Fannie Mae Confident of Continued Growth in 2014

Fannie Mae Confident of Continued Growth in 2014

The housing market’s cooler-than-expected first quarter should just be a temporary blip in a year of modest overall growth, according to Doug Duncan, chief economist at Fannie Mae.

Fannie Mae released Wednesday its latest economic forecast, which acknowledged that atypically harsh winter weather in much of the United States has slowed new home construction and sales in Q1 2014. But the report also reaffirms Fannie Mae’s position that the economy and housing markets will improve on 2013 growth by the end of Q4.

In an accompanying podcast to the February forecast, Duncan presented a mixed bag of growth and sluggishness in the housing market. A rise in mortgage rates, which Duncan expects to top out somewhere between 4.75 and 5 percent by year’s end, will slow existing-homes sales to about 1 percent growth this year, and maybe even less in Q1, he said.

Pending home sales plunged by 8.7 percent in December and were flat in January, leading to a rather guarded optimism that existing-home sales will show even tiny signs of improvement.

However, Fannie Mae is openly optimistic that sales of newly constructed homes should increase sharply this year, continuing last year’s trend toward more building and sales.

The caveat, Duncan said, is that the rise in new home sales is coming from a very low base. A healthy market, he said, would be about 1.7 million units built in a year. Fannie Mae predicts about 1.15 million units will be built in 2014, up from an overall 923,000 units built in 2013 (which itself was an 18.3 percent jump from 2012).

This is good news for the job market, as new construction means new jobs for builders and crews. Residential construction employment jumped by 17,000 jobs in January and should continue growing modestly in 2014, even if the numbers do not reach their pre-recession plateau of 2.5 million jobs, the report stated.

Overall mortgage volume, however, will likely be down this year, Duncan said. Higher mortgage rates are curtailing refinancing activity, even though an expected rise in mortgages for new home purchases should offset the drop a little, he said. Interest in mortgages peaked in May of 2013 and then fell by 20 percent, where it has stayed, according to the Fannie Mae forecast.

Despite a few broken bones in housing, however, Fannie Mae expects fairer weather to usher in gentle growth for the economy for the remainder of the year. The agency expects the economy overall to increase from 2.7 percent to 2.9 percent this year, a prediction in line with the most recent figures from the U.S.Bureau of Economic Analysis, which shows a 2.4 percent growth in gross domestic product (GDP) in the last quarter of 2013. This growth continues a modest climb in the GDP throughout last year.


‘Disruptive Weather’ Continues to Slow Home Sales

‘Disruptive Weather’ Continues to Slow Home Sales

Pending home sales ticked up slightly in January, just barely moving from December’s two-year low, the National Association of Realtors (NAR) reported Friday.

The group’s Pending Home Sales Index (PHSI), a forward-looking sales indicator based on contract signings, edged up 0.1 percent to an even 95 last month, a meager improvement from December’s upwardly revised reading of 94.9.

Compared to January 2013, pending sales were down 9.0 percent.

“Ongoing disruptive weather patterns in much of the U.S. inhibited home shopping,” said NAR chief economist Lawrence Yun. “Limited inventory also is playing a role, especially in the West, while credit remains tight and affordability isn’t as favorable as it was a year ago.”

While it was hardly a banner report, January’s gain at least turned around the prior month’s originally reported 8.7 percent decline to 92.4, the lowest reading since November 2011.

While NAR projects a weak first quarter for existing-home sales (already evident in January’s lackluster report), the pace “should pick up in the middle part of the year,” leading to a full-year total of just over 5.0 million sales.

Pending sales rose in the Northeast by 2.3 to an index value of 79.0, NAR reported, though contracts were still down 5.3 percent year-over-year. The South’s index was also up, rising 3.5 percent to 111.2 (down 5.5 percent from last year).

Those gains were offset by a 2.5 percent decline in Midwest—to 92.9, down 9.3 percent annually—and a 4.8 percent fall in the West to 84.2 (a 17.5 percent year-over-year decrease).

FHFA Announces $122 Million Settlement

FHFA Announces $122 Million Settlement

The Federal Housing Finance Agency (FHFA) announced Thursday it has reached a settlement with Société Générale, related companies, and specifically named individuals. The parties have reached a settlement of $122 million, and resolved claims made in the lawsuit FHFA vs. Société Générale, et al.

Société Générale is a French multinational banking and financial services company.

The suit alleged violations of federal and state securities laws in connection with private-label mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac during 2006.

The FHFA currently serves as a conservator of Fannie Mae and Freddie Mac.

Société Générale will pay roughly half of the settlement to Fannie Mae and half to Freddie Mac. Certain claims against the company related to securities will be made public as part of the settlement.

The FHFA has announced eight settlements in relation to PLS lawsuits.

Fed Continues Cut Back Despite Possible Slowdown


Fed Continues Cut Back Despite Possible Slowdown

Officials at the Federal Reserve voted this week to continue cutting back its stimulative monthly asset purchases despite signs of a slowdown in economic growth to start the year.

Citing the “cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions” since the start of the current stimulus program in 2012, the Federal Open Market Committee decided at its March meeting to reduce purchases of agency mortgage-backed securities to a pace of $25 billion per month and to dial back purchases of long-term Treasury securities to a pace of $30 billion each month, starting in April.

The two cuts, made evenly, add up to another $10 billion reduction in monthly asset purchases.

The decision was made despite a noted stumble in growth during the winter months, which the committee said “in part [reflects] adverse weather conditions.”

Overall, the consensus opinion of the labor market was that indicators remained “mixed but on balance showed further improvement,” though the unemployment rate remains elevated. The unemployment rate ticked up to 6.7 percent in February despite a more promising showing in payrolls than in January and December.

With the unemployment rate hovering just above the 6.5 percent threshold originally set by the Fed as one of its markers for holding down interest rates, the committee also updated its forward guidance to shift its goal to one more subjective: “maximum employment.”

In a press conference following the release of the latest committee statement, Fed Chair Janet Yellen remarked that while the 6.5 percent mark “had a very useful impact in helping markets understand our expectations and shaping their own,” its use shrank as the economy approached that milestone so quickly.

“The committee has never felt that the unemployment rate is a sufficient statistic to the labor market. In assessing the real state of slack in the labor market … it’s appropriate to look at many more things,” Yellen explained. “The closer we get as we narrow in on coming closer to the target we want to achieve, we will be carefully considering many indicators.”

Among those indicators, she says: the share of the labor force working part-time involuntarily, the number of discouraged and marginally attached workers, the long-term unemployment rate, and overall labor force participation. While some of those negative factors are seeing “exceptionally high” numbers, “the dial on virtually all of those things is moving in a direction of improvement,” she said.

The markets may take a little more convincing than that. In the minutes following the release of the FOMC statement, both the Dow Jones and NASDAQ saw declines—brought down even further by hints that the entire program could be finished as soon as October.

Foreclosure Data Suggests ‘Continued But Slower Housing Recovery’

Foreclosure Data Suggests ‘Continued But Slower Housing Recovery’

The Data and Analytics division of Black Knight Financial Services issued their “First Look” at January mortgage performance data, noting foreclosure inventory has hit a new post-crisis low.

The percentage of foreclosures from the inventory of loans, 2.35 percent, is the lowest since November, 2008.

Loans in serious delinquency, constituted by mortgages 90 or more days past due or in foreclosure, is 4.92 percent, the lowest in over five years.

Black Knight’s previously reported Home Price Index increased .1 percent, and the two reports provide information signaling a possible slowdown of the housing recovery.

When asked for comment, Raj Dosaj, VP of Behavioral Models & HPI for Black Knight Financial Services, said, “Based upon the home price and mortgage performance data tracked by Black Knight, we anticipate a continued—but slower—housing recovery. Areas with large inventories of distressed properties will likely lag a bit behind the rest of the country as their pipelines continue to clear.”

The report notes that the number of days loans in foreclosure have been past due has risen to 943 days.

The total U.S. loan delinquency rate is currently 6.27 percent. Month-over-month, the January rate has dropped by 2.96 percent. Yearly, the delinquency rate fell by 10.7 percent.

Approximately 3.14 million properties are past due on mortgage payments for 30 days or more, and properties delinquent more than 90 days are approximately 1.2 million properties.

Institutional Investor Sales Decline

Institutional Investor Sales Decline

RealtyTrac released its January 2014 Residential & Foreclosure Sales Report on Thursday, revealing institutional investors made up 5.2 percent of all U.S. residential property sales in January. Institutional investor sales are down from 7.9 percent in December, and down 8.2 percent from January, 2013.

The report clarifies that institutional investors are “defined as entities purchasing at least 10 properties in a calendar year.”

The January share of institutional investors was the lowest monthly level since March, 2012—a 22 month low.

Short-sales and foreclosure-related sales, “including both sales to third party buyers at the public foreclosure auction and sales of bank-owned properties,” combined for 17.5 percent of all U.S. residential shares in January, 2014, according to the company’s report.

All-cash sales increased to 44.4 percent, the seventh month above 35 percent.

“Many have anticipated that the large institutional investors backed by private equity would start winding down their purchases of homes to rent, and the January sales numbers provide early evidence this is happening,” said RealtyTrac VP, Daren Blomquist.

Metro areas with big drops in institutional investor share from a year ago included Cape Coral-Fort Myers, Florida (down 70 percent); Memphis, Tennessee (down 64 percent); Tucson, Arizona (down 59 percent); Tampa, Florida (down 48 percent); and Jacksonville, Florida (down 21 percent).

Counter to the national trend, 23 of the 101 metros analyzed in the report posted year-over-year gains in institutional investor share: Atlanta, Georgia (up 9 percent); Austin, Texas (up 162 percent); Denver, Colorado (up 21 percent); Cincinnati, Ohio (up 83 percent); Dallas, Texas (up 30 percent); and Raleigh, North Carolina (up 15 percent).

Blomquist continued, “It’s unlikely that this pullback in purchasing is weather-related given that there were increases in the institutional investor share of purchases in colder-weather markets such as Denver and Cincinnati, even while many warmer-weather markets in Florida and Arizona saw substantial decreases in the share of institutional investors from a year ago.”

CFPB Director Calls for Increased Financial Literacy

CFPB Director Calls for Increased Financial Literacy

For Richard Cordray, the equation is simple: In the Land of the Free and the home of the free market, American citizens should be as informed about and capable of self-governance in their personal finances as they are in the democratic process, especially when it comes to borrowing for a mortgage.

In a speech Tuesday before the federal Financial Literacy and Education Commission, Cordray, the director of the U.S. Consumer Financial Protection Bureau (CFPB), urged the need for American businesses to teach employees the importance of saving and making more sound financial decisions when it comes to major investments, such as buying a home.

Cordray called upon business owners and managers to leverage such milestone moments in their employees’ lives to teach specific skills they will need in order to make good decisions for their future.

Cordray’s speech is the latest effort in a growing trend to help American citizens better understand what it means to borrow money to buy a home. Cordray said the lack of good consumer education was a key factor in the wave of foreclosures since the Great Recession started squeezing American throats five years ago.

He added that the CFPB fields daily calls from distressed homeowners watching their version of the American dream erode due to the poor decisions they’ve come to regret making.

Cordray’s challenge to American businesses builds on a January 27 report he made to the House Committee on Financial Services. In that speech, Cordray compared what he called “troubling similarities” between the student loan crisis plaguing young people and “the broken mortgage market before the crisis.”

The troubling similarities include borrowers who took out loans with much worse rates than they could have qualified for and the disastrous consequences of not knowing what kinds of questions to ask in order to secure more favorable loans.

Not all news from the CFPB camp is grim, however. Cordray said last month that the bureau’s efforts to educate Americans about the risks and consequences of their financial endeavors has yielded much fruit in the past two years. As more citizens become aware of the bureau’s education programs and consumer tools, he said, the more they have righted their troubled ships.

Still, Cordray says, there is much uneasy water to traverse. He called upon U.S. employers Tuesday to help employees understand and diversify their personal savings and to increase information about major financial decisions as well as increase access to information regarding employee retirement and benefits programs.

Only when the finances of American workers are in order, he said, are homebuyers in a true position to understand what getting a mortgage is all about.