Hedge fund Perry Capital sues government over Fannie Mae, Freddie Mac

Originally Appeared in The Washington Post

Investors are placing more pressure on the government to release its hold on Fannie Mae and Freddie Mac as the mortgage finance giants return to profitability.

In the latest effort, hedge fund Perry Capital filed a lawsuit in federal court late Sunday to stop the government from seizing most of the profits at the finance firms.

The lawsuit, filed in U.S. District Court in Washington, alleges the Treasury Department and the Federal Housing Finance Agency (FHFA), which oversees the government-owned mortgage companies, violated a 2008 law that placed Fannie and Freddie into conservatorship to prevent bankruptcy.

Congress originally authorized Treasury to collect 10?percent dividend payments from Fannie and Freddie every quarter as a condition of the government’s $188?billion bailout of them. Treasury amended the terms of the agreement last year to make Fannie and Freddie give the government most of their profits, a move known as the “sweep amendment.”

The lawsuit alleges that the dividend sweep was tantamount to a purchase of new securities, which Treasury did not have the authority to make. It also says the FHFA has failed to conserve the assets of Fannie and Freddie by allowing Treasury to take most of their profits. Perry Capital is not seeking damages but is asking the court to strike down the Treasury amendment, a decision that would benefit its investors.

“This lawsuit seeks to uphold the rule of law,” Theodore Olson, a partner at Gibson, Dunn & Crutcher, which is representing Perry Capital, said in a statement. “If the government wanted to assume the powers of receivership, it could have chosen that course. Instead it chose conservatorship, and with the ‘sweep amendment,’ it overreached.”

Perry Capital alleges that the new arrangement has caused irreparable harm to all private investors, who are being shortchanged as Fannie and Freddie have returned to profitability. The hedge fund says the government “maneuvered to ensure that Treasury would be the sole beneficiary of the companies’ improved financial position,” according to the lawsuit.

Treasury and the FHFA declined to comment on the lawsuit.

Treasury has received $132?billion in dividend payments on the government’s nearly 80?percent stake in Fannie and Freddie. Shareholders say Treasury’s new terms prevent the companies from building capital that would help them redeem any of the shares the government has taken.

Perry Capital, which would not disclose its exact stake in Fannie and Freddie, began investing in the mortgage companies in 2010. It said it believed the beleaguered companies were positioned to return to profitability. In the aftermath of the financial crisis, Fannie, Freddie and other government-backed agencies have insured nearly 90?percent of new mortgages.

Investors, including Perry Capital and Paulson & Co., have urged Congress to quash plans to close Fannie and Freddie, which they say should be allowed to go private. But the overwhelming momentum in Washington is behind abolishing the troubled mortgage insurers.

A few weeks ago, Sens. Bob Corker (R-Tenn.) and Mark R. Warner (D-Va.) introduced legislation to replace the mortgage giants with a new government agency that would shift more of the risks of lending to the private sector. The lawmakers want to make the government the last line of defense in the event of another housing crash.

Mortgage rates: Nowhere but up?

Originally Appeared in USA TODAY

This week's sharp increase in mortgage rates — the biggest one-week leap in 26 years — won't likely be repeated, but a long era of historically low rates may be over.

Mortgage giant Freddie Mac said Thursday that the average 30-year fixed rate mortgage rose to 4.46%, the highest in almost two years, and up from under 4% the week before.

In the short run, this week's half a percentage point increase could push some home shoppers out of the market while spurring others to act before rates go higher, says John Burns, CEO of John Burns Real Estate Consulting.

Longer term, higher rates and more homes for sale could slow gains in home prices, whose rapid rise has spurred fears of another housing bubble.

n April, home prices were up 12.1% from a year ago and more than 20% in San Francisco, Phoenix, Las Vegas and Atlanta, Standard & Poor's Case-Shiller data show.

Higher interest rates will have a "small impact" on sales volume as well as prices, says Cameron Findlay, economist with Discover Home Loans. Gains of 20% year-over-year "are not sustainable or healthy," he adds.

Higher rates won't stop the housing market recovery, however, says Freddie Mac economist Frank Nothaft.

It has "enough momentum to continue," but sales volume and home price appreciation will be "less than what would've occurred," he says.

Nothaft expects rates to bounce between 4 3/8% and 4 5/8% through the end of the year. "The historic trough is history," he says.

The impact of the increase is already being observed in some places.

New customer volume was down 11% last weekend from the average of the previous three weekends at real estate brokerage Redfin, which tracks 19 major markets, says Glenn Kelman, Redfin CEO. Meanwhile, shoppers further along in the process rushed to close deals.

"We've had people calling us in tears. There were so many buyers at the outer limit of what they could afford," Kelman says.

The increases follow rising yields on the 10-year Treasury bond. They've climbed in the wake of Federal Reserve Chairman Ben Bernanke's comments last week that the Fed could start trimming its stimulus policies later this year if the economy continues to improve. Mortgage rates track the 10-year Treasury rate, which is at a two-year high.

Paul Diggle of Capital Economics expects 30-year rates of 4½% at year end, 5% next year and 5½ in 2015.

Average monthly rates have been below 4% since late 2011, Freddie Mac data show. But even at current levels, they're still low, having averaged 8.6% since 1971, Freddie Mac says.

At today's house prices and income levels, mortgage rates would have to be nearly 7% before the U.S. median-priced home would be unaffordable to a family making the median income in most parts of the country, a Freddie Mac analysis shows.

Higher rates will have the most impact on affordability in already high-cost areas, such as San Francisco south to San Diego and Washington, D.C., north to Boston, as well as in Seattle and Miami, Freddie Mac says.

Pending home sales rose in May to the highest level since late 2006, a potential sign that some fence-sitters jumped in to get ahead of higher rates, the National Association of Realtors said Thursday.

More Short Sales

First appeared in USA Today

Lenders are allowing more short sales by financially strapped homeowners and a few people are even getting cash to complete the sale. Such is the case with Durham Short Sales.

Short sales are when lenders allow borrowers to sell homes for less than their unpaid mortgages. They are an alternative to foreclosures.

Short sales have been increasing for months, but the financial incentives — which Realtors say are random and infrequent — are a newer wrinkle. Those who care about Brooklyn Home Insurance are paying attention.

Examples:

·         JPMorgan Chase went national with short-sale incentive offers last year, paying up to $35,000 in some cases.

·         Bank of America is testing incentives from $5,000 to $25,000 in Florida to see if they should be expanded to more states. The Florida program began last fall, spokesman Richard Simon says.

·         Wells Fargo's incentive offers range from less than $3,000 to $20,000, spokesman James Hines says.

Short sales, even with incentive payments to borrowers, can save lenders money compared with the expenses involved in completing foreclosures. This is true of Triangle Homes for Sale Foreclosures.

In states such as Florida where foreclosures go through the courts, 50% of loans in foreclosure are more than two years past due, says a January report by mortgage tracker LPS Applied Analytics.

"It's a lot cheaper to shell out $10,000 or $20,000 to someone than it is to go through a long foreclosure," says Jim Gillespie, chief executive of Coldwell Banker.

Banks are more willing to do short sales now than in the past, Gillespie says. Cash incentives appear to be "limited but increasing" in number, he adds.

"When a loan modification isn't possible, a short sale may be a better and faster solution" than foreclosure, says JPMorgan Chase spokesman Thomas Kelly.

The lenders won't say how often they extend such incentives. Those in Cary Short Sales are curious, though.

"If you have two similar sellers, one might get it and another may not," says Colleen Badagliacco of Altera Real Estate in San Jose. "It's very random."

Typically, short sale incentives are more common for loans in states where foreclosures take more time, Hines says.

In November, short sales accounted for more than 9% of single family home sales and were up 32% from the year before, according to CoreLogic.

Market researcher Dataquick also shows short sales increasing from January 2011 through last month throughout California and in Phoenix, Miami and Seattle.

The federal government-run foreclosure prevention program also offers short sale incentives, at least $3,000 for sellers, but far more short sales are being done outside the government program.

Through December, just 26,901 short sales had been completed through the Home Affordable Foreclosure Alternative (HAFA) program. A Raleigh Real Estate Lawyer is curious.

In contrast, BofA, the largest servicer of home loans, did 107,000 short sales last year. That was up from 92,000 in 2010, which was double the 2009 volume, it says.

"The trend is up," says Moody's Investors Service analyst William Fricke.

Is Desegregation Really Happening?

First appeared in the Wall Street Journal

An exodus of African-Americans from struggling industrial cities such as Detroit and the growth of Sunbelt states have pushed racial segregation in U.S. metropolitan areas to its lowest level in a century, according to a new study.

The report, released by the conservative Manhattan Institute, said U.S. cities are more integrated now than at any time since 1910, based on analysis of census data from neighborhoods.

Fifty years ago, nearly half the black population lived in a ghetto, the study said, while today that proportion has shrunk to 20%. All-white neighborhoods in U.S. cities are effectively extinct, according to the report.

Immigration and gentrification have helped convert ghettos into racially mixed communities and contributed to diversifying suburbia, said economists of Harvard University and of Duke University, who co-wrote the study. "Segregation is as low as we have ever seen it," said the economists. "It's an unprecedented scenario."

Some scholars said the report, titled "The End of the Segregated Century: Racial Separation in America's neighborhoods, 1890-2010," paints too rosy a picture and argued the country is far from being fully integrated.

"That segregation is declining in most places is a real plus," said a Brown University sociologist who has published research on the topic. "But it is declining at a rate that will leave the country with a very high level of segregation for a long time."

From around 1910, rural blacks began moving in large numbers to urban centers in search of work, in what became known as the Great Migration. Government policies and discriminatory practices in areas such as mortgage lending promoted residential segregation, which peaked in the 1960s. The civil-rights movement then paved the way for integration, and the 1968 Fair Housing Act specifically banned housing discrimination.

By the 1980s, blacks were moving to suburbs, which both altered the face of the urban areas they left behind and created racially mixed neighborhoods where they settled.

Using the most common measure of segregation, the "dissimilarity index," the authors found that segregation is lower now than it was in 1970 in all but one of the 658 housing markets tracked by the Census Bureau. Between 2000 and 2010, segregation declined in 522 out of 658 housing markets, the report said.

The index of dissimilarity measures how evenly two groups are distributed in a neighborhood. The score indicates what share of the members of one group would need to move neighborhoods to enable the two groups to be equally distributed.

In 2010, Dallas-Fort Worth and Houston were the country's least segregated large cities. Atlanta's index fell 28 points to 54.1 in 2010 from 82.1 in 1970; Dallas-Fort Worth's fell to 47.5 from 86.9 over the same period.

Still, segregation hasn't been eliminated. The typical urban African-American still lives in an area where more than half the black population would need to move to achieve overall integration.

"There are still segregated places, like the South Side of Chicago, the East Side of Cleveland and Detroit," said a sociologist. "But those places have fewer people."

Many of the people leaving industrial cities moved to the Sunbelt, which stretches from California to North Carolina and has experienced rapid growth in recent decades. As cities such as Phoenix, Houston and Charlotte expanded to accommodate the new population, many neighborhoods became more racially mixed than those left behind in the Rust Belt, a sociologist said.

The beacon of economic opportunity is luring ambitious young African Americans such as a 28 year old, who left Cleveland for Houston a year and a half ago for a promotion in the Veterans Administration. He now manages outpatient care at Houston's Michael E. DeBakey VA Medical Center.

"It was a good promotion, and with the economy being the way it is, it was too good to pass up," said the young man.

A 59 year old, who moved to Phoenix from Racine, Wis., in 1987 to run a janitorial business, said: "Everybody here came from somewhere else so they are not just living next to their own kind."

Immigration has been a factor in desegregation. The Hispanic population has climbed and spread across the U.S. since the 1990s, with Latin American immigrants settling in both predominantly black and white neighborhoods, the report says. The typical African-American now lives in a neighborhood that is 14% Latino.

Access to credit has also fostered mobility and integration. Minority home buyers were affected by the subprime mortgage crisis, but many buyers were able to stay in their homes, the report said.

But the decline in desegregation in residential areas hasn't meant an end to racial inequality. Minorities at every income level tend to reside in poorer neighborhoods than whites with comparable incomes, according to the scholar at Brown.

Home Foreclosures Looking Up

First appeared in CNN Money

Foreclosure filings and repossessions fell to their lowest level since 2007 last year.

Total filings, including default notices and bank repossessions were down 33% for the year to 2.7 million, according to RealtyTrac, the online marketer of foreclosed properties.

One in every 69 homes had at least one foreclosure filing during the year, while 804,000 homes were repossessed. That's a significant improvement from the peaks reached in 2010 -- when 1.05 million homes were repossessed -- and the lowest levels seen since 2007.

More than 4 million homes have been lost to foreclosure over the past five years.

While the declines seem like good news for the housing market, where a flood of foreclosed homes has depressed home prices, much of it is due to processing delays caused by fall-out from the "robo-signing" scandal that broke in late 2010.

During the year, banks spent more time making sure paperwork was legal and proper, creating a backlog in the foreclosure pipeline. As a result, the average time it took to process a foreclosure climbed to 348 days during the fourth quarter, up from 305 days a year earlier.

"Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year," said Brandon Moore, chief executive officer of RealtyTrac.

However, Moore said there were "strong signs" during the second half of the year that lenders are working through foreclosure backlogs in certain markets. He expects foreclosure activity to rise above 2011's level but remain below the peak hit in 2010.

Low rates offer some help for homeowners

Early in 2011, many forecasters were predicting a wave of foreclosures due to resetting adjustable-rate mortgages, but low mortgage rates helped many borrowers refinance into more affordable loans, said Moore.

The government helped as well, through efforts like the Home Affordable Refinance Program (HARP), which made refinancing easier for borrowers who owe more on their mortgage than their homes are worth.

Turning foreclosures into rentals

Government foreclosure prevention programs, including HARP and the Home Affordable Modification Program (HAMP), have started about 5.5 million mortgage modifications since April 2009, according to the U.S. Department of Housing and Urban Development.

"Programs like HAMP and HARP have definitely made a dent in the foreclosure problem," said Moore "However, they are certainly not living up to their billing of preventing several million foreclosures. In addition, many [HAMP] homeowners fall back into foreclosure later on."

Of course, there were still plenty of factors working against homeowners in 2011, including the continued erosion in home prices. Falling prices rob homeowners of home equity, which they can tap if they need emergency cash.

Foreclosure hot spots

Hot spots for foreclosures remain mostly in "bubble states," where speculative investors helped drive up home prices beyond their fundamental values during the mid-2000s housing boom.

Nevada, where one out of every 16 households received some kind of default notice during the year, was the worst hit of all, a distinction it has held for the fifth consecutive year.

Foreclosure free ride: 3 years, no payments

Arizona had the second highest foreclosure rate and California came in third. Florida, which had been running neck-and-neck with the other "Sand States" in past years, fell to seventh, behind Georgia, Utah and Michigan.

Among metro areas, Las Vegas suffered from the highest foreclosure rate in 2011. California put seven cities in the top 10, led by Stockton in the second slot. Other cities in the top 10 included Phoenix, which finished sixth, and Reno, Nev. was eighth.

Rental Demands Changes Housing Outlook

First appeared on Yahoo! News
Brian Keith is busier than ever as the architecture firm he works for rushes to wrap up work on a 300-unit apartment complex in Dallas.

The project is one of dozens the firm, JHP Architecture, has on its hands -- a surge of business driven by a rise in demand in the United States for rental properties.

The increased demand has forced JHP to expand, and it expects to keep hiring at least through the first quarter.

"We're seeing overall work come back and there's a backlog of contracts to go through," said Keith, director of urban design and planning at JHP. "There's strong interest in multi-family units and plenty of pent-up demand."

With U.S. unemployment at a lofty 8.6 percent, home foreclosures rising and property prices under pressure, more and more Americans have given up the dream of owning, opting instead to rent, a shift that is remaking the face of the U.S. housing industry.

The percentage of Americans who own their home dropped from a peak of 69.2 percent in late 2004 to a 13-year low of 65.9 percent in the second quarter. It edged up to 66.3 percent in the third quarter of this year.

On the flip side, the percentage of rental properties that are empty fell to 9.8 percent in the third quarter from 10.3 percent a year earlier.

In a recent report, Oliver Chang, an analyst at Morgan Stanley, dubbed 2012 "The Year of the Landlord."
"Rents are rising, vacancies are falling, household formations are growing and rental supply is limited," the Morgan Stanley report stated. "We believe the demand for rental properties will continue to grow."

Groundbreaking for new housing jumped 9.3 percent in November to the highest level in 19 months, fueling optimism that the battered housing market was regaining its footing.

The gains, however, were almost solely in multifamily housing. Groundbreaking for structures with five or more units shot up more than 30 percent from October to now stand at nearly double the year-ago level.
Prices reflect the shift in demand. Rental costs are up 2.4 percent over the last year, compared with an increase of just 0.6 percent in 2010.

Steve Blitz, senior economist at ITG Investment Research, says the lure of higher returns is spurring the development of apartment buildings. He argued the next "boom" in residential construction has already started.

"The reason rents were rising is that through the past 15 years there has been an under-building of rental properties because typical renters were increasingly able to garner cheap financing to buy a house," he wrote in a research note.

While the rise in demand is great news for builders and developers, it remains unclear what the pick-up in homebuilding will mean for the economy as a whole.

"Residential construction will be a plus to GDP in 2012, but house price declines will be a negative. So net, net housing will be neutral or a small drag on the economy," said Mark Zandi, chief economist at Moody's Analytics.

At its peak at the end of 2005, homebuilding accounted for about 6.2 percent of overall economic activity. Now, it is only about 2.4 percent.

U.S. housing starts in April 2009 hit their lowest level on records dating to January 1959. While multifamily starts have given them a lift, 2011 may be the weakest year ever for construction of single-family homes.

"Business is slightly down from last year," said Bill Zach, a third-generation homebuilder. His family business, the Zach Building Co. in the Milwaukee, Wisconsin, area, is mainly focused on single-family units.

To Zach, that his firm is still in business when so many of his competitors have gone bust represents some success.

"It used to be my competition was every guy that owned a pick-up truck and called himself a builder. Hundreds of them," Zach said. "That's no longer the case, those guys are dropping by the wayside."

But there are signs of a turn and signals that the housing market may be close to finding a bottom.

The Architecture Billings Index, a gauge of future construction, picked up last month, breaking above the 50 level to signal growth in billings.

And the stock of homebuilders, as measured by a Dow Jones index, has shot up more than 30 percent since early October.

"Residential construction is finally beginning to rise from its post-recession lows," said Joseph Lavorgna, chief U.S. economist for Deutsche Bank. "The true test for starts and (building) permits, as well as most of the sales metrics, will come during the spring buying season."

Massachusetts Sues Banks For Holiday Foreclosures

Story first appeared on CNNMoney.


The Massachusetts attorney general sued some of the nation's biggest banks on Thursday, accusing them of unlawful and deceptive conduct in the foreclosure process. This is currently not involving a Birmingham Foreclosure Lawyer.

The statement described the state court lawsuit as the nation's first comprehensive lawsuit against the five major national banks regarding the foreclosure crisis.

The AG's lawsuit seeks accountability for the banks' unlawful and deceptive conduct in the foreclosure process, including unlawful foreclosures, false documentation and robo-signing ... and deceptive practices related to loan modifications, the statement said.

MERS runs a database created in the 1990s to digitize and centralize the paperwork surrounding the bundling and selling of the loans.

The Massachusetts suit alleges that the database was used by the big banks to transfer ownership of mortgage debt without paying government registration fees and properly recording the transactions. The system also concealed the identities of the holders of mortgage debt from borrowers, the suit claims. It does not appear to have any relevance if owners had Homeowners Insurance.

MERSCORP, parent company for Mortgage Electronic Registration System Inc., said the Massachusetts complaint hangs on ambiguous language and has no applicability to MERS' business model.
Fannie Mae, banks halt foreclosures for the holidays. A Rochester Hills Foreclosure Lawyer said this was a nice gesture.

The banks, meanwhile, say negotiations they are conducting with a group of state attorneys general toward a settlement over their handling of foreclosures are a more promising means of resolving the issue than lawsuits.

Bank of America spokesman Lawrence Grayson said the firm believes that collaborative resolution rather than continued litigation will most quickly heal the housing market and help drive economic recovery.

Chase echoed those comments, saying it was disappointed with the suit, as did GMAC Mortgage, which said it would vigorously defend its actions in court.

Citi said in a statement that it had not yet reviewed the lawsuit, but that the bank believes they have operated appropriately in compliance with existing laws. Wells Fargo also denied the allegations, adding that the suit will do little to help Massachusetts homeowners or the recovery of the housing economy in the state.

Settlement talks fraying: Coakley told reporters Thursday that the suit had come about in part because settlement talks with the banks, which have dragged on for more than a year, appear unlikely to yield a fair result.


Attorneys general from California, New York, Delaware and Nevada have also distanced themselves from the settlement talks and are pursuing their own investigations.
Will FHA be the next big government bailout?

The talks are stalled at present, but have focused on a settlement in the range of $20-25 billion in total from the firms involved in exchange for release from liability for all conduct related to foreclosures, according to sources familiar with the matter. Of this total, roughly $10-15 billion would come in the form of credit for loan modifications. A Wayne Foreclosure Lawyer is watching the case closely.

Iowa Attorney General Thomas Miller, who is coordinating talks on behalf of the states, said in a statement Thursday that Coakley had pledged to evaluate the joint state-federal settlement they are negotiating, which they hope to reach soon.