Why Renters Rule U.S. Housing Market (Part 1)

By :  A. Gary Shilling
February 21, 2012

The collapse in housing and the 33 percent plunge in house prices since 2006 are favoring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.

Policy makers in Washington continue to have a soft spot for homeownership. Many recent government actions can be viewed as attempts to keep people in their homes, even owners who clearly can't afford them. In addition to specific plans such as the Home Affordable Modification Program, or HAMP, and the Home Affordable Refinance Program, or HARP, the Obama administration is trying to revive the moribund housing sector by encouraging mortgage lenders and servicers to refinance loans at lower rates.

This reduces interest income for banks, which are now compelled by the Dodd-Frank law to retain 5 percent of the credit risk on lower-quality residential mortgages that are securitized and sold to others. Furthermore, banks are reluctant to refinance loans that Fannie Mae and Freddie Mac (NMCMFUS) then guarantee and put back to the lenders if they find any defects. The White House plan is a tough sell.

Refinancing Woes

As banks deleverage and mortgage activities increasingly involve unwanted loans, the ability to deal with refinancing has diminished. Four banks now control more than 60 percent of the mortgage market, and many mortgage servicers have reduced staff or been slow to gear up to handle delinquent mortgages and refinancings. Except for those who qualify for HARP, refinancing is highly unlikely for 8 million owners who are underwater -- owing more than the value of their homes -- because new terms are treated as new loans. Those who have positive home equity face dramatically tightened lending standards, a clogged refinancing system and new fees that can wipe out the savings from refinancing.

Almost 90 percent of mortgages today are only originated because of guarantees from Freddie Mac, Fannie Mae and the Federal Housing Authority, and all three have raised their fees substantially. As a result, many of the 20 million borrowers who could cut their mortgage rates by more than one percentage point through refinancing are unable to benefit.

U.S. Mortgage Servicers in $25B Settlement

By: Dawn Kopecki, David McLaughlin and Lorraine Woellert 

 February 9, 2012

Hashing out the $25 billion settlement reached by Bank of America Corp., JPMorgan Chase & Co. and three other U.S. banks with 49 states required missing some football.

Bank executives, state officials and U.S. Housing Secretary Shaun Donovan worked frantically over Super Bowl weekend as the New York Giants beat the New England Patriots 21-17, according to three people involved in the discussions. The negotiations ran down to the wire the night before the agreement was announced, they said.

Negotiators made phone calls late into the night and ironed out the final details by phone at about 2 a.m. or 3 a.m. yesterday, less than six hours before the Obama administration released the details to the public, said the people, who didn't want to be identified because the negotiations were private.

The result was what the U.S. called the largest federal- state civil settlement in the nation's history, ending a probe of abusive foreclosure practices stemming from the collapse of the housing bubble. The banks have committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments.

The nation's five largest mortgage servicers -- Bank of America, JPMorgan, Wells Fargo & Co., Citigroup Inc. (C) and Ally Financial Inc. -- negotiated the settlement with federal agencies, including the Justice Department, and state attorneys general.

I.E. Job Market Turns Up As Construction Industry Pushes Toward The Light

By: Benjamin Wright

December 12, 2011

Over the past few months, the Inland Empire has seen a sharp uptick in employment with the construction industry - believe it or not - playing a role in that equation.

Construction was, without a doubt, the hardest-hit sector of the recent recession, falling almost 60 percent from its peak employment level. The fact that the industry has begun to turn around is a weighty sign, and speaks to the overall state of the Inland Empire economy.

An overall snapshot of the region shows that after declining steadily for more than four years, the I.E. has added 22,100 jobs since June, a surge of 4.9 percent on an annualized basis. There are now more jobs in San Bernardino and Riverside counties than at any point since August 2009. What's more, the gains are spread across a variety of industries, including professional and business services, local government, wholesale trade, and construction.

While building activity in the single-family market is still sparse, other segments of the construction market have bounced back strongly - namely, healthy growth in remodels and alterations. Indeed, with large numbers of homeowners still underwater on their mortgages and unable to move, many are instead upgrading their homes with new kitchens, bathrooms and other amenities. The value of these projects has increased by more than 20 percent since late 2009.

At the same time, alterations to nonresidential structures - such as warehouses and office buildings - have increased by 40 percent. These trends have led directly to new construction jobs.

UBS's Harris as No. 1 Forecaster Says Housing Drives Recovery

By Timothy R. Homan

December 01, 2011

Working his way through a plate of wild Alaskan halibut at a restaurant a couple of blocks from Radio City Music Hall in New York, UBS Securities LLC Chief Economist Maury Harris holds forth in a slight Texas twang on what he expects from the U.S. economy in 2012.

It isn't a story of gloom and doom--although Harris worries that the turmoil in Europe will weigh on growth in the U.S. He sees some unexpected bright spots driving U.S. expansion and preventing a renewed downturn, Bloomberg Markets reports in its January issue.

Harris's predictions matter. His team is No. 1 among economic forecasters for the world's largest economy during the two-year period ended on Sept. 30, according to data compiled for Bloomberg Markets' annual ranking.

Harris, a native of Waco, Texas, says one of the most important pieces of evidence favoring continued U.S. growth is home prices.

"We think that house prices have stabilized," Harris says. That's crucial, he adds, because what makes the aftermath of the 2008 to 2009 U.S. financial meltdown different from its post- World War II predecessors is that the housing market has taken so long to recover.

A loosening of bank lending standards for auto, credit card and other consumer loans is another reason for optimism, says Harris, who has been forecasting economic trends for more than three decades.

No Home Loans

"Banks are competing for nonmortgage loans," he says. "You can borrow money for anything except a house."

The No. 1 firm in the world for economic forecasting is London-based Standard Chartered Plc (STAN), according to data compiled by Bloomberg.

"For 2012, it's a divided and disconnected world facing many policy dilemmas," says Gerard Lyons, chief economist at Standard Chartered Bank, the U.K.'s second-largest financial institution by market value and a firm that does much of its business in Asia. "In the West, it'll be seen as an era of austerity," Lyons says. "In the East, it'll be investment and growth."

While the likelihood of a renewed downturn in the U.S. and Europe is low, Lyons says, the possibility exists.

No Double Dip

"If we were to have a double dip, it would probably be triggered by a combination of factors: a loss of confidence, an external shock or a policy mistake," he says. "No part of the world is decoupled from any other part."

The Bloomberg Markets ranking includes predictions by 354 forecasters covering 11 countries plus the euro zone. The U.S. ranking looks at the work of 78 forecasters during the two years started on Oct. 1, 2009. It measures the accuracy of economic forecasts in 13 categories, including gross domestic product, unemployment, consumer and producer price indexes, home sales, industrial production and personal spending.

The euro-zone ranking measures nine categories, including GDP, inflation, unemployment, consumer sentiment and industrial production.

In the competition for the top forecasting firm, banks and research companies were ranked if they made predictions for the U.S. and at least four other countries. Standard Chartered's economics team ranked 17th of the 78 teams that evaluated U.S. economic indicators. It was No. 2 for India, No. 3 for China and No. 5 in predicting the U.K.'s performance.