Report: Rising Prices Driving Down Investor Activity

Investor participation in the housing market may be falling off after a promising second quarter, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Investor participation dropped drastically in July, reversing a trend of long-term growth in investor purchases of residential properties. According to the report, investor activity in the housing market fell to 21.9 percent of all transactions in July, down from 23.5 percent in June. July’s decrease also established a two-month trend of declines from May’s two-year peak of 25.3 percent.

Real estate agents who responded to the HousingPulsesurvey said that recent home price gains led to the sharp reversal in investor interest.

Some agents reported the shift in activity is driven by the savvier investors who know when to back off. One agent in Arizona said any participation in July was from “dumb investors” entering the market as “smart” investors leave.

“Investors need a deal. There are not as many opportunities as there was this time last year. It seems all the rookie investors are buying now and paying too much,” said another agent from Florida.

The disappearance of investor activity also reflects a change in the market. According to HousingPulse’sDistressed Property Index, (DPI) the proportion of distressed properties in the housing market fell to 42.2 percent in July from 45.1 percent in June and 46.1 percent in May. The falling distressed inventory may have driven most investors off, the report speculates.

A decline in investor participation was also apparent in the non-distressed market, however, with investor purchases making up an 11.5 percent share of July’s non-distressed sales, a dramatic fall from 14.4 percent in May.

On the other hand, homeowner activity continued to rise in July, with homeowners accounting for 43.5 percent of purchases, up from 42.0 percent in June. Participation by first-time homebuyers stayed fairly flat.

Use of cheap mortgage financing by current homebuyers increased strongly in June and July, but rising mortgage rates may cause problems for demand and prices.

“Overall homebuyer demand and home price appreciation is being driven by historically low interest rates,” said Thomas Popik, research director for Campbell Surveys. “But savvy investors are the canaries in the coal mine-they are warning that if rates rise, the high proportion of distressed properties could once again push home prices down.”

Fewer Foreclosures in July as Servicers Seek Alternatives: CoreLogic

The number of completed foreclosures saw declines both monthly and yearly, according to the most recent foreclosure report from CoreLogic.

In July, 58,000 homes were lost to the foreclosure process compared to 69,000 in July 2011 and 62,000 the month before in June.

Mark Fleming, chief economist for CoreLogic, explained servicers are seeking options outside of foreclosure.

“Completed foreclosures were down again in July, this time by 16 percent versus a year ago, as servicers increasingly rely on alternatives to the foreclosure process, such as short sales and modifications,” said Fleming.

The percentage of homes with a mortgage sitting in foreclosure inventory also declined to 3.2 percent, or 1.3 million homes, down from 3.5 percent, or 1.5 million homes, in July 2011. Month-over-month, the figure was unchanged.

All mortgaged homes in any stage of the foreclosure process is counted as foreclosure inventory.

“The decline in completed foreclosures is yet another positive signal that the housing market is continuing on a progressive path of stabilization and recovery,” said Anand Nallathambi, president and CEO of CoreLogic.

Five states accounted for nearly half (48.1 percent) of all completed foreclosures over a one year period ending in July 2012. Those states were California (118,000), Florida (92,000), Michigan (61,000), Texas (57,000), and Georgia (54,000).

The states that foreclosed on the smallest number of properties over the same yearly period were South Dakota (32), District of Columbia (120), Hawaii (445), North Dakota (575), and Maine (608).

Among the largest metro areas tracked by CoreLogic, Atlanta-Sandy Springs-Marietta, Georgia topped the list with 36,346 completed foreclosures in a one-year period. Phoenix-Mesa-Glendale, Arizona ranked second with 32,722 completed foreclosures, followed by Riverside-San Bernardino-Ontario, California (23,670); Los Angeles-Long Beach-Glendale, California (19,599); and Chicago-Joliet-Naperville, Illinois (19,236).

The five states with the highest percentage of mortgaged homes in foreclosure inventory were Florida (11.2 percent), New Jersey (5.7 percent), New York (5.2 percent), Illinois (4.9 percent), and Nevada (4.7 percent).

The five states with the lowest percentage of mortgaged homes in foreclosure inventory were Wyoming (0.5 percent), Alaska (0.8 percent), North Dakota (0.8 percent), Nebraska (0.9 percent), and South Dakota (1.1 percent).

Two Florida metros had the highest percentage of mortgaged homes in foreclosure: Tampa-St. Petersburg-Clearwater (11.5 percent) and Orlando-Kissimmee-Sanford (11.3 percent).

Radar Logic: Share of June Distressed Sales Lowest Since 2008

Foreclosure and REO sales declined in June to their smallest share of total sales in four years, Radar Logic Incorporated reported Tuesday.

According to Radar Logic’s RPX Monthly Housing Market Report for June, sales of homes at foreclosure auctions andREO sales by financial institutions fell to their lowest share of sales since 2008.

The fall in distressed sales led to an overall year-over-year gain in the RPX Composite price, which measures statistics in 25 metropolitan areas. However, Radar Logic warned that price gains made in the first half of the year may not last.

“The gains of the first half of 2012 could be short lived,” the company said in a release. “They were the result of seasonal factors and REO disposition strategies that could reverse in the fall. The unusually rapid price appreciation could give way to equally rapid declines in the second half of the year.”

The report also noted that the large latent inventory of homes-including those in bank inventories, underwater homes, and homes in the process of foreclosure-will cause supply to rise, making sustained price gains unlikely in the near future.

“Bottlenecks in the disposition of this latent inventory-in the form of regulation, legislation, and market timing on the part of financial institutions-may cause prices to spike temporarily from time to time, but such spikes will increase the rate at which latent inventory is brought to market and thereby cut off price appreciation,” the release said.

Meanwhile, Radar Logic noted that, when distressed sales are excluded, appreciation in all other sales was marginal. Company CEO Michael Feder said the lack of any real price appreciation may be worse news for the recovery than concerns about looming supply.

“We continue to be concerned that this negative psychology could be the biggest risk threatening any real recovery in housing values,” Feder said. “If it continues, the resultant imbalance between supply and demand could trigger another decline in home values.”

FDIC Sees Number of Problem Banks Fall in Q2

As bank failures dwindle, FDIC institutions continue to see their own coffers swell, with an agency report finding that banks with government guarantees earned $34.5 billion over the second quarter.

In the second quarter of 2011, FDIC-insured institutions earned $28.5 billion.

The FDIC also noted fewer “problem” institutions for the fifth consecutive quarter. Those identified as problems fell from 772 to 732, making this year one for the smallest problem banks since fourth-quarter 2009. Assets for institutions on the decline fell from $292 billion to $282 billion.

Of those problem institutions, only 15 shuttered their doors over the second quarter, the lowest number since year-end 2008. Forty banks have failed so far this year.

With fewer banks failing, the FDIC’s embattled DepositInsurance Fund posted a net worth of $22.7 billion, which rose from $15.3 billion from the end of March. The loss reserve declined from $5.3 billion to $4 billion over the second quarter, with insured deposits growing 0.7 percent over the same time frame.

Loans and leases 90 days or more past due fell for a ninth straight quarter, with noncurrent loans and leases stooping to their lowest in more than three years.

Loan balances meanwhile ticked up by $102 billion, increasing for the fourth time in the last five quarters.

“The banking industry continued to make gradual but steady progress toward recovery in the second quarter,”FDIC Acting Chairman Martin J. Gruenberg said in a statement. “Most institutions are profitable and are improving their profitability. All of these trends are consistent with the moderate pace of economic growth that has occurred over the past year.”

According to the FDIC, nearly two-thirds of all banks, or 62.7 percent, saw growth in their quarterly net income on a year-over-year basis.

Financial institutions also fielded fewer losses on the whole, with net losses dropping quarter-over-quarter to 10.9 percent, down from 15.7 percent from the year before. The average return on assets went up to 0.99 percent from 0.85 percent over the same time frame.

Banks saw second-quarter losses to the tune of $14.2 billion, still 26 percent less than $19.2 billion set aside for expected losses over the same quarter.

With loan sales up by $3 billion, net operating revenue rounded out to $165 billion, reflecting $1.3 billion in increases. The FDIC report showed that investmentsecurities and other assets rallied at $1.7 billion more than in the second quarter last year.

The agency found asset quality indicators picking up as insured banks and thrifts accounted for $20.5 billion in uncollectible loans during the last quarter, a decline of $8.4 billion from the year before.

Virginia Man Pleads Guilty to Bank Fraud, Faces Up to 20 Years

A developer and restaurateur from Virginia pled guilty Friday for his role in a massive bank fraud scheme that contributed to the collapse of Bank of the Commonwealth,SIGTARP and federal officials announced Monday in a statement.

Thomas E. Arney, 56, of Chesapeake, Virginia pled guilty to conspiracy to commit bank fraud, unlawful monetary transactions, and making false statements, according to the statement. Arney faces sentencing on December 3, 2012 and could receive a maximum penalty of 20 years – five years each for the conspiracy and false statement counts and 10 years for the unlawful monetary transactions count.

According to the statement, Arney admitted to performing certain favors for insiders at the failed bank in exchange for preferential lending. He also admitted to assisting insiders with hiding the financial state of the bank by purchasing bank-owned properties.

The bank was shut down by regulators in September 2011, and according to the FDIC, the cost of the failure is estimated to be $268.3 million. According to the statement, the bank lost nearly $115 million from 2008 to the day it ceased operations.

NAR: CRE Recovery Slow but Steady

Slow job creation and tight loan availability are hindering otherwise positive growth in commercial real estate, the National Association of Realtors (NAR) reported.

While “positive underlying fundamentals” helped boost all of the major commercial real estate sectors, growth in some areas has been tempered by various issues, including job growth and shifts in demand.

“Job creation in the second quarter was about half of what we saw in the first quarter, which is moderating demand in the office sector,” said Lawrence Yun, chief economist for NAR. “Industrial and warehouse space is holding on better because imports and exports have advanced. While exports to Europe generally are down, trade has been robust with India, China, and other Asian nations, along with Brazil, Mexico, and our strongest trading partner-Canada.”

Demand has also been dampened by problems small businesses have in securing commercial real estate loans. The multifamily sector is the only one that has seen increased demand, which in turn has driven up rents at an accelerated pace.

NAR reports that rents are modestly rising in all of the sectors as vacancy rates fall, vacancy remains above historic averages with the exception of the multifamily sector. The retail sector is especially suffering, with the projected average vacancy rate for 2012 hovering around 11 percent-nearly 3 percentage points higher than the historic average for the sector.

The organization predicts no significant changes in the near future, with many corporate decisions on spending and hiring hinging upon the results of November’s elections, Congress’ ability to avoid a “fiscal cliff,” and other issues such as health care and financial regulations.

“Overall, companies hold plentiful cash reserves, but they are hesitant to hire without clarity over how these outstanding issues will impact the bottom line,” Yun said.

“Commercial real estate gains could be thwarted if lending from small and community banks dry up from excessive regulatory compliance costs, and if international big-bank capital rules are applied to smaller lending institutions.”

Report: Credit Risk in Shared National Portfolio Declined in 2012

Credit quality of large loan commitments owned by domestic and foreign banks and nonbanks is on the rise for the third consecutive year, according to this year’s Shared National Credits (SNC) Review. The Federal ReserveFDIC, and the Office of the Comptroller of the Currency (OCC) jointly released the review Monday.

The review revealed that total SNC commitments increased to $2.79 trillion, up 10.6 percent year-over-year. Total SNC loans outstanding also increased 11.2 percent to $1.24 trillion.

Meanwhile, the volume of criticized loans (rated special mention, substandard, doubtful, or loss), while still historically high, fell to $295 billion, an 8.1 percent drop from 2011. Criticized assets represented 10.6 percent of the shared credits portfolio, a decline from 12.7 percent in 2011.

The improvement in credit quality is attributed to better operating performance among borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets.

The four largest industry groups-finance and insurance, durables manufacturing (excluding automotive), media and telecommunications, and utilities-comprised 44.5 percent of the 2012 SNC portfolio.

Of these groups, media and telecommunications accounted for 22.3 percent of criticized assets, the largest share by far. Finance and insurance followed with an 11.6 percent share of criticized assets, while utilities and real estate and construction accounted for 10.2 percent and 7.2 percent, respectively.

Distribution of credits across entities remained largely unchanged, with domestic banking organizations taking the lion’s share (43.2 percent) of SNC loan commitments. Foreign banking organizations owned 36.9 percent of commitments, while nonbanks owned 19.8 percent.

Although nonbank entities-pension funds, hedge funds,insurance companies, and the like-owned the smallest share of loan commitments, they accounted for 62.4 percent of classified credits (rated substandard, doubtful, or loss).

Poorly underwritten loans originated in 2006-2007 continued to bring down the SNC portfolio. While SNCunderwriting standards showed great improvement in 2011, regulators noticed an easing in standards, specifically in leveraged financed credits.