Estelar Properties

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9/6/11    IRENE AFFECTS HOME FINANCING

Irene affects home financing Damage from Hurricane Irene could
make it difficult for homeowners in the Northeast to close on
pending home refinancing and mortgage purchase applications.
"What has to happen — or what is required — is that they need to
have a re-inspection completed on the property by the original
appraiser to verify no damage has been done and the value of the
home has not been affected," by the storm, according to John
Walsh, president of Total Mortgage Services, a lender based in
Connecticut. Walsh said the re-appraisal issue will impact
homeowners who had pending home purchase and refinancing
applications in FEMA-designated disaster areas before the
hurricane.

The FEMA website names at least 11 states and Washington as
federal disaster areas impacted by last weekend's storm. Walsh
said somewhere between 15% to 50% of his firm's pending mortgage
application pipeline requires a new inspection. At the same
time, he stresses a required re-inspection does not mean all of
those properties were actually damaged by the storm. Even still,
he sees costs and delays as a problem. "There are going to be
homes that are uninhabitable," Walsh said. "One house that I
know of ended up with oil all over it." He said in situations
where the damage runs deep, a financial institution is not going
to lend on the property once the new appraisal shows the impact
of the storm. Walsh sees this paradigm as being particularly
difficult in situations where a person has yet to close on a
mortgage for a home damaged by the storm, especially if the
buyer has already sold his or her existing residence. "If I'm
buying that house and I can no longer purchase it, and I've
already sold my own home, the domino effect of that could be a
big problem," he said.

Andrew Wilson, a spokesman for Fannie Mae, said it's too early
to tell how many refinancing and purchase applications will be
impacted by Hurricane Irene, which swept up the coast hitting
every state between Virginia and Vermont. "If there has been
damage to a home that was looking to refinance, they indeed have
to seek a reappraisal," Wilson said. He said the larger issue
for the GSE is letting impacted homeowners with Fannie Mae loans
know that if they are facing flooding and other damages they can
qualify for a loan forbearance. "I don't know if we have
received requests for this from lenders yet," Wilson said.
However, he said lenders are empowered under GSE guidelines to
grant those forbearances in natural disaster situations.

No jobs created Economists had been expecting the Friday job
report to show a net of 75,000 jobs created, an unusually low
number considering the US is technically more than two years
removed from the end of the last recession. Instead, no jobs
were created and the unemployment rate moved higher at 9.1% in
August, fueling concerns that the US is heading for another
recession. Private payrolls actually rose 17,000, but that was
offset by continued shrinkage in government. The number of
people unemployed remained unchanged at 14 million. The
unemployment rate that counts those not looking for work rose to
16.2%, tied for the highest in 2011. The average duration of
unemployment edged lower to 40.3 weeks from its previous record
high of 40.4 weeks in July. However, the median level spiked
from 21.2 to 21.8 weeks.

Among the more disturbing numbers: the amount of people
"marginally attached to the labor force" rose to 2.6 million
from 2.4 million. These are workers not included in the
unemployment count because they had not sought work in the past
four weeks but have looked in the past year. Health care and
mining saw more jobs in the month, but telecommunications and
government both posted substantial losses. It was unclear how
much impact the Verizon strike, where 45,000 walked off their
jobs for two weeks, had on the total count. Many of those
workers likely received paychecks during the Labor Department's
counting period and may not be included in the number released
Friday. Manufacturing lost 3,000 jobs, construction dropped
5,000 and retail lost 8,000. Average hourly earnings slid 3
cents to $23.09 while average weekly hours edged lower to 34.2.
Unemployment rates held steady across the major categories, with
whites at 8.9%, Hispanics at 11.3% and blacks at 16.7%. The rate
for women is a comparatively low 8.0%. There were 331,000 more
people working in August than July. But 430,000 more were in the
category of working part-time for economic reasons.

WSJ - flood insurance fund Across the nation, program officials
refer to tens of thousands of houses, mostly older ones, as
"repetitive-loss properties"—and some others as "severe
repetitive-loss properties." In the 43-year history of the
flood-insurance program, they account for a disproportionately
large share of flood claims—157,000 properties with 462,000
claims totaling $11.1 billion since 1978, according to a report
this summer by the Congressional Research Service.
Repetitive-loss properties account for about 16% of all claims,
said a spokeswoman Thursday for the Federal Emergency Management
Agency, which runs the flood-insurance program all. Irene's
massive flood damage comes as Congress is set to debate a
possible overhaul of the debt-strapped insurance program. The
FEMA program fills a gap left in most standard homeowners'
policies, which typically exclude flood damage. But it is
weighed down by nearly $18 billion in debt to the Treasury,
mostly from Hurricane Katrina in 2005. As lawmakers seek to
improve the program's financial footing, the repeat-loss
properties are one of the trickiest elements. "There is no way
the flood-insurance program is sustainable as it is," said
Andrew Coburn, associate director of the Program for the Study
of Developed Shorelines at Western Carolina University.

Many of the government's 5.6 million policyholders enjoy deeply
subsidized rates, experts widely agree. A bill passed by the
House in July called for premium increases of up to 20% a year
for about 355,000 properties, including those with repetitive
claims. A Senate measure would allow rates to rise up to 15%
annually. Homeowners living in the highest-risk areas may pay
$5,900 a year for coverage of $250,000 for a dwelling and
$100,000 for its contents. For the same coverage, those living
in low-to-moderate risk areas may pay $365 a year. The insurance
program is scheduled to expire on Sept. 30. With so many issues
unresolved, a short-term extension is considered likely,
lawmakers said. FEMA has made several efforts over the years to
address repeat claims. An initial effort was to identify the
inventory of repeat-loss properties and work with local
officials to flood-proof them.

In recent years, FEMA has provided grants to states to help
local governments acquire properties for demolition, elevation
or other flood-proofing. The agency has several other programs
to mitigate flood risk, but critics say they haven't had much
impact. Orrin Pilkey, a Duke University emeritus professor of
coastal geology, said the grants have been "meaningless," adding
that many local governments "don't want to lose buildings and
start to shrink" their tax base. The number of new repeat-loss
properties has averaged nearly 5,200 annually since 1978,
outpacing the number removed from the list by a factor of 10 to
one, according to a 2009 report by the Department of Homeland
Security's inspector general. The total number of repeat-loss
properties currently stands at 75,920, FEMA said Thursday. The
inspector general's report noted that many communities "lack the
necessary expertise, financial resources and will" to develop
hazard-mitigation projects. A FEMA spokeswoman said it agreed
"meaningful reforms" were in order, and that repetitive-loss
properties were "one of many areas that need to be addressed
through comprehensive changes." FEMA is "committed to working
with lawmakers and all of our stakeholders," she said.

No stimulus needed

A top White House aide says the new jobs plan President Obama
will announce next Thursday will provide "meaningful" tax relief
and include a strategy for helping the nation's long-term
unemployed. With small- and medium-sized businesses making up
the lion's share of America's jobs, there are expectations
Obama's plan could include incentives to get mom and pop shops
hiring. But analysts argue incentives will provide only a
short-term boost, if any, to corporate hiring and that a broader
long-term plan to rein in budget deficits and support demand
would ultimately have more impact. The fundamental problem is
firms don't see demand for their product," said Joel Prakken,
chairman of Macroeconomic Advisers LLC, which jointly developed
the ADP private employment report. "If they don't think they can
sell the product that a new hire would produce, it would have to
be quite an amazing incentive to convince them to do otherwise."

Olick - government vs banks - housing losses

"When I first read the New York Times story on an impending
lawsuit by the Federal Housing Finance Agency (FHFA),
conservator of mortgage giants Fannie Mae and Freddie Mac,
against more than a dozen big banks, I thought, why is the
government suing banks for billions of dollars when it just
spent billions of dollars bailing the banks out? And why would
the government want to weaken the banks further, when what the
ailing housing market needs most right now is mortgage
liquidity? Unfortunately, my questions are really the tip of the
iceberg. At face value, the lawsuit makes sense; the role of the
FHFA is to limit losses to Fannie and Freddie. The two have
taken about $33 billion in losses from mortgage backed
securities they bought from the big banks. They claim the big
banks misrepresented the loans in the securities, that said
loans were poorly underwritten, using inflated or falsified
borrower incomes. Fannie and Freddie were the largest buyers of
private label mortgage-backed securities from 2004 to 2007.

I'm not going to argue the merits of the suit, like what Fannie
and Freddie's role was in checking these securities they were
buying, given that they played a big part in crafting and
choosing them. What's more important to me is how this and the
growing ocean of litigation affect the housing recovery. Now you
have a government lawsuit hitting the big banks, just as the
government, in the form of the justice department, is trying to
negotiate a big bank settlement with the fifty state attorneys
general over so-called 'robo-signing' foreclosure practices.
That one allegedly has a $20 billion price-tag, but recent drama
over whether to include securitization issues in the settlement,
threatens to derail a big chunk of that and open the banks up to
more litigation. How ironic. If you're a big bank, facing
sizeable payment for your past sins (or as in the case of Bank
of America, sins of companies you bought, like Countrywide
Financial), what do you do now? You likely make loans more
expensive and harder to get, or you get out altogether. This
week Bank of America dropped its correspondent lending business,
a huge blow to that market. Bottom line, it hits housing.

'You're going to get liquidity withdrawn from the housing
sector. When you look at what the GSE's [Fannie and Freddie]
were set up to do, the GSE's were set up to add liquidity to the
system,' says Paul Miller of FBR Capital Markets. Meanwhile the
Obama administration is struggling for ways to try to save the
housing market, specifically a big refinance plan through Fannie
and Freddie, which would of course require cooperation from the
big banks who service so many of their loans. So is the
government, in the form of the FHFA, cutting off its nose to
spite its face? 'The problem is that there is no one set policy
by the government on housing, and the individual regulator and
government agencies are operating independently of each other,'
says Miller. 'It all goes back to Congress and the
Administration kicking the can on housing policy.

08/01/11 HOME OWNERSHIP AT 1998 LEVELS

The U.S. homeownership rate in the second quarter dropped to its
lowest level in 13 years, according to the Census Bureau, with
analysts expecting even more drops ahead.  The homeownership rate
fell to 65.9%, down one percentage point from a year ago. It's
the lowest level measured since the first quarter of 1998.
Analysts at Capital Economics said this means the homeownership
rate built during the housing boom has been "completely wiped
out" by its bust.  "The poor economic climate, the double dip in
house prices, the high number of foreclosures and tight credit
conditions are all reasons why the homeownership rate will
continue to fall," analysts said.

The rate remained highest in the Midwest at 70%, followed by
68.2% in the South, 63% in the Northeast and 60.3% in the West.
Since the second quarter of 2007, the homeownership rate in the
West has dropped more than four full percentage points.
Homeownership for younger consumers has become even more sparse.
According to the Census Bureau, the rate among Americans younger
than 35 years old dropped to 37.5% from 39% one year ago. This,
analysts said, is a sign credit has tightened for younger
consumers. With unemployment elevated for this cohort, as well,
the rate could continue to fall in coming quarters.  "With
another 3 million foreclosures in the pipeline and no sign of a
major improvement in credit conditions or the labor market,
demand for owner-occupied housing is likely to remain weak for
some years yet," Capital Economics analysts said.

Debt deal done?

After months of vitriolic discord, Republican and Democratic
lawmakers were expected to vote on Monday on a White House-backed
deal to raise the U.S. borrowing limit and avert an unprecedented
debt default.  The Democratic-led Senate is expected to pass the
deal, which raises the $14.3 trillion debt ceiling and cuts about
$2.4 trillion from the deficit over the next decade.  But it may
face tougher opposition in the House of Representatives where
both conservative Tea Party supporters and liberal lawmakers have
expressed dissatisfaction with the agreement.  White House senior
adviser David Plouffe offered assurances Monday that he believes
the newly minted deal  to raise the debt ceiling will pass both
houses of Congress and be signed into law by President Barack
Obama.  Plouffe also appeared to clash with House Speaker John
Boehner, who said on Sunday that the deal included no tax hikes.
"That's just not true," he told NBC's Today show. "If we're going
to do additional deficit-reduction in the fall, it should be tax
reform, closing loopholes for the wealthy and big corporations."
While the deal comes just in time to avoid a catastrophic
default, Washington and investors will be closely watching to see
if it goes far enough to convince credit rating agencies to let
the United States keep its top-level triple-A credit rating.

WSJ - BUILDERS POST WEAK QUATER

Two of the nation's largest home builders reported weak quarterly
financial results Thursday, but their stocks rallied after an
industry report indicated future sales could be stronger.  The
positive news came as the National Association of Realtors
reported that its index of pending home sales, which tracks how
many home buyers have signed purchase contracts, jumped 2.4% in
June from the previous month to 90.9, the index's highest reading
since March 2011. When compared with a year earlier, pending
sales were up 20%.  Buyers who sign sale contracts often complete
their purchases within 60 days.  The rise in pending home sales
could suggest "a stabilizing market in coming months," said Doug
Duncan, the chief economist of the government-backed mortgage
company Fannie Mae. But he cautioned that contract signings don't
always become closings and that contract cancellations have been
rising in recent months. He also warned that the labor market
will have to improve before housing can truly recover. "We need
to see sustained declines in layoffs and, more importantly,
stronger hiring before the housing market can gain traction," he
said.

Texas-based D.R. Horton, the nation's largest home builder by
annual closings, reported a fiscal-third-quarter profit of $28.7
million, or nine cents a share, down from $50.5 million, or 16
cents a share a year earlier.  Horton's closest competitor,
PulteGroup Inc., based in Bloomfield Hills, Mich., reported a
second-quarter loss of $55.4 million, compared with net income of
$76.3 million, or 20 cents a share, a year earlier.  The builders
suffered from lower revenue and charges. Buyers, who can no
longer tap the federal home-buyer tax credit, closed on fewer new
homes built by Pulte and Horton in the most recent quarter than
they had a year earlier. "Simply put, we need more jobs and
better consumer confidence before meaningful recovery can occur,"
Pulte Chief Executive Richard Dugas said in a conference call
Thursday morning with analysts and investors.

Layoffs may get worse

Merck on Friday became the latest company to announce a new round
of job cuts, saying it would trim 13,000 employees from its work
force of 91,000 by 2015. It joins HSBC, which is reported to be
trimming 10,000 jobs from its global staff, and Borders, letting
go another 10,700 workers, as it shuts down all of its retail
stores.  "These heavy cuts are a sign the economy is stalling.
The GDP numbers back it up. This is a concrete result of what you
get when you see GDP stalling under 2 percent, like we've seen
for two consecutive quarters," said John Challenger, CEO of
Challenger Gray and Christmas, which monitors layoffs.  "It's
across the board industries. It's not like the auto sector or
something doing poorly. We are seeing pharmaceuticals; defense;
retailers - in terms of Borders; and financial firms - in terms
of Goldman... It's so very broad-based and it certainly poses a
risk to the economy turning around, as people lose their jobs,
and a lot of consumers who support these companies lose their
jobs," he said.

Friday's report of first and second quarter GDP drove home the
sluggish state of the U.S. economy and provides a backdrop for a
9.2 percent unemployment rate and the string of poor jobs reports
in the past several months. The second quarter grew at a 1.3
percent pace, well below the 1.8 percent expected by economists,
but the shocker was a revision knocking first quarter growth down
to 0.4 percent, from a previous 1.9 percent.  Economists have
been expecting second half growth to accelerate to a level of
about 3 percent.  "The (GDP) revisions were pretty massive. The
risks have been to the downside for a few weeks," said J.P.
Morgan economist Michael Feroli.  Feroli expects to see growth of
about 2.5 percent in the current quarter but that is still a low
level of activity.

DSNews.com - math behind the mortgage interest deduction

What many consider to be a staple of American homeownership is
expected to be on the chopping block as lawmakers in Washington
look to trim the nation’s deficit.  The prized mortgage
interest tax deduction has been part of the federal tax code
since 1913. Currently, it costs the U.S. Treasury an estimated
$94 billion a year.  Under existing tax rules, homeowners may
deduct the interest accumulated on up to $1 million of their
mortgage debt and up to $100,000 of home equity loan debt.
Mortgages on both primary residences and second homes qualify for
the deduction.  Congress has tossed around several proposals for
amending this part of the federal tax code, including lowering
the debt limit from $1 million to $500,000 on first mortgages.
According to a recent analysis, a reduction in the principal
balance of deductible mortgage debt to $500,000 would raise only
$5 billion per year for the IRS. The research firm notes that
most of the pain from this option would be felt in a few
high-priced markets.

Economist William Wheaton at MIT has a higher estimate for the
savings. He told CNBC’s Diana Olick that cutting the debt cap
in half would return $15 billion a year.  Lawmakers are also
considering eliminating the deduction altogether for second
homes. Olick cites estimates from Wheaton that this move would
bring in another $15 billion for the government.  A separate
scenario that was proposed by President Obama’s hand-picked
deficit commission would replace the deduction with a 12 percent
tax credit, which would also have a $500,000 principal cap.
JBREC concludes that this option would raise $48 billion per year
for the IRS. The firm’s analysts say it would significantly
increase taxes on those with higher mortgage balances, and would
reduce income taxes for those who currently own a home but
don’t pay enough mortgage interest to itemize.  According to a
survey conducted by the National Association of Home Builders, 71
percent of American voters oppose eliminating the mortgage
interest deduction.

Mortgage rates unchanged

Mortgage rates in the U.S. were again little changed over the
past week, as readings on the U.S. economy continued to show
mixed signals, according to Freddie Mac's weekly survey of
mortgage rates.  "Macroeconomic data released this week were a
mixed bag," said Freddie Mac Chief Economist Frank Nothaft. "On
the positive side, the index of leading indicators in June rose
for the second consecutive month, beating the market consensus
forecast. Partly offsetting this, orders for durable goods were
weaker than market expectations for the same month."  The 30-year
fixed-rate mortgage averaged 4.55% for the week ended Thursday,
up from 4.52% the previous week and last year's rate of 4.54%.
Rates on 15-year fixed-rate mortgages averaged 3.66%, flat from
last week though down from 4% a year earlier.  Five-year
Treasury-indexed hybrid adjustable-rate mortgages averaged 3.25%,
down from 3.27% last week and 3.76% a year ago. One-year
Treasury-indexed ARM rates averaged 2.95%, down from 2.97% in the
prior week and 3.64% in the prior year.  To obtain the rates,
30-year fixed-rate mortgages required an average payment of 0.8
point, while 15-year fixed rates required an average 0.7 point
payment. A point is 1% of the mortgage amount, charged as prepaid
interest. Five-year adjustable rate mortgages required an average
0.6-point payment, while one-year adjustable rates required an
average 0.5 point payment.