July 30, 2014

Cheering Replaced With Gnawed Fingernails

KSN.com reports from Kansas. “In April the Farm Bill made more Kansas towns eligible for the USDA’s Guaranteed Rural Housing Loan program, now the first recipient of the program in Dodge City has moved into her new home. The loan program used to apply to towns with 20,000 people or less, but now includes towns with up to 35,000 people, making Dodge City, Garden City, and Lansing eligible. ‘It’s about time,’ said Mayor of Dodge City Brian Delzeit. ‘How much more rural can you get than Dodge City, America or Garden City?’”

“With more people now eligible, the office is actually backlogged, with over 100 applications waiting to be reviewed. As more people are able to buy houses, the hope is that rural Kansas will grow. ‘There’s a tremendous demand for housing,’ said Senator Pat Roberts, ‘and if we could solve that, a lot more job growth would occur in the areas where we’re seeing growth.’”

Reuters reports on Illinois. “D.R. Horton Inc, the No.1 U.S. homebuilder, said it had to offer discounts in the third quarter to boost sales in Chicago, a particularly bleak spot in a weak U.S. housing market. Higher U.S. home prices along with rising mortgage rates in 2014 have reduced affordability for many, resulting in an underwhelming spring selling season, which is to homebuilders what the holiday season is to retailers. ‘We (increased) the level of incentives in many communities throughout the spring in an effort to improve sales and maximize returns and profit,’ Chief Financial Officer Bill Wheat said.”

“D.R. Horton said that Chicago in particular was performing below its expectations. The company reported a 15 percent drop in home deliveries in the Midwest, including Chicago, and the Southwest in the quarter.”

From Chicago Magazine in Illinois. “Remember the cheering from homeowners that echoed across Chicagoland last year? It has been replaced with a few gnawed fingernails. The healthy price increases that followed the 2012 bottom of the local housing market have induced more people to list their homes. In part because of that increased inventory, sales prices appear to be leveling off. It’s happening for bungalows—but especially for mansions.”

“Would-be sellers are finally getting real about what their spreads are actually worth. In the wealthy North Shore village of Winnetka, for example, brokerage firm Redfin counted 11 residences for sale at $5 million or more as of early July. Seven of them had been on the market 12 months earlier; five of those have had significant price cuts. ‘We’re beginning to see price cuts a little more often,’ says Svenga Guddell, director of economic research at real-estate research firm Zillow, ‘and [high-end] homes are being sold at below list price.’”

“When price cuts don’t work, some brokers are turning to gimmicks. Another Winnetka mansion, a 27,000-square-footer billed by the agent as the most expensive Chicago-area house ever built, hit the market in April for the sixth time in four years—this time at $18.8 million, down from $32 million in 2011. In June, the agent offered brokers a $250,000 bonus on top of the $375,000 commission. Richardson has heard similar stories in other markets. ‘In D.C., the seller of an $800,000 home offered a Lexus to the broker who found a buyer,’ says Nela Richardson, Redfin’s chief economist.”

The Beacon Journal in Ohio. “Residential and agricultural property values are going down again in Summit County. The latest property reappraisal determined that values fell an average of 2.3 percent this year. The decline — based on home sales over the last three years and site inspections — represents about $500 million in lost value for homeowners and farmers. It also shows that the local housing market is still rebounding from the Great Recession and foreclosure crisis.”

“‘Summit County is not alone,’ said Shelley Wilson, an executive administrator at the Ohio Department of Taxation. ‘Unfortunately, I think the northeastern sector of the state has been a little slower to recover in terms of the housing market.’”

“County Fiscal Officer Kristen Scalise blamed the bigger declines in Sagamore Hills and Twinsburg on condominium sales. ‘Condos are losing value faster than single-family homes,’ she said. Sagamore Hills residents agreed that there are many condos in the community that have lost substantial value. Homeowner Doug Huth also said the overall decline wasn’t surprising. ‘I think you’re still seeing the effects of 2008,’ he said.”

The Oakland Press in Michigan. “Andy Meisner stood in front of a two-story house on Cloister Court in Troy last week, one of 948 properties to be auctioned off in late August for nonpayment of property taxes. The Oakland County treasurer was filming an ad about the upcoming auction, a three-year process that culminates in a sale of tax foreclosed properties each August, with a second auction in October.”

“Starting bid for the home with four bedrooms and three fireplaces? Just over $62,000. Websites like Zillow and Trulia estimate the home’s value at $315,000 to $340,000. ‘There are still a lot of foreclosures in the queue,’ Meisner said. ‘Another dumping of distressed properties on the Oakland County real estate market is something that could happen, and it could point us back in the wrong direction.’”

“On the front lines, lifelong Pontiac resident Mona Hoffmeister — a community activist and vice president of the group Citizens Against Blight — said she doesn’t see the housing market getting better, no matter what the numbers say. She added that not only are abandoned properties an eyesore in the community, but they’re ripe for squatters, which adds another degree of danger to local neighborhoods. ‘It’s still as bad as it has been,’ Hoffmeister said of the real estate market.”

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Comment by Mugsy
2014-07-30 04:00:07

“D.R. Horton said that Chicago in particular was performing below its expectations. The company reported a 15 percent drop in home deliveries in the Midwest, including Chicago, and the Southwest in the quarter.”

Maybe it’s the outrageous taxes, gun control legislation or hundreds of shootings that are turning people off from moving there? Or it’s just that POS Rahm Emanuel.

Comment by Jay_Huhman
2014-07-30 18:59:56

These D.R. Horton subdivisions generally are a looong way from the city of Chicago. The exurbs are doing very badly.

Comment by taxpayers
2014-07-30 04:33:28

big gov has managed to turn even white “rurals” into welfare thieves

Comment by Ben Jones
2014-07-30 05:10:12

Been that way for years:

‘Does a home loan with no down payment and decent rates sound too good to be true? It isn’t. No money down, better rates than an FHA loan, and the ability to finance closing costs. It may sound too good to be true, but in fact it’s a U.S. Department of Agriculture guaranteed rural development loan, and now is your best chance to get one.’

(This is a news article?)

‘Remember how the USDA decides which areas are eligible for these loans based on census data? Well, the Department of Agriculture hasn’t actually updated its map since 2000, and a lot has happened in the last 14 years. Many areas that were previously considered rural, and therefore eligible for USDA financing, have become regular suburbs. According to a 2011 study by Housing Assistance Council, 97% of the country’s land mass, an area that includes 109 million people, is eligible for a USDA loan. That means about one in three people lived in regions that were USDA eligible when the report was published.’

‘Unfortunately, the ride is almost over. The USDA plans to update the eligibility map with 2010 census figures this October. The Housing Assistance Council estimated that the new information will make 7.8 million people ineligible for USDA financing unless they move to areas within the new eligibility zone.’

‘In reality, the change is going to effect significantly fewer people than that, thanks to congressional action that grandfathered in many areas. However, the USDA told Money.com they don’t yet have exact numbers on how many Americans will no longer live in rural areas after the update, so if you’re eligible now and looking for a loan, it’s better to be safe than sorry. At least some at the department anticipate a rush to get financing before the old rules expire. “We’re going to get inundated,” predicts Neal Hayes, Housing Programs Director for the New Jersey USDA state office.’

I was thinking about the subprime versus prime loan discussion misses the root of the problem. To the extent crappy loans prop up, reinforce or push up prices, they make all loans more likely to fail. In a period when prices have risen quickly (should have been a red flag in and of itself for lenders), what looks like a sound lending program can put a rope around the neck of many borrowers.

Comment by Get Stucco
2014-07-30 07:20:49

Subprime lending to politically favored groups gives them the opportunity to purchase homes and pusb prices out of reach in areas where they otherwise would be unable to buy.

Comment by j-j-j-joe
2014-07-30 09:04:07

USDA being in the home loan business should be enough to make anyone angry at the whole system. And it’s not new–the USDA home loan program is part of the whole “ownership society” schtick and goes back at least a decade.

Comment by AmazingRuss
2014-07-30 20:17:25

Almost all red states take more than they pay in federal taxes, and have for a long time. The teabillies just can’t quite make ends meet without a little help from Uncle Sugar.

Comment by Whac-A-Bubble™
2014-07-30 22:15:24

Pretty ironic the red states are the ones most dependent on Uncle Sam’s largess, no?

Comment by taxpayers
2014-07-30 05:15:48

a new S&P high adjusted for inflation and the 6% annual return would be about 2500

new high my azs

Comment by Ben Jones
2014-07-30 05:30:35

‘As the population of Kansas City’s urban core dwindled in recent decades, the number of abandoned houses and commercial buildings grew accordingly.’

‘The thousands of vacant lots bear witness to the city’s successful efforts to remove the resulting blight. But since the early 1990s at least, City Hall has had trouble keeping up with the number of damaged or neglected buildings that need to be torn down.’

‘Although the Land Bank has almost no money in its budget for demolitions this year, Schulte has proposed that the year-old city agency borrow $1.2 million to start tearing down buildings that can’t be salvaged.’

‘Of the 1,000-plus vacant houses owned by the Land Bank, about 140 fit the bill, said executive director Ted Anderson. “We’ve got plenty of structures,” he said, “with gang graffiti on them, with failing roofs that need to come down.”

Comment by j-j-j-joe
2014-07-30 09:10:18

I posted a picture of Kansas City on here maybe a year ago. It’s basically just tons of parking lots and low-slung buildings. It’s not surprising no one wants to live near a barren wasteland like that–you can’t live there without driving a car all over, yet because everyone else is driving and parking, it ends up taking forever. And there isn’t enough density to promote a workable/livable interesting environment.

The sprawl around the edges of the KC metro is where all the “growth” has been and it’s extremely inefficient. There’s a really good book called “Green metropolis” that goes into a lengthy discussion of how even LEED certified buildings in KC are a joke–particularly the Nextel headquarters just outside KC. They spent a ton of money to create these marshes that will absorb rainwater run off… because they have so many parking lots and garages that it creates so much polluted run-off in the first place. And they created these shaded walkways to encourage people to walk between buildings on the campus, yet they spaced the buildings so far apart that everyone has to drive. And all the buildings are low, like 1 and 2 stories… so the complex required thousands of acres to be demolished, flattened, paved, etc. LOL @ that place being “green”.

Comment by tresho
2014-07-30 10:58:29

One thing the KC metro has going for it is Google’s new and cheap gigabit internet by fiber, e.g. download a 4GB ISO of a DVD in 18 minutes, that sort of thing. It’s so new that its significance remains to be seen. Somebody on AirBnB is advertising a gigabit home in the KC metro area for rent to anyone who wants to experiment with gigabit connections.
Joe’s critique of urban sprawl can apply to much of the USA.

Comment by Ben Jones
2014-07-30 05:36:33

‘A local developer says he is losing the monetary equivalent of one subdivided plot of land a year in property taxes. That is because under Iowa law, properties that are subdivided are taxed at a higher rate after a certain number of years, as though they have been improved with construction.’

‘That law applies even if lots sit empty. Senate File 533 was signed into law in 2011 with the intent of extending the time frame before the higher property tax rate went into effect. However, for Ron Kneip, owner of North Greenview Estates Subdivision, in Le Mars, the change in law provided limited relief because he subdivided his development in 2005.’

“I did get a year out of it, but now I’m back on the full taxation,” he told the Le Mars City Council last week. “I’m sure everybody knows that’s really impossible.”

‘Kneip said he has paid over $100,000 so far in property taxes on 31 empty lots at the Greenview subdivision. “I literally was giving a lot a year back to the city in taxes,” he noted.’

Comment by Get Stucco
2014-07-30 06:50:17

Price declines? Roh roh, Scooby-Doo…

Comment by doom
2014-07-30 08:19:18

Property taxes, plus the overall cost of living makes Chicago land a bitter pill to buy into, at any price.

Comment by Housing Analyst
2014-07-30 08:54:46

That is the case irrespective of location given current massively inflated asking prices of resale housing.

Resale housing is a bonafide ripoff. Build for far less.

Comment by taxpayers
2014-07-30 10:42:54

unions there kill any biz growth

Comment by rj chicago
2014-07-30 08:32:04

But….but…..but GDP in the spring grew at an astonishing 4% annual.
We are not in Kansas anymore there toto.

Comment by rj chicago
2014-07-30 09:09:50

A bit long but worth the read. Here ya go - more (un) intended consequences of loan oversight in Dodd Frank - sheesh - this is utter madness!!!!

As scrutiny mounts, mortgage servicers push into lending
Reuters 7/30/2014 8:46 AM ET
Print Article
By Tanya Agrawal

July 30 - Mortgage servicers in the United States are evolving into the next big lenders, sidestepping regulatory scrutiny to win business in a gap left by the retreat of big banks from the home-loan market.

By writing new mortgages, non-bank servicers such as Ocwen Financial Corp and Walter Investment Management Corp have grabbed the opportunity to supply less creditworthy borrowers with funding no longer available from banks.

The trend, investors and analysts say, could spark a revival in the shares of non-bank servicers by relieving the pressure that has accompanied regulators’ questions over how well these companies are treating struggling borrowers.

But, as they compete for limited business, the temptation to offer ever-riskier loans raises the specter of another subprime crisis.

“Ocwen and the special servicers could become the next generation of non-prime originators,” said Warren Kornfeld, a senior vice-president at Moody’s Investor Service.

Non-bank mortgage servicers, which collect and process home loan repayments, benefited hugely from post-crisis regulatory clampdowns that pushed big banks to unload servicing rights due to stronger capital requirements.

Their explosive growth, however, brought with it tougher scrutiny. In February, New York’s financial regulator identified this growth as a “troubling trend” that must be confronted “before more homeowners get hurt.”

Exempt from the capital requirements to which big banks are subject, the non-bank mortgage servicers drew up Plan B.

Banks such as JPMorgan Chase & Co, the second-largest U.S. mortgage lender, were withdrawing from making home loans to less creditworthy borrowers. A gap had appeared in the market.

“They are servicing existing loans and that is a dwindling business,” said Tom Sontag, a managing director at Neuberger Berman Group LLC, an asset management firm which held a 2.5 percent stake in Ocwen at the end of March.

“They have to find out some way to grow their business, and the most logical next step would be origination.”


In its first financial quarter of 2014, Nationstar Mortgage Holdings Inc, the fifth-largest U.S. mortgage servicer, issued $4.5 billion in new mortgages, known in the business as originations.

This was a third more than it had issued in the same year-earlier period and equivalent to nearly 2 percent of the entire mortgage industry’s originations in the three months to March 31, according to industry publication Inside Mortgage Finance.

Smaller rival Walter Investment Management’s mortgage lending business rose nearly tenfold in the same period to account for a 1.6 percent share of the overall market.

Acquisitions have helped to fuel growth. Ocwen entered the home-loan business in 2012 when it bought Homeward Residential Holdings Inc from private equity firm WL Ross & Co LLC. Walter bought Residential Capital LLC’s origination business in 2013.

Ocwen and Walter declined to comment for this article. A spokesman for Nationstar, John Hoffmann, said the company saw “significant improvement” in originations for the first quarter.

As concerns have lingered over scrutiny of their core mortgage servicing businesses, Ocwen and Walter have each lost between a fifth and a quarter of their market value in the past 12 months. Shares of Nationstar have fallen 30 percent.

Some investors and analysts say the stocks are undervalued, a theory supported by Thomson Reuters StarMine’s intrinsic valuation model - a measurement of how much a stock should be worth, considering expected growth rates over the next 15 years.

Ocwen’s intrinsic valuation is $45.39, versus the stock’s close of $35.17 on Tuesday, according to StarMine. Based on the same model, Nationstar is worth $52.83 versus a close of $31.95 and Walter offers even better prospects: $79.96 versus $28.92.

“In general, the companies are trading at a discount to intrinsic value and they are a good buy,” said Kenneth Domilise, a senior equity analyst at Century Management, an Austin, Texas-based investment firm which holds Ocwen and Walter shares.


As mortgage servicers lend more, and competition between them grows, there exists the temptation to overextend into the subprime market in pursuit of fatter profits.

As long ago as late-2012, Ocwen Chairman William Erbey had said it made sense for the company he founded to take part in the non-prime origination market. There was a caveat, though - such loans should be prudent.

David Lykken, president of consulting firm Mortgage Banking Solutions, estimated an annual market for non-prime mortgages - almost non-existent today - worth anywhere between $100 billion and $200 billion in the next few years.

Lenders, though, should adopt strict underwriting standards when dealing with non-prime borrowers, he said.

The non-bank mortgage servicers also face two major hurdles. The first is the absence of a robust secondary market, where they can bundle non-prime loans and sell them to investors.

“If you are a non-bank doing origination, you need to have securitization as your exit,” said Christopher Ames, head of asset- and mortgage-backed securities at Schroder Investment Management North America Inc.

“The problem that we, as investors, have is the lack of fiduciary responsibility to us from the servicers,” said Ames, whose company owned about 258,400 Ocwen shares as of March 31.

The other big problem for mortgage servicers would be the rise in scrutiny that non-prime loans would eventually bring.

“It’s a slippery slope and the consequence of not underwriting these loans intelligently will be that consumers will be hurt,” said Lykken. “The regulators are going to be there to double-check.” (Editing by Feroze Jamal, Robin Paxton and Joyjeet Das

Comment by doom
2014-07-30 10:22:40

Look always a risk in any loan, stats show over 93% of all Americans make timely payments, kind like I

Comment by pazuzu
2014-07-30 12:36:30

“stats show over 93% of all Americans make timely payments,”

In case you’re not playing the court jester:


Comment by doom
2014-07-30 16:35:54

This site is about “housing” mortgages are being paid! I don’t know or care about the washer and dryer at Lowes’s the couple from Topeka missed a payment on.

Geez almighty, can’t wait to get your two cents in even though it is worth 1.5 cents?

Comment by Housing Analyst
2014-07-30 18:25:43

Wrong again. Long term default rates pre-housing debacle were near 1%. They’re currently at 7%.

A default rate 700% higher than long term trend is normal eh Fraudster?

(Comments wont nest below this level)
Comment by doom
2014-07-30 10:26:01

don’t know that happen but to continue, like insurance the odds are the insurer makes out in the end, they pay out but take way more in.

I’m not for sub-prime of course but these loans have got to be a little lighter on the buyers, no such thing as a sure borrower, these banks want it both ways, now they are overly to cautious?

Comment by tresho
2014-07-30 11:05:34

Akron Ohio using technology to document, photograph every parcel in the city and total up vacant houses by Bob Jones:
AKRON, Ohio - About a dozen workers in bright yellow vests are walking around Akron neighborhoods, using iPads to photograph every house in the city and document details about all of the parcels.

“A lot of people think we’re here to check meters or check their water. Some people think we’re crossing guards and that scares them that we’re taking pictures of their house. We get a lot of fun stuff. Some people think that we’re here and we work for Google,” said Karris Barclay, one of the surveyors.

The group is actually part of a $70,000 project funded by the Western Reserve Conservancy’s Thriving Communities Institute.

The goal is take pictures and gather information about the 98,000 parcels in Akron.

The workers, who are paid $12 an hour, enter information about the parcels, regardless if it’s an occupied home, apartment, business, vacant house or empty lot.

The condition of the properties is given a grade between an A and an F, which is then typed into the iPad, along with notes about the condition of the parcel.

Cazzell Smith, a community organizer with the East Akron Neighborhood Development Corporation, said the project will enable the city to have a precise number of vacant structures in the city.

He explained that could help convince the the federal government to provide more funding to demolish the vacant houses.

“What this helps us do is put us in position to at least say, ‘This is what we’ve got. This is how our housing stock is,’” Smith said.

He estimated the city tears down 30 houses each month, but with a cost of $10,000 per house, it’s difficult for large cities to keep up with the demand to rid a nuisance house from a neighborhood.

The survey is about 80 percent finished and should be completed within a few weeks.

Smith isn’t sure how many vacant houses will be counted in the end, but he said the final numbers will be in the thousands.

Comment by Mugsy
2014-07-30 22:11:38

Headed up to Akron next week. Have to check this out if it’s safe enough.

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