companies raised standards for borrowers, should be profitable and help offset prior losses, Wartell said. Republicans attempted to include a phase-out of the mortgage companies in the financial reform bill. Democratic lawmakers and the Obama administration opted for further study, and the Treasury began soliciting ideas in April. Representative Scott Garrett, a New Jersey Republican and co-sponsor of the phase-out amendment, said eliminating Fannie and Freddie would force the government and the housing market to confront the issue. “It’s somewhat impossible to predict the magnitude of their impact if they continue to be the primary source of lending,” Garrett said in an interview.
Caught in ‘Quandary’
Democrats dismissed the phase-out idea as simplistic. “We need to have a housing-financing system in place,” Senate Banking Committee Chairman Christopher Dodd said last month. “If you pull that rug out at this particular juncture, I don’t know what the particular result would be. We’re caught in this quandary.” By delaying action, the Obama administration keeps losses off the government’s books while building a floor under housing prices during a congressional election year. Keeping Fannie and Freddie functioning could also support an overall economic recovery. Residential real estate -- the money spent on rent, mortgage payments, construction, remodeling, utilities and brokers’ fees -- accounted for about 17 percent of gross domestic product in 2009, according to the National Association of Home Builders.
‘Already Lost’
Allowing the companies to go under and hoping that private financing will fill the gap isn’t realistic, analysts say. It would require at least two years of rising property values for private companies to return to the mortgage-securitization market, said Robert Van Order, Freddie’s former chief international economist and a professor of finance at George Washington University in Washington. The price tag of supporting Fannie and Freddie “needs to be evaluated against the cost of not having a mortgage market,” said Phyllis Caldwell, chief of the Treasury’s Homeownership Preservation Office. Whatever the fix, the money spent will not be recovered, said Alex Pollock, a former president of the Federal Home Loan Bank of Chicago who is now a fellow at the Washington-based American Enterprise Institute. “It doesn’t matter what you do or don’t do, Fannie and Freddie will cost a lot of money,” Pollock said. “The money is already lost. There’s an attempt to try to avert your eyes.”
To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net. Last Updated: June 13, 2010 19:00 EDT
Showing posts with label Housing. Show all posts
Showing posts with label Housing. Show all posts
Monday, June 14, 2010
Thursday, August 13, 2009
Home foreclosure rates continue to rise
WASHINGTON – The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage. Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice, such as a notice of default or trustee's sale. That's the highest monthly level since the foreclosure-listing firm began publishing the data more than four years ago. Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier. Nevada had the nation's highest foreclosure rate for the 31st-straight month, followed by California, Arizona, Florida and Utah. Rounding out the top 10 were Idaho, Georgia, Illinois, Colorado and Oregon. Among cities, Las Vegas had the highest rate, followed by the California cities of Stockton and Modesto. While there have been numerous recent signs that the ailing U.S. housing market is finally stabilizing after three years of plunging prices, foreclosures remain a big concern. Foreclosures are typically sold at a deep discount, hurting neighbors' home values. The mortgage industry has been slow to adapt to the surge in foreclosures. Many lenders have needed government prodding to get up to speed with the Obama administration's plan to stem foreclosures. The Treasury Department said last week that banks have extended only 400,000 offers to 2.7 million eligible borrowers who are more than two months behind on their payments. More than 235,000, or 9 percent, those borrowers have enrolled in three-month trials in which their monthly payments are reduced. "The volume of loans that are in distress simply overwhelms" those efforts, said Rick Sharga, RealtyTrac's senior vice president for marketing.
Thursday, May 28, 2009
About 12 percent of U.S. homeowners late paying or foreclosed
Thu May 28, 2009 1:17pm EDT
By Lynn Adler
NEW YORK (Reuters) - One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday. U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs. Such economic weakness drove up foreclosures of prime fixed-rate loans, which are made to the most creditworthy borrowers. The foreclosure rate on those loans doubled in the last year and represented the largest share of new foreclosures in the first three months of this year. "We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market," Jay Brinkmann, the association's chief economist, said in an interview. The pace of defaulting mortgages jumped despite various moratoriums and government steps to cut home loan rates. Rates on 30-year mortgages averaged 5.00 percent in March, 5.13 percent in February and 5.05 percent in January, according to home funding company Freddie Mac. A year earlier, the average monthly rates were bumping up closer to 6 percent. "The housing market depends on the employment situation," Brinkmann said, "and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers." A record 12.07 percent of loans on one-to-four unit residences were at least one payment late or in the foreclosure process, on a non-seasonally adjusted basis. Prime fixed-rate loans comprise 65 percent of the $9.9 trillion in outstanding first mortgages, according to the industry group. Foreclosure actions were started on an all-time high 1.37 percent of first mortgages in the quarter, a record increase from 1.08 percent the prior quarter. "It's an important reminder that just because the housing market was one of the causes of recession ... it won't be the first sector of the economy to return to normal," said Jed Kolko, associate director of research at the Public Policy Institute of California in San Francisco. Federal mortgage modification and refinance programs will keep delinquencies and foreclosures from spiking even more than they would otherwise, housing analysts said. "Even if the recession officially ended soon, in the sense of GDP turning positive again, the continued rising unemployment rate and the re-set of existing adjustable-rate mortgages would continue to aggravate both foreclosures and delinquencies," Kolko said. The share of loans in the foreclosure process rose to a record 3.85 percent from 3.30 percent in the fourth quarter and 2.47 percent a year earlier. California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts. Those severely hit states, the biggest winners in the five-year housing boom earlier this decade, continue to worsen as recession overtakes problems spawned by lax lending standards. "Every job loss, every divorce, every incident like that is going to be turning into a foreclosure because they are so far under water with the homes already," Brinkmann said. When a house is "under water," its price has fallen below the size of the mortgage. Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes. Foreclosures mounted in the first quarter even though various temporary moratoriums were in place to delay the failure of distressed loans. The freezes artificially tempered new foreclosures before federal loan modification programs took root. But loans that had already been modified often re-defaulted in the quarter, Brinkmann said. Foreclosure actions also were taken on vacant homes, which make up as much as 40 percent of the properties with failing mortgages, he added. Some loan servicers also began the foreclosure process on borrowers who clearly did not qualify under the various mortgage fixes, he said. On a non-seasonally adjusted basis, the delinquency rate dipped to 8.22 percent from 8.63 percent. The bankers' group noted that the late payment rate always declines in the first quarter due to seasonal factors and said that after such adjustments, the rate jumped to a record 9.12 percent.
By Lynn Adler
NEW YORK (Reuters) - One of eight U.S. households with a mortgage ended the first quarter late on loan payments or in the foreclosure process in a crisis that will persist for at least another year until unemployment peaks, the Mortgage Bankers Association said on Thursday. U.S. unemployment in April reached its highest rate in more than a quarter century and is still rising, helping propel mortgage delinquencies and foreclosures to record highs. Such economic weakness drove up foreclosures of prime fixed-rate loans, which are made to the most creditworthy borrowers. The foreclosure rate on those loans doubled in the last year and represented the largest share of new foreclosures in the first three months of this year. "We clearly haven't hit the top yet in terms of delinquencies or the bottom of the housing market," Jay Brinkmann, the association's chief economist, said in an interview. The pace of defaulting mortgages jumped despite various moratoriums and government steps to cut home loan rates. Rates on 30-year mortgages averaged 5.00 percent in March, 5.13 percent in February and 5.05 percent in January, according to home funding company Freddie Mac. A year earlier, the average monthly rates were bumping up closer to 6 percent. "The housing market depends on the employment situation," Brinkmann said, "and we don't expect unemployment to bottom out until the middle of next year, so then normally housing would not recover until after employment recovers." A record 12.07 percent of loans on one-to-four unit residences were at least one payment late or in the foreclosure process, on a non-seasonally adjusted basis. Prime fixed-rate loans comprise 65 percent of the $9.9 trillion in outstanding first mortgages, according to the industry group. Foreclosure actions were started on an all-time high 1.37 percent of first mortgages in the quarter, a record increase from 1.08 percent the prior quarter. "It's an important reminder that just because the housing market was one of the causes of recession ... it won't be the first sector of the economy to return to normal," said Jed Kolko, associate director of research at the Public Policy Institute of California in San Francisco. Federal mortgage modification and refinance programs will keep delinquencies and foreclosures from spiking even more than they would otherwise, housing analysts said. "Even if the recession officially ended soon, in the sense of GDP turning positive again, the continued rising unemployment rate and the re-set of existing adjustable-rate mortgages would continue to aggravate both foreclosures and delinquencies," Kolko said. The share of loans in the foreclosure process rose to a record 3.85 percent from 3.30 percent in the fourth quarter and 2.47 percent a year earlier. California, Florida, Arizona and Nevada accounted for nearly half of the new foreclosure activity in the quarter and half of the increase in prime fixed-rate foreclosure starts. Those severely hit states, the biggest winners in the five-year housing boom earlier this decade, continue to worsen as recession overtakes problems spawned by lax lending standards. "Every job loss, every divorce, every incident like that is going to be turning into a foreclosure because they are so far under water with the homes already," Brinkmann said. When a house is "under water," its price has fallen below the size of the mortgage. Average U.S. home prices swooned more than 32 percent in March from the 2006 peak, according to Standard & Poor's/Case-Shiller indexes. Foreclosures mounted in the first quarter even though various temporary moratoriums were in place to delay the failure of distressed loans. The freezes artificially tempered new foreclosures before federal loan modification programs took root. But loans that had already been modified often re-defaulted in the quarter, Brinkmann said. Foreclosure actions also were taken on vacant homes, which make up as much as 40 percent of the properties with failing mortgages, he added. Some loan servicers also began the foreclosure process on borrowers who clearly did not qualify under the various mortgage fixes, he said. On a non-seasonally adjusted basis, the delinquency rate dipped to 8.22 percent from 8.63 percent. The bankers' group noted that the late payment rate always declines in the first quarter due to seasonal factors and said that after such adjustments, the rate jumped to a record 9.12 percent.
Thursday, April 16, 2009
Foreclosures 46% higher in March than a year ago
Stephanie Armour, USA Today
April 16, 2009
The number of homeowners facing foreclosure surged in March as lenders lifted temporary moratoriums and resumed legal actions against delinquent mortgage payers. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 341,180 properties in March, 46% more than a year ago and 17% above February's total, RealtyTrac reports today. One in 159 U.S. housing units received at least one foreclosure notice in the first quarter, for a total of 803,459, according to RealtyTrac, which lists foreclosed properties around the country. The sharp increase in foreclosures comes as the Obama administration is launching an effort to help as many as 9 million borrowers avoid foreclosure by modifying their loans or refinancing mortgages. Many lenders put a temporary freeze on foreclosures late last year while the administration prepared its program. Much of March's activity was in new foreclosure actions — bank repossessions fell 3% from February. With most of the moratoriums now lifted, bank repossessions are likely to start rising again. "I think we'll see foreclosures surge through the summer," said Mark Zandi, chief economist at Moody's Economy.com. The increasing number of jobless Americans is likely to accelerate the supply of foreclosures, which in turn will continue to pull down housing prices, economists say. "This report shows that the housing problems are not going away anytime soon," says Joel Naroff of Naroff Economic Advisors. "Supply from foreclosed homes coming on the market will continue to pressure prices through this year."
Highlights of RealtyTrac's report:
•Five states — California, Florida, Arizona, Nevada and Illinois — accounted for almost 60% of the first-quarter foreclosure activity.
•Nevada had the nation's highest state foreclosure rate in the first quarter — more than five times the national average. One in every 27 housing units received a foreclosure filing during the quarter, RealtyTrac reported.
•Arizona had the nation's second-highest state foreclosure rate for the first quarter, with one in 54 housing units receiving a foreclosure filing.
•California posted the nation's third-highest state foreclosure rate, with one in every 58 housing units receiving a foreclosure filing.
In addition to Florida and Illinois, the other states with foreclosure rates ranking among the top 10 in the first quarter were Michigan, Georgia, Idaho, Utah and Oregon.
April 16, 2009
The number of homeowners facing foreclosure surged in March as lenders lifted temporary moratoriums and resumed legal actions against delinquent mortgage payers. Foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 341,180 properties in March, 46% more than a year ago and 17% above February's total, RealtyTrac reports today. One in 159 U.S. housing units received at least one foreclosure notice in the first quarter, for a total of 803,459, according to RealtyTrac, which lists foreclosed properties around the country. The sharp increase in foreclosures comes as the Obama administration is launching an effort to help as many as 9 million borrowers avoid foreclosure by modifying their loans or refinancing mortgages. Many lenders put a temporary freeze on foreclosures late last year while the administration prepared its program. Much of March's activity was in new foreclosure actions — bank repossessions fell 3% from February. With most of the moratoriums now lifted, bank repossessions are likely to start rising again. "I think we'll see foreclosures surge through the summer," said Mark Zandi, chief economist at Moody's Economy.com. The increasing number of jobless Americans is likely to accelerate the supply of foreclosures, which in turn will continue to pull down housing prices, economists say. "This report shows that the housing problems are not going away anytime soon," says Joel Naroff of Naroff Economic Advisors. "Supply from foreclosed homes coming on the market will continue to pressure prices through this year."
Highlights of RealtyTrac's report:
•Five states — California, Florida, Arizona, Nevada and Illinois — accounted for almost 60% of the first-quarter foreclosure activity.
•Nevada had the nation's highest state foreclosure rate in the first quarter — more than five times the national average. One in every 27 housing units received a foreclosure filing during the quarter, RealtyTrac reported.
•Arizona had the nation's second-highest state foreclosure rate for the first quarter, with one in 54 housing units receiving a foreclosure filing.
•California posted the nation's third-highest state foreclosure rate, with one in every 58 housing units receiving a foreclosure filing.
In addition to Florida and Illinois, the other states with foreclosure rates ranking among the top 10 in the first quarter were Michigan, Georgia, Idaho, Utah and Oregon.
Tuesday, April 7, 2009
Mortgage delinquencies soar in the U.S.
Tue Apr 7, 2009
By Helen Chernikoff
NEW YORK (Reuters) - More U.S. consumers are falling behind on their mortgages, an indication that the housing market has yet to hit bottom, a top credit bureau executive told Reuters. Dann Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier. He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year. "I'm trying to find optimism in these numbers, but I'm pretty hard pressed to do that," Adams said, despite a recent burst of relatively positive news that has fueled hope that the U.S. housing market has turned a corner. Late last month the Commerce Department reported that sales of newly built U.S. single-family homes rose to a 337,000 annual pace in February, the highest in 10 months. Such news has boosted homebuilder shares, which are up about 45 percent since March 6, according to the Dow Jones U.S. Home Construction Index. But Adams said the continued increase in mortgage delinquencies revealed in his data foreshadows more foreclosures, short sales and home price declines as homeowners default and banks then repossess the homes to sell them at deep discounts.
LIFELINE OF CREDIT
The Equifax data also reveals the impact of the rise in unemployment, which is at its highest rate since 1983. Employers cut 663,000 jobs in March, sending the national unemployment rate to 8.5 percent, the Labor Department said on Friday. The rising jobless rate manifests itself in consumers' increasing reliance on credit cards even as lenders try to restrict access to credit, Adams said. Banks closed 8 million credit card accounts in February, reducing the number of open cards to 400 million from a July 2008 peak of 483 million, according to Equifax data.
Credit limits fell as well, to $3.27 trillion in February from a July 2008 peak of $3.59 trillion.
"Limits are falling because lenders are trying to minimize their losses," Adams said.
The data shows that lenders have good reason to be wary. Bank card delinquency is at its highest level in the past five years. Some 4.5 percent of total balances on bank-issued credit cards were at 60 days past due in February, a 32.7 percent increase from a year earlier.
"Their credit card is their lifeline," he said.
Additional reporting by Lucia Mutikani; Editing by Steve Orlofsky
By Helen Chernikoff
NEW YORK (Reuters) - More U.S. consumers are falling behind on their mortgages, an indication that the housing market has yet to hit bottom, a top credit bureau executive told Reuters. Dann Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier. He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year. "I'm trying to find optimism in these numbers, but I'm pretty hard pressed to do that," Adams said, despite a recent burst of relatively positive news that has fueled hope that the U.S. housing market has turned a corner. Late last month the Commerce Department reported that sales of newly built U.S. single-family homes rose to a 337,000 annual pace in February, the highest in 10 months. Such news has boosted homebuilder shares, which are up about 45 percent since March 6, according to the Dow Jones U.S. Home Construction Index. But Adams said the continued increase in mortgage delinquencies revealed in his data foreshadows more foreclosures, short sales and home price declines as homeowners default and banks then repossess the homes to sell them at deep discounts.
LIFELINE OF CREDIT
The Equifax data also reveals the impact of the rise in unemployment, which is at its highest rate since 1983. Employers cut 663,000 jobs in March, sending the national unemployment rate to 8.5 percent, the Labor Department said on Friday. The rising jobless rate manifests itself in consumers' increasing reliance on credit cards even as lenders try to restrict access to credit, Adams said. Banks closed 8 million credit card accounts in February, reducing the number of open cards to 400 million from a July 2008 peak of 483 million, according to Equifax data.
Credit limits fell as well, to $3.27 trillion in February from a July 2008 peak of $3.59 trillion.
"Limits are falling because lenders are trying to minimize their losses," Adams said.
The data shows that lenders have good reason to be wary. Bank card delinquency is at its highest level in the past five years. Some 4.5 percent of total balances on bank-issued credit cards were at 60 days past due in February, a 32.7 percent increase from a year earlier.
"Their credit card is their lifeline," he said.
Additional reporting by Lucia Mutikani; Editing by Steve Orlofsky
Tuesday, March 31, 2009
Home Prices in 20 U.S. Cities Fell by a Record 19% (Update2)
By Shobhana Chandra
March 31 (Bloomberg) -- Home prices in 20 U.S. cities fell 19 percent in January from a year earlier, the fastest drop on record, as demand plummeted and foreclosures rose.
The S&P/Case-Shiller index’s decrease was more than forecast and compares with an 18.6 percent decrease in December. The gauge has fallen every month since January 2007, and year- over-year records began in 2001. A glut of unsold properties may keep prices low, shrinking household wealth and damping spending. Still, sales of new and previously owned homes rose in February, indicating the housing slump, now in its fourth year, may ease as policy efforts to unclog credit and aid borrowers begin to take hold. “There is still a lot of downward momentum,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. “We don’t think we’ll see a bottom in home prices until the second half of next year. The decline in home prices will continue to depress household balance sheets.” The home price index was projected to decline 18.6 percent from a year earlier, according to the median forecast of 29 economists in a Bloomberg News survey, after an originally reported drop of 18.5 percent in December. Estimates ranged from declines of 17.2 percent to 19 percent. From a month earlier, home prices fell 2.8 percent in January, after a 2.6 percent drop in December, the report showed. The figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month-to-month.
Universal Decline
All 20 cities in the index showed a year-over-year price decrease in January, led by a 35 percent drop in Phoenix and 32.5 percent drop in Las Vegas. The index in January was at its lowest level since late 2003. All of the 20 areas covered also showed declining home prices from the prior month. “At this point it doesn’t look great for the near term,” Robert Shiller, chief economist at MacroMarkets LLC and a co- creator of the home price index, said today in a Bloomberg Radio interview. Still, he said, prices “can’t keep declining at this rate forever.” Consumer confidence this month held near a record low as Americans fretted about paying their mortgages and keeping their jobs, the New York-based Conference Board’s sentiment index showed today. Foreclosures surged 29.9 percent in February from a year earlier after rising 17.8 percent in January, according to RealtyTrac Inc. An estimated one in every 440 homes is in some stage of foreclosure.
Starts, Sales
Still, recent reports showed builders broke ground on 22 percent more homes in February than the prior month -- when starts plunged to a record low -- and that sales of new and previously owned houses increased, signaling the industry’s decline may be closer to reaching a bottom.
Lower prices and borrowing costs are attracting some buyers. The National Association of Realtors’ affordability index increased to a record in February. Mortgage rates for 30- year fixed loans fell to a record low in the week ended March 20, according to the Mortgage Bankers Association. KB Home, a Los Angeles-based homebuilder that caters to first-time buyers, last week reported a narrower loss in the quarter ended Feb. 28, and said net new-home orders rose 26 percent from a year earlier, the first gain since the fourth quarter of 2005.
Consumer Spending
Also, while job losses are hurting Americans’ confidence, retail sales fell less than forecast in February and consumer spending had a second straight monthly gain. Economists predict the recession may ease in the second half of this year after the economy shrank 6.3 percent last quarter, the most since 1982. Federal Reserve officials last week voiced confidence the economy will show signs of recovery by year end, responding to unprecedented monetary stimulus and the Obama administration’s $787 billion fiscal package. “Resumption of growth should not be too far off,” Minneapolis Fed President Gary Stern said in a speech on March 26. He added, “Once under way, the pace of expansion is likely to be subdued for some time.” Shiller, also a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net Last Updated: March 31, 2009
March 31 (Bloomberg) -- Home prices in 20 U.S. cities fell 19 percent in January from a year earlier, the fastest drop on record, as demand plummeted and foreclosures rose.
The S&P/Case-Shiller index’s decrease was more than forecast and compares with an 18.6 percent decrease in December. The gauge has fallen every month since January 2007, and year- over-year records began in 2001. A glut of unsold properties may keep prices low, shrinking household wealth and damping spending. Still, sales of new and previously owned homes rose in February, indicating the housing slump, now in its fourth year, may ease as policy efforts to unclog credit and aid borrowers begin to take hold. “There is still a lot of downward momentum,” said Michelle Meyer, an economist at Barclays Capital Inc. in New York. “We don’t think we’ll see a bottom in home prices until the second half of next year. The decline in home prices will continue to depress household balance sheets.” The home price index was projected to decline 18.6 percent from a year earlier, according to the median forecast of 29 economists in a Bloomberg News survey, after an originally reported drop of 18.5 percent in December. Estimates ranged from declines of 17.2 percent to 19 percent. From a month earlier, home prices fell 2.8 percent in January, after a 2.6 percent drop in December, the report showed. The figures aren’t adjusted for seasonal effects, so economists prefer to focus on year-over-year changes instead of month-to-month.
Universal Decline
All 20 cities in the index showed a year-over-year price decrease in January, led by a 35 percent drop in Phoenix and 32.5 percent drop in Las Vegas. The index in January was at its lowest level since late 2003. All of the 20 areas covered also showed declining home prices from the prior month. “At this point it doesn’t look great for the near term,” Robert Shiller, chief economist at MacroMarkets LLC and a co- creator of the home price index, said today in a Bloomberg Radio interview. Still, he said, prices “can’t keep declining at this rate forever.” Consumer confidence this month held near a record low as Americans fretted about paying their mortgages and keeping their jobs, the New York-based Conference Board’s sentiment index showed today. Foreclosures surged 29.9 percent in February from a year earlier after rising 17.8 percent in January, according to RealtyTrac Inc. An estimated one in every 440 homes is in some stage of foreclosure.
Starts, Sales
Still, recent reports showed builders broke ground on 22 percent more homes in February than the prior month -- when starts plunged to a record low -- and that sales of new and previously owned houses increased, signaling the industry’s decline may be closer to reaching a bottom.
Lower prices and borrowing costs are attracting some buyers. The National Association of Realtors’ affordability index increased to a record in February. Mortgage rates for 30- year fixed loans fell to a record low in the week ended March 20, according to the Mortgage Bankers Association. KB Home, a Los Angeles-based homebuilder that caters to first-time buyers, last week reported a narrower loss in the quarter ended Feb. 28, and said net new-home orders rose 26 percent from a year earlier, the first gain since the fourth quarter of 2005.
Consumer Spending
Also, while job losses are hurting Americans’ confidence, retail sales fell less than forecast in February and consumer spending had a second straight monthly gain. Economists predict the recession may ease in the second half of this year after the economy shrank 6.3 percent last quarter, the most since 1982. Federal Reserve officials last week voiced confidence the economy will show signs of recovery by year end, responding to unprecedented monetary stimulus and the Obama administration’s $787 billion fiscal package. “Resumption of growth should not be too far off,” Minneapolis Fed President Gary Stern said in a speech on March 26. He added, “Once under way, the pace of expansion is likely to be subdued for some time.” Shiller, also a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net Last Updated: March 31, 2009
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