Good news has made its way into the real estate arena this summer — in the form of the Housing and Economic Recovery Act of 2008. What does this Act mean for you?
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What the Housing and Economic Recovery Act of 2008 Means for You
Banks have dialed up the lending requirements in the face of the nearly half-trillion dollars lost in the mortgage mess to-date. The Federal Reserve reported that banks and lending institutions have tightened credit standards across all loan-types as losses mount and liquidity remains a key issue.
This should be seen as good news of course. Common sense lending disappeared for a long time, and now it seems like we’re making our way back to some place of balance. Of course, we’re sure to over-correct in the process; but we’re certainly not there yet.
From Bloomberg:
Most “domestic institutions reported having tightened their lending standards and terms on all major loan categories over the previous three months,” the Fed said today in its quarterly Senior Loan Officer Survey.
Banks may be reluctant to lend against housing collateral that is falling in value. Home prices in 20 U.S. metropolitan areas dropped 15.8 percent in May, the biggest decline since record keeping began in 2001, according to the S&P Case-Shiller Home-Price Index.
The economy is also faltering. The unemployment rate has moved up 1 percentage point during the past 12 months to 5.7 percent, while delinquencies on home loans to borrowers with weak or limited credit histories rose to 18.8 percent in the first quarter from 13.8 percent a year earlier.
“Large majorities of domestic respondents reported having tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the previous three months,” the Fed said.
Of the 32 banks that originate non-traditional mortgage loans, about 85 percent reported tighter lending standards, up from 75 percent in the prior survey, the Fed said.
About 65 percent of domestic banks indicated they had tightened their lending standards on credit card loans over the previous three months, up “notably” from about 30 percent in the April survey, the Fed said.
More here:
Fed: Banks reluctant to lend
GMAC, the financing division of GMC, posted a $2.48 billion dollar loss for the quarter driven by losses tied to its ResCap residential mortgage group and auto lease write downs. ResCap which has been posting massive losses since the credit crunch began, lost $1.86 billion tied to more mortgage misery. Private equity firm Cerberus Capital owns 51% of ResCap.
From Reuters:
Finance company GMAC posted a $2.48 billion second-quarter loss on Thursday, hurt by a write-down of vehicle leases and mounting losses at its mortgage lending unit.
The loss compared with a profit of $293 million a year earlier. Results included a $1.86 billion loss at Residential Capital LLC, the mortgage unit’s seventh straight quarterly loss, and a $717 million loss in its auto finance business.
Read the original here:
GMAC posts $2.5 billion quarterly loss
With home sales and prices down and unsold inventory up in many areas, the real estate market could use a jolt of good news — and Congress just provided it.
Original post:
Real Estate Outlook: Housing Bill Approved
The Federal Reserve announced changes to its emergency lending window for financial institutions today. The changes extend the repayment period for the loans and the duration of the program among others. The lending window allows banks to borrow from the Fed for short periods of time while putting up securities (such as mortgage backed securities, etc.) as collateral for the loan. Banks have used this lending window to alleviate the strain on capital exacerbated by the credit crunch.
From Market Watch:
The Federal Reserve, continuing to combat the enormous stresses that have engulfed financial markets, announced Wednesday several steps designed to enhance its emergency lending program for banks and primary dealers.
For banks, the Fed said it would lengthen some of the credit it extends to 84 days. At the moment, the loans have been for 28 days.For broker dealers that serve as primary dealers of Treasury debt, the Fed said it would introduce auctions of options on $50 billion of loans. The options could be exercised if needed in periods of elevated stress in months to come, such as the end of financial quarters.The Fed also said it’s officially extending its primary-dealer loan program to the end of January from mid-September. This step had been previously telegraphed by Fed Chairman Ben Bernanke.
Go here to read the rest:
Fed extends emergency lending window
If this graph (from the Big Picture) doesn’t say it all keep reading…
The home prices tracked by the S&P Case-Shiller index continue to drop with all 20 cities tracked in the study posting losses for May (the most recent month tracked).
From S&P:
Data through May 2008, released today by Standard & Poor’s for its S&P/Case-Shiller(1) Home Price Indices, the leading measure of U.S. home prices, show annual declines in the prices of
existing single family homes across the United States generally continued to worsen in May 2008. For the second straight month, all 20 MSAs posted annual declines, nine of which are posting record lows and 10 of which are in double-digits. Both the 10-City Composite and the 20-City Composite are reporting record low annual declines.
From MarketWatch:
Prices thus are at the same levels as they were in the summer of 2004, which means four years of appreciation have been effectively wiped out. Prices are down 18.4% from peak levels seen two years ago.
Home prices surged in 2003 through 2006, climbing by a cumulative 52%, according to Case-Shiller. Since then, however, homeowners have given up half of the gains from earlier in the decade as the housing and credit bubbles burst.
More:
Case-Shiller shows no end to home price declines
The Massachusetts Educational Financing Authority is unable to grant loans to college students this year as it is unable to secure financing due to the condition of the capital markets. More than 40,000 college students will be locked out of financing for their college education due to the beating taken on Wall Street.
This is where it gets really unfortunate folks. Taxpayers bear the burden of a Fannie and Freddie bail out while the companies can still pay out dividends, bear the burden of a Bear Stearns bail out, bail out irresponsible policy and practice and then be shut out of opportunity. Can you imagine explaining to the parents of those kids that your child won’t get an opportunity at college because of the mortgage mess and their taxes will go towards bailing out those very same people who took away that opportunity?
I think I am officially disgusted.
From the New York Times:
The self-financing state authority, known as MEFA, was unable to secure financing for the 40,000 students it services, said Tom Graf, the authority’s executive director, in a statement. The authority offers fixed-rate loans to students who live in Massachusetts or attend school there.
Mr. Graf said disruptions in the capital markets were why the financing authority could not obtain money.
“While we continue to pursue every possible option, raising the necessary funds to offer fixed-interest rate private education loans is taking longer than originally projected and has become even more challenging,” Mr. Graf said in the statement. “As soon MEFA has secured funding, we will make education loans available. At this time, however, it remains unclear when MEFA will be able to resume its lending activities.”
In April, the financing authority announced it would be unable to offer federal education loans because of the credit markets. In late June it said it would be able to offer private fixed-rate loans, but it now says that is no longer feasible.
“It’s really the capital markets. It’s a global situation,” said Jessica Belt, a MEFA spokeswoman. “We’re looking at other options. It’s uncharted territory for everyone, not just MEFA.”
Read the original here:
Think the credit crunch is over? Ask a college student.
Citi posted a quarterly loss of $2.5 billion on $7.2 billion in fresh loan writedowns as the credit crunch continues unabated. Of course it was positioned as good news since the company lost twice as much money last quarter.
I’d like to take this opportunity at this point in the mortgage and credit crisis to suggest that any one calling bottom or the end of the crisis be either a) evaluated by a psychiatric professional b) tarred and feathered.
Consider the following news that I can’t spend time writing about today:
Things are not getting better folks, we are not at the bottom. If you say so you are either lying or have your head in the sand - both unaccpetable.
Happy Friday!
From the New York Times on Citi:
Citigroup said Friday morning that it lost $2.5 billion, or 54 cents a share, in the second quarter.
The loss was largely caused by $7.2 billion of write-downs of Citigroup’s investments in mortgages and other loans and by a weakness in the consumer market, which cost Citigroup $4.4 billion in credit losses and $2.5 billion to increase reserves. Analysts had expected a loss of 66 cent a share.
The bank has recorded more than $56 billion in credit losses and write-downs in the last four quarters. Citigroup lost more than $17 billion in that time. And its share price has fallen nearly 70 percent since the credit market began to tighten.
And Market Watch on Merrill:
Merrill Lynch & Co. reported a $4.65 billion second-quarter net loss late Thursday as the brokerage firm was hit by more write-downs on large mortgage-related exposures.
The firm also said it agreed to sell its 20% stake in Bloomberg LP back to the media company for $4.425 billion. It also plans to sell a controlling interest in its Financial Data Services unit, which has an enterprise value of more than $3.5 billion.Moody’s Investors Service downgraded Merrill to A2 from A1 after the results.
Here is the original:
$7.2 billion in new write downs for Citi - are we there yet?
Too many consumers still don’t get it when it comes to credit scores.
Originally posted here:
Credit Scores Remain Misunderstood
If you have a home equity line of credit — what the industry calls a “HELOC” — you probably think of it as a financial safety net, quick cash you can access in times of emergency or when you face a big expense that can’t otherwise be paid all at once.
Read the original here:
Can You Rely On Your Home Equity Line of Credit?
There’s perhaps nothing more important than your credit report and your credit score when it comes to buying a home.
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Free Credit Score, Credit Monitoring Services
The mortgage bailout sections of Congress’s massive federal housing bill have gotten all the attention in the press, but there are two tax provisions tucked away that could prove far more significant for some home buyers and realty professionals.
Continued here:
Washington Report: Tax Provisions
Barclays is raising 4 billion pounds (~$8 billion) from Asian sovereign wealth funds purportedly to sure up its balance sheet as the credit crisis continues unabated.
From Market Watch:
Barclays PLC (BARC.LN) is close to raising GBP4 billion from sovereign wealth funds, according to a report in the Sunday Times.
The report said it is thought that at least six possible investors are in talks with the bank and that three of these parties will be selected. The first opportunity is being offered to China Development Bank and Temasek Holdings the report said.Barclays declined to comment.
Excerpted from:
Barclays raising 4 billion pounds
UBS, which has become the poster-child for how not to manage mortgage-backed assets in the credit crunch, may have dumped a cool $24 billion worth of Alt-A loans in a firesale. Alt-A loans, which are made to borrowers with good credit but little or no income or asset documentation have seen defaults soar as mortgage payments adjust higher and speculative bets on investment property are let go by borrowers.
Market Watch has more on the speculated sale:
UBS may have sold off a portfolio of Alt-A securities worth around 25 billion Swiss francs ($24.1 billion), according to an analyst at J.P. Morgan.
UBS was “highly likely” to have sold the securities in a fire sale, said J.P. Morgan analyst Kian Abouhossein, noting press speculation on the subject.“We see the speculated level of 70 cents on the dollar as realistic in a fire sale,” he said in a Thursday note to clients, adding the current market price is probably 84 cents on the dollar.His note came amid published reports that UBS sold its entire portfolio to Pimco, the bond-house giant owned by German insurer Allianz .A separate note from Huw Van Steenis of Morgan Stanley estimated that UBS may record mark-to-market losses of nearly 5 billion francs this quarter, if the reports are true.Neither firm has commented on the reports.Alt-A mortgages are home loans sold to borrowers with better credit than those who take out subprime mortgages, and they often require less information.Delinquencies and foreclosures on Alt-A mortgages haven’t climbed as high as subprime loans, but they have deteriorated faster than many expected. Read related story.Securities backed by Alt-A loans also built in less protection for investors than similar structures holding subprime mortgages. That’s made the deterioration in Alt-A securities almost as painful as the subprime meltdown.
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Did UBS dump huge Alt-A portfolio?
Federal Reserve Vice Chairman Kohn said he expects to see weaker bank earnings and continued write downs from both banks and home builders in the coming months as the credit and housing bust continues. He was urging banks and home builders to build capital as they can in order to protect themselves from insolvency related to write downs and losses. He was disappointed that banks weren’t increasing reserves faster in the face of challenging conditions.
One has to wonder though - are they not raising reserves because they know the Fed is right behind them with a golden net?
From Bloomberg:
Fed officials are urging banks to raise capital and operate with less debt to revive financial markets and the economy buffeted by the 10-month credit contraction.
The turmoil has led the world’s biggest banks and brokerages to report more than $386 billion in losses and writedowns. Financial-services firms have raised $283 billion to cover the losses, according to data compiled by Bloomberg.
“We expect bank holding companies to continue to report weak earnings and further asset valuation writedowns” in the coming months, Kohn said in remarks for a hearing on the banking industry. Banks aren’t increasing reserves for losses enough to keep pace with problem assets, he said, while reiterating the Fed’s call for raising capital and reducing dividends.
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Fed: Loan losses and write downs to increase
