Matrix Blog

Ok so we see an endless parade of housing stats (guilty as charged) and lately the news seems to be better, no?

The Federal Housing Finance Agency released their stats (covering conventional mortgage data – sub $729k mortgages) – They used a month over month headline:

U.S. Monthly House Price Index Estimates 1.7 Percent Price Increase From December to January

U.S. home prices rose 1.7 percent on a seasonally-adjusted basis from December to January, according to the Federal Housing Finance Agency’s monthly House Price Index. December’s previously reported 0.1 percent increase was revised to a 0.2 percent decline. For the 12 months ending in January, U.S. prices fell 6.3 percent. The U.S. index is 9.6 percent below its April 2007 peak.

Jan-Feb % change spiked last year and did the same this year, but somewhat higher. Here’s a look by Justin Fox at Curious Capital.

However, quarterly showed a large fall off in 4Q 08 so it will be interesting to see how Q1 09 shakes out.

The National Association of Realtors released their Existing Home Sale Report yesterday. They used a month over month headline:

Existing-Home Sales Rise In February

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 5.1 percent to a seasonally adjusted annual rate1 of 4.72 million units in February from a pace of 4.49 million units in January, but are 4.6 percent below the 4.95 million-unit level in February 2008. Seasonal adjustment factors are more volatile in winter months, but sales rates over the past few months show dampened sales activity.

In other words, existing home sales are lower than last year. However, Calculated Risk and Chris Martenson counters NAR spin showing that the 5.1% increase is pretty ho-hum.

New Home Sales stats are being released Wednesday and consensus is a pace of 300k down from 309k last month.

The S&P/Case Shiller Indices are being released in a week (March 31) but not turn is predicted.

Conclusion?
What does all of this mean? It means that there remains enormous spin from trade groups and government agencies. It means that consumers need to be skeptical of month over month gains because of seasonality.

Is there a possibility that housing is improving nationally? Not really but hope is a powerful thing that I try to consider month to month.

Tags: Case-Shiller, FHFA, Seasonal Adjustment, NAR, National Association of Realtors

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I have been particularly impressed with the way that the newly created Federal Housing Finance Agency has been keeping us informed on what they have been doing to help with the housing market since the credit crunch began in the summer of 2007.

Organized, neat, outspoken, timely. You only have to read the FHFA mission statement to understand what they are all about:

Promote a stable and liquid mortgage market, affordable housing and community investment through safety and soundness oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Sounds like a necessary regulatory agency to me.

The FHFA’s predecessor, Office of Federal Housing Enterprise Oversight (OFHEO) was also responsible for regulatory oversight during the Fannie Mae accounting scandal and the collapse of the GSEs leading to their bailout in September 2008, had a remarkably similar mission statement as FHFA’s.

OFHEO has an important and compelling mission

to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac.

Before the global credit crunch and US housing market decline, where was the actual oversight of Fannie Mae and Freddie Mac? Today the new institution replacing the old one is run by the same person (whom I find to be quite well-spoken) and their new web site is nearly identical to the old one yet the mission has now expanded to include the Federal Home Loan Banks.

The implication of promoting liquidity in the revised mission statement isn’t a new concept since that was one of the primary reasons for the existence of Fannie Mae and Freddie Mac in the first place. And OFHEO’s advocacy of affordable housing seemed to morph from low income housing to simply making housing finance costs cheaper.

Still, I have higher hopes for all federal regulators going forward now that they have been lulled from hibernation.

After all, there’s a bear out there.

Tags: FHFA, Fannie Mae, GSE, OFHEO, Bailout Nation, Freddie Mac

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The Federal Housing Finance Agency (FHFA) announced that the conforming loan limited for mortgages will remain at $417,000.

The Federal Housing Finance Agency (FHFA) today announced the conforming loan limit will remain $417,000 for 2009 for most areas in the U.S. but specified higher limits in certain cities and counties. The conforming loan limit is the maximum size of loans that Fannie Mae and Freddie Mac can purchase in 2009.

According to provisions of the Housing and Economic Recovery Act of 2008 (HERA), the national loan limit is set based on changes in average home prices over the previous year, but cannot decline from year to year. Loan limits for two-, three-, and four-unit properties in 2009 will remain at 2008 levels as well: $533,850, $645,300, and $801,950 respectively, for homes in the continental U.S.

In theory, if housing markets continue to fall sharply in certain parts of the country, the implied mortgage risk will actually increase because the cap on the mortgage limit can not be reduced. Of course we are in the middle of a financial crisis caused by throwing risk out the window so it’s ironic that it’s actually against the best interests of the financial market to be more conservative in this regard. Probably because that’s not really the problem.

So we keep the loan limit the same again despite:

• declining market conditions
• change the name of the agency to FHFA from OFHEO (OFHEO was responsible for oversight of Fannie and Freddie before they needed to be bailed out)
• run by the same person as before who now suggests FHFA has plenty of ammunition (no offense intended to Mr. Lockhart).

From the contrarian department…

Yet here’s something new (hat tip to Holden Lewis of Mortgage Matters) that definitely doesn’t conform to longstanding rhetoric from someone who reported last year at this time about 5 months in a row that the problem with credit was temporary…

[NAR Chief Economist Lawrence] Yun says, without giving specifics, that the federal government should step in to stabilize house prices. That’s quite a plea, coming from a representative of an organization that’s usually all for hands-off government. There’s nothing like a severe recession to make free-marketers abandon their principles with alacrity.

And the contrarian-contrarian department…

Here’s an opinion that’s contrarian to those who claim to be contrarian: lowball offers in a weak real estate market don’t work according to accomplished real estate author, writer, agent, speaker Ali Rogers, well-known for her book “Diary of a Real Estate Rookie“

Some real estate gurus would argue that that’s okay, you should go ahead and make ridiculous offers, because if you’re willing to ask a gazillion people you’ll finally run down one exhausted one who will capitulate. Then, hey, it’s like you won the lottery.

One problem with that strategy: I don’t generally think it works.

Tags: Conforming Mortgage, FHFA, Fannie Mae, Lawrence Yun, OFHEO, Bankrate.com, NAR, National Association of Realtors, Freddie Mac

Comments Off on [Conforming Defined] The More Things Change, The More They Stay The Same

Click here for full sized graphic.

Regulation grew faster in the current administration as measured by annual increases, than in any since administration since the 1960s. That seems to be counter to the mantra:

Less government enables the free market to do its thing – self-regulation via market forces weeds out the weak?

One of the key issues of election campaign and the credit crunch was the lack of relevant regulatory oversight during the mortgage boom. Certain members of the public (ahem) complained, blogged, cajoled, and even…gasp…resorted to rolling their eyes and sighing.

But no one was listening. The administration told us everything was fundamentally sound. This commentary has been occurring since at least 2004 when all the lending snafus began to gain momentum. Frank, Dodd, Bush, Greenspan, Bernanke, Syron, Mudd, Paulson et al have told us things were fine until as recently as a few months ago.

I suspect most of them actually believed “the fundamentals were sound” and the real problem was that they were not fully informed or had an understanding of systemic nature of the crisis.

Be careful what you wish for. The sleeping giant in Washington has been awakened and it’s ready to eat. This weekend I took my family to DC for my high school reunion and a few days of rampant tourism whose highlight (for me) was going through an airport-like security screening process to eat mac & cheese at the Department of Agriculture’s employee cafeteria (ok, so offbeat cafeterias are my thing). I was struck by the enormity of the facility and the wildly inefficient service and presentation.

I shudder to think that this energy will now be channeled into regulatory oversight (hopefully not at the expense of good mac ‘n cheese for USDA employees).

We are now going to see a cultural shift toward more regulation, no matter who is elected in November. You can see it in the press releases and “on top of it” like responses from all the agencies – FDIC, OTS, FRB, FHFA et al. Once that stops, it’ll take years to reign in.

Why can’t there be a middle ground rather than extremes? Do we only feel comfortable at the margins, on the edge?

We don’t need more regulation – we need smarter and ultimately less regulation. A reasonably level playing field where regulations set the boundaries, rather than direct specific actions is what allows free markets to work.

Case in point: The tennis courts at our town’s new high school have a 6 inch slope from end to end to promote drainage. The slope is so exaggerated you can clearly see it. Good for drainage, sucks for tennis.

Next thing you know, mac ‘n cheese won’t be as yellow as it used to be at the USDA cafeteria but at least their cups will be biodegradeable.

Tags: FHFA, FDIC, Alan Greenspan, Ben Bernanke

Comments Off on [Cultural Regulation Noodling] Be Careful What You Wish For

Last week I discussed the surge in litigation concerning the abuses in subprime lending and the corresponding need for more lawyers, especially for pro bono work.

Next up, the legal state of Frannie.

Just because the US Treasury took over the GSE’s and moved them into a conservatorship under FHFA doesn’t mean they have a plan on what do with them. The first order of business was to prevent them from collapsing. Next, structure and direction, Lastly, prosecution.

There is a brief but excellent article in the New York Law Journal that summarizes the army of lawyers needed: “Scores of Lawyers Tapped in Takeover“

In the weeks leading up to the federal government’s takeover of Fannie Mae and Freddie Mac, dozens of top lawyers worked to figure out the best way to save the two Washington-area mortgage giants.

The in-house teams at the U.S. Department of the Treasury and the Federal Housing Finance Agency, which is now the conservator for the two companies, were dealing with lawyers from at least nine private firms

Many were involved and are still involved. Here are total counts, but not all were working on the takeover:

• 2,000 US Treasury attorneys plus outside counsel
• 90 Freddie Mac attorneys plus outside counsel
• 130 in-house Fannie Mae lawyers plus outside counsel
• 40 in-house FHFA lawyers plus their outside counsel

The total is…a lot.

The attorneys are there to interpret and structure the unprecedented legal arrangement of the new entity as well as going after those responsible:

Even the battalions of lawyers may not be able to ward off lawsuits in the wake of the takeover.

AFSCME’s Mr. Ferlauto said that “there is activity going into holding those people responsible for not appropriately providing guidance.” He said he expects some pension funds to look for ways to sue the outgoing boards and management, and said lack of transparency, inaccurate guidance, fraud, and market manipulation could all be grounds.

A lot has to go into the mix before we can begin to talk about things getting fixed.

So in the meantime, please, please, don’t kill all the lawyers.

Tags: FHFA, Fannie Mae, GSE, Sub-Prime, Freddie Mac

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It finally happened. The GSEs are no longer private corporations. The bailout is finally here.

I called this bailout on October 5, 2005 and was teased or ignored. History teaches us we forget history.

I have been lamenting (whining) for the past several months that nothing has really changed since last summer when the credit markets imploded. Sure, we had the stimulus plan and the housing bill became law, NY AG wrangles a deal with the GSEs to change the way with mortgage brokers and appraisal management companies were involved in the mortgage process. The housing bill created the FHFA which was a new and improved OFHEO, which had been in charge of GSE oversight before the seizure.

GSEs have been taken over and we are in bailout mode. Its fair to say this is the worst mortgage crisis in history.

Why the GSEs were doomed

They had an unfair advantage over competitors because they were protected by the federal government. Thats the very same government that was forced to bail them out. It makes a strong argument for promoting fair competition.

You can’t serve two masters:

the investors who put up capital and a government that wanted to help the housing industry and extend home ownership. In the end, they failed to serve either one very well.

The irony about the GSE set up is that was consistent with most members of the mortgage pipeline. Appraisers served the mortgage broker and the lender. Mortgage brokers served the borrower and the lender. Banks served the investors and their shareholders.

Fannie Mae continued to play with their spreadsheets even after the accounting scandal.

Fannie Mae did not have a grip on their accounting practices, OFHEO/FHFA was ill equipped to keep them in check, or they were simply incompetent. Remember FNMA kept revenue off the books in the original accounting scandal a few years back so they would not draw attention and be able to show better results the following year. Now they didn’t meet capital requirements to offset their mortgage market exposure.

The proposal to place both mortgage giants, which own or back $5.3 trillion in mortgages, into a government-run conservatorship also grew out of deep concern among foreign investors that the companies’ debt might not be repaid.

Despite all the confidence telegraphing by Lockhart (OFHEO), Mudd (FNMA) and Syron (FHLMC), few really believed the GSEs had a grip on the extent of the situation. After all they were part of the process.

They hold or back 5.3 trillion in US mortgages which is about 50% of the mortgages out there. The GSEs accounted for about 80% of new mortgages being issued since last summer’s credit crunch. With investor confidence fading fast, the Treaury department could not let the last pillar left in the mortgage market crumble and it appeared to be headed that way.

What does this mean to housing?

Its not clear until this all shakes out, but probably not much initially.

However, if the investors see the faith and credit of the US in action and this brings them to the table, it may eventually bring more liquidity to the credit markets and that may bring some of the risk down, lowering rates or tempering their rise. However, housing still has a lot of shakeout with foreclosures and inventory, but at least this is a step in the right direction.

It’s actually the first constructive step towards recovery. If we are going to pay through the nose, it might as well be towards something positive, as painful as that is. The stimulus plan and the housing bill are painful, but don’t do anything about solving the financial crisis.

“I would view it as the beginning of the markets recognizing and accepting the reality of our financial problems, which is the beginning of fixing them,” said Mr. Rosner, a managing director at Graham Fisher, a financial research firm.

In other words, perhaps there is hope credit markets will get a grip in the next couple of years.

An aside
It has always been my observation that Freddie Mac was the step child of Fannie Mae. It stemmed from my appraisal background. Freddie Mac let Fannie Mae design their forms. Freddie Mac was essentially created after Fannie Mae to provide competition for it yet it nearly always let Fannie Mae take the lead. Even its stock price seemed to mirror Fannie’s. But Freddie didn’t get into hot water in the accounting scandal and Freddie Mac was agreeable to the Treasury take over before Fannie Mae because they had more of a handle on how short their capital was. In fact one could suggest that when it counted, Freddie Mac was the leader all along. Of course, that doesn’t matter any more. CORRECTION: It was Freddie not Fannie…nevermind.

Inter-office announcement
Its a time for change: I win the office pool on the WAMU bet. Good grief, he should get an award for outstaying his welcome.

Tags: FHFA, Fannie Mae, GSE, OFHEO, Bailout, Freddie Mac

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Source: RedKid

Just when I was able to cite “OFHEO” and Office of Federal Housing Enterprise Oversight (who comes up with these names?) from memory, along comes a new agency created from the Housing and Economic Recovery Act of 2008 recently passed into law.

FHFA: Federal Housing Finance Agency. No web site yet – I tried www.fhfa.gov

It has to compete with a bunch of others organizations that use the same acronym:

FHFA Fairfax Hispanic Firefighters Association (Virginia)
FHFA Fairly Homogeneous Farming Area
FHFA Family Health Foundation of America
FHFA Federal Housing Finance Agency
FHFA Florida Health Freedom Action (South Miami, FL)
FHFA Florida Home Furnishings Association
FHFA Florida Housing Finance Agency
FHFA Foot Health Foundation of America

I am hopeful the new agency will be better suited to provide better oversight than OFHEO did. OFHEO was essentially a rubber stamp for the GSEs until a few years ago when the FNMA accounting scandal woke it up. A new director took the reigns at OFHEO, James Lockhart, who seems to be doing all the right things (and one heck of a lot of press releases).

From the latest press release, it looks like the current director of OFHEO had a big hand in creating the new agency, FHFA. Since Lockhart has been pretty coherent, I’ll try to consider this as a good thing.

No web site, no information on the structure. Nothing but a press release so far. We’ll have to wait. Of course, credit and liquidity are very limited and need to be fixed before housing takes a turn for the positive, so I hope its not too long.

Takeaway: Odds are government will move too slow to provide meaningful solutions to the credit crunch in a world that moves much faster. In fact, the lack of action over the past several years set the stage for the condition we are currently in so I am not sure what we are waiting for.

By the way, freecreditreport.com …isn’t.

Tags: FHFA, GSE, OFHEO

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