Foreclosures spread into previously safe areas
The foreclosure crisis is getting worse as high unemployment and lackluster job prospects force homeowners in an increasing number of metropolitan areas into dire financial straits.

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Potential home buyers who have high credit scores and hefty down payments may be surprised that even they are being targeted for higher 'risk-based' fees.

By Kenneth R. Harney

January 9, 2011

Here's mortgage giant Fannie Mae's sobering New Year's greeting for home buyers and refinancers in 2011: Give me more money! If you want a loan this year, you're going to have to pay more — thousands of dollars more in some cases — even if you've got stellar credit scores and bundles of cash handy for a down payment. Things could get much worse if your scores have been sagging with the economy and you don't have much money upfront.

In a Dec. 23 memo to lenders in its network, Fannie announced that it had decided to impose a new schedule of higher add-on fees, similar to what Freddie Mac — the other huge congressionally chartered mortgage investor — rolled out to jeers from the real estate industry just before Thanksgiving.

Both corporations have required massive federal financial infusions — estimated at close to $150 billion — since the housing market began deteriorating, and they now operate under a federal conservatorship arrangement. The Obama administration plans to submit long-promised proposals to Congress this month on what to do with the two — phase them out, restructure them, privatize one or both of them, or other solutions.

But meanwhile, Fannie and Freddie continue to fund or guarantee upward of two-thirds of new mortgage originations. Because of their sheer size and market dominance, they play pivotal roles in determining whether — and how fast — the housing market can rebound.

Their new fees scheduled to start this spring, however, don't appear likely to make financing a home any easier. Some potential buyers who have high credit scores and hefty down payments may be surprised that even they are being targeted for higher "risk-based" fees.

Consider these examples of how Fannie's revised list of loan add-ons will affect borrowers. Say you want to buy a house that requires a $300,000 mortgage. You have an impressive FICO score — above 800 — and cash for a down payment of just less than 25%.

On the basis of your credit score and loan-to-value (LTV) ratio, Fannie now plans to charge an extra quarter of a percentage point of the loan amount — $750 — to do the deal. During 2010, by contrast, your substantial down payment combined with your FICO score — signifying virtually no risk of default — would have meant zero additional cost.

Now take the same loan amount but substitute a lower score and smaller down payment. Say your FICO score is 679 and you have down-payment money of just less than 20%. Fannie will soon begin hitting you up for 2.75% in add-on fees — a staggering $8,250 solely attributable to your FICO and LTV ratio. That's $1,500 more than what you would have been charged during 2010.

But these fees are just the start of the multilayered, cumulative risk-based pricing system that both Fannie and Freddie employ. Every perceived risk factor in a loan transaction receives its own separate add-on fee, all of which get totaled up for your final loan charges.

Some fees are keyed to the type of real estate you want to finance. Condos, for example, are charged higher fees than stand-alone houses — a flat three-quarters of 1% by Fannie when the down payment is less than 25%. Rental investment properties, manufactured homes and loans with interest-only payment features all get separate fees that can mean significantly higher costs.

That's not all. Both Fannie and Freddie also tack on what they call adverse-market fees of one-quarter of 1% to all loans just to get you seated at the table. In the $300,000 example above, that's a standard admission ticket of $750. All the fees can either be paid by you upfront as part of the transaction costs or financed with a higher interest rate on the mortgage itself.

What's the justification for these add-ons? Though Fannie Mae declined to comment on its latest fee hikes, Edward J. DeMarco, acting director of the federal agency that oversees Fannie and Freddie, called the add-ons necessary to protect the companies from "the costs and risks" inherent in the mortgages they buy or guarantee. Both Fannie and Freddie "underpriced mortgage credit risk" in the boom years, DeMarco said in a recent letter to Capitol Hill critics.

The implication here for borrowers in 2011: It's payback time, folks. Get ready to do precisely that — whether the heavy add-ons hamper a housing recovery or not.

kenharney@earthlink.net

Distributed by Washington Post Writers Group.

Copyright © 2011, Los Angeles Times

 Original Article URL:  http://www.latimes.com/business/realestate/la-fi-harney-20110109,0,6538732.story 

By Liz F. Kay

RISMEDIA, January 21, 2011—(MCT)—The local java joint or airport terminal might seem like the perfect location to log onto Facebook or troll Amazon for a deal. But for anyone who has accepted the convenience of unsecured Internet access, here’s another reminder to be cautious about what information you share online.

When you use a wireless network—or even many wired ones—your communications are sent to every other computer on the network, said Seth Schoen, senior staff technologist at the Electronic Frontier Foundation, a nonprofit group that defends civil rights in the digital world.

For years, there have been readily available programs known as “packet sniffers” that intercept those communications. Schoen said he’s given demonstrations where he’s shown intercepted e-mail and instant messages as well as Google search terms. Until recently, it required a little bit of Internet know-how.

But now a programmer has released a browser modification called Firesheep that makes spying on certain information much, much easier—causing quite a stir in the computer world.

Some sites such as Facebook encrypt your information when you’re entering your password to log on—denoted by the padlock at the bottom of the browser. But afterward, it saves a credential on your computer that indicates you’re currently logged on and reverts to its unencrypted version.

A nefarious user could then intercept and copy that credential into another browser to impersonate you on that site, Schoen said.

Some sites, such as Amazon, encrypt payment and shipping steps, but not clicks through pages of books or other products. Financial sites usually encrypt your entire session, he said.

Schoen said he believes many popular sites such as Twitter should also be encrypted. “Other things that people do online are also very sensitive and private, and can and ought to be protected in the same way,” Schoen said.

Encrypted sites are denoted by the “https” in the URL line of your Web browser. To protect yourself, you could bookmark https links to your favorite websites on your computer and smart phone.

If you use the Firefox browser, you could also install the “HTTPS Everywhere” extension developed by the Electronic Frontier Foundation and the Tor Project, dedicated to improving Web privacy. That automatically directs you to the encrypted version of every site that offers one.

But there are limitations. It doesn’t block sites that don’t support encryption, but it does disable functions such as Facebook Chat and Google Instant search findings.

Even some areas of sites that support encryption may be vulnerable, he said, but he believes the situation will improve in the long term. “Some of these sites have more engineering work that they have to do in order to protect users,” Schoen said.

Mike O’Leary, director of the Center for Applied Information Technology at Towson University, also said consumers should be wary of free Wi-Fi hotspots they don’t have a reason to trust.

Those who use Wi-Fi may have noticed at times a network called “Free Public Wi-Fi.” This isn’t actually a network at all, O’Leary warned. When a computer running Windows XP that hasn’t had certain upgrades can’t find a Wi-Fi network, it offers itself up. It wouldn’t give you Internet access, but it could give another user access to your computer.

“If an evildoer wanted to get access to your credentials, an incredibly easy way is for them to put an access point somewhere,” O’Leary said.

As this operating system is phased out, consumers will likely see this glitch less and less frequently, he said. But criminals may try to set up rogue access points.

“Regardless of how you’re connecting to the Internet, you have to trust all of the intermediary nodes along that path,” O’Leary said. “You’re placing trust in these organizations.”

(c) 2010, The Baltimore Sun.
Distributed by McClatchy-Tribune Information Services.

Original Article URL: http://rismedia.com/lowes/8355/12270 

1 million homes repossessed in 2010

  By Les Christie, staff writerJanuary 13, 2011: 10:05 AM ET

NEW YORK (CNNMoney) -- Foreclosures were at a record high in 2010, and more than 1 million people lost their homes, even as notices started leveling off during the end year.

In total, there were nearly 2.9 million foreclosure notices filed during the year, according to report released Thursday by RealtyTrac. That was a record high, but just 1.7% above 2009.

Foreclosure Fiasco

• 1 million homes repossessed in 2010
• Court gives banks 'beat-down' over foreclosures
• Vegas home prices: On the skid until 2032
• Home price plunge is widespread
• Record plunge in foreclosures, thanks to robo-signers

It most certainly would have been higher had notices not plunged in November and December as banks halted tens of thousands of foreclosures in the face of the robo-signing scandal.

"Total properties receiving foreclosure filings would have easily exceeded 3 million in 2010 had it not been for the fourth quarter drop in foreclosure activity," said James Saccacio, RealtyTrac's CEO. "Many of the foreclosure proceedings that were stopped in late 2010 -- which we estimate may be as high as a quarter million -- will likely be re-started and add to [foreclosure] numbers in early 2011."

For the fourth consecutive year, Nevada led the nation in the rate of foreclosures with one of every 11 households there receiving at least one filing in 2010. Still, that constituted a 5.3% improvement from a year earlier.

In Arizona, one of every 17 households received a filing in 2010, down 4.5% for the year. Florida's 2010 foreclosures (one in 18 households) dropped 6.1% year-over-year, and California (one in 25) fell 8.5%.

Overall, 2010 was a rough one for the mortgage industry. The big news was the robo-signing scandal, which erupted in the fall amid allegations that banks were foreclosing on homes without having read the documentation.

Then, President Obama's efforts to fend off foreclosures foundered as the year wore on and the potential for ever more massive foreclosures ballooned.

At the beginning of 2010, the bloom had not yet faded from Obama's HAMP (Home Affordable Modification Program ) program, and many analysts were optimistic it would help many people save their homes.

By April, it became apparent that the program was losing the foreclosure fight; there were reports of 10 new defaults for every HAMP modification and the projections for the number of borrowers who would actually receive a HAMP mod had nose-dived to 1 million from 4 million.

Then the next shoe to drop came in June, with a report from Fitch Ratings that showed HAMP modifications re-defaulting at a high clip. The company forecast that three-quarters of all HAMP mods would ultimately fail.

The foreclosure prevention program really started to fade by mid-summer: Fewer than 37,000 loans received HAMP modifications in July, down from more than 50,000 a month earlier. Only 435,000 loans had gotten permanent modifications through the program.

The next few years could be difficult. Some industry analysts, such as Laurie Goodman, head of Amherst Securities mortgage group, say that as many as 11 million mortgage borrowers are in potential danger of default.

However, Rick Sharga, RealtyTrac's spokesman, predicted 4 million to 5 million and scoffed at quantifying the magnitude of the potential disaster, comparing it to "taking inventory of deck chairs on the Titanic." 

Original Link to Article: http://money.cnn.com/2011/01/13/real_estate/foreclosures_2010/index.htm 

House Appraisals Under Fire

Computerized Models Are Assailed as Inaccurate; There Goes the Credit Line

By M.P. MCQUEEN

Home appraisals, which were blamed for being too generous during the housing boom, are now being criticized by some homeowners for being too stingy, preventing them from refinancing or borrowing against their houses.

The criticism is being leveled at computerized real-estate appraisals, which depend on models that use prices from home sales and other data to determine the value of a house. Because of the volatility in the housing market, they are underestimating prices, some homeowners, real-estate agents and fee appraisers say.

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Michal Czerwonka for The Wall Street Journal

Gary Cohen, of West Los Angeles, Calif., says Citibank suspended his $510,000 home-equity line of credit based on a drop in his home's estimated value after performing a computerized appraisal.

Lenders use computerized appraisals primarily for home-equity loans, preapprovals for mortgage refinancing, loan modifications and mortgage originations of less than $250,000. Automated appraisals are cheaper and faster than in-person appraisals. They run as little as $20, whereas appraisals done by people can cost hundreds of dollars.

The computerized models are used as a check on in-person appraisals, which often were too generous during the housing boom, according to federal banking regulators and state attorneys general. The regulators said banks often held sway over appraisers, encouraging them to value homes at certain prices in exchange for future business. In the wake of the housing bust, regulators imposed tough new rules, prohibiting banks from picking individual appraisers for individual properties.

"The selling point was that [computerized appraisals] were faster and not prone to bank pressure," says Steven Kane, a Colorado commercial and residential appraiser who is the author of two books on how to apply automated valuation models.

Computerized appraisals calculate a home's value by using an index derived from historical repeat-sales data, or sales records of homes with similar property characteristics, such as square footage and the number of bedrooms and baths. In-person appraisals don't incorporate as much transactional data as a computer model.

Gary Cohen, an advertising-sales manager in West Los Angeles, Calif., says Citibank suspended his $510,000 home-equity line of credit based on a drop in his home's estimated value.

A computer model used by the bank showed his home had dropped to just over $1 million in 2009 from the $1.65 million it was appraised at four years earlier.

So, Mr. Cohen, 65 years old, paid $750 for an in-person appraisal from a firm designated by the bank. It estimated his home was valued at $1.3 million, but Citibank still wouldn't reinstate his credit line.

"The discrepancy is so great that you have to know whatever method they are using is not accurate," Mr. Cohen says.

Mr. Cohen sued Citibank, a unit of Citigroup Inc., over the appraisal. In court documents, Citibank said that even if his home is worth the higher figure, the bank has a legal right to suspend the credit line.

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Michal Czerwonka for The Wall Street Journal

Gary Cohen's home in Century City, Calif.

"Citibank continues to believe the suit has no merit and intends to defend its position vigorously," said a spokesman.

Borrowers also have sued J.P. Morgan Chase & Co., Wells Fargo & Co. and other big lenders, claiming that banks are misusing automated valuation models in order to cut home-equity lines of credit. J.P. Morgan Chase and Wells Fargo declined to comment.

Automated valuation models were pioneered by Yale economist Robert Shiller, who developed the first systems in the early 1990s. While arguing that these appraisals are more objective than human appraisers, Mr. Shiller and others say that in some situations the models may be providing unrealistically low values, prompting lenders to reject loan applications or lend less money on particular properties.

Some models weigh past sales of a particular property over time against a historical home-price index, and they are running into problems with properties that have been bought only once. That is the situation in places such as Nevada and Southern California, where new subdivisions sprouted during the housing boom but many homes never sold or entered foreclosure before ever being sold in a nondistressed transaction.

"The main difficulty is that I need two or more sales prices for a property, and if I'm not able to find it, it doesn't fit into the sample used to calculate the index," says David Stiff, chief economist at Fiserv, one of the largest providers of automated appraisals using this methodology.

Prof. Shiller concedes there can be problems with these appraisals if a too-short period of historical data is programmed into models.

"In a slow market, it might suggest that prices are going to be falling for a while," he says.

Other computerized models break down the particular characteristics of a property—number of bedrooms and bathrooms—as well as sales of comparable homes, to arrive at a value estimate. They often are hampered by a lack of accurate or comprehensive data in county and municipal records. Improvements, for example, are recorded by building permits, so if homeowners don't file permits, the records won't be accurate.

These models can "change a lot, depending on which variables you include or exclude, so there can be a bias," says Prof. Shiller

Original Link to Story From WSJ: http://online.wsj.com/article/SB10001424052970204204004576049974087536438.html?mod=WSJ_RealEstate_LeftTopNews 

When will housing come back in California? Five experts offer their views

Foreclosures in the state are still high. Sales of new homes are at historic lows. And millions of homeowners are underwater on their mortgages. So what's the outlook for 2011 and beyond?

By Alejandro Lazo, Los Angeles Times

January 1, 2011, 3:22 p.m.

In Mission Crest, 373 homes — nearly 40% of those in the housing development — had been lost at one point to foreclosure, the San Bernardino County assessor's office said. About 100 lots had been left graded and bare. (Katie Falkenberg, For The Times / May 18, 2010)

Rent vs. own ratio to flip in 2011?