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By ERIK ORTIZ, Press of A.C.Staff Writer | Monday, March 8, 2010

Obtaining a loan last year was not an easy feat for Americans, as banks were quick to pull back on whom they lent to and how much they gave.

But in New Jersey, a borrower’s application was less likely to get tossed into the reject pile.

While lending nationwide dropped nearly

7.5 percent from year-end 2008 to 2009 – the sharpest decline in lending since 1942 – banks in New Jersey went in the other direction.

The amount of lending was up 4 percent, or from $96.4 billion, in 2008 to $100.2 billion in 2009, even as the number of state-insured institutions fell slightly from 126 to 123, according to new data from the Federal Deposit Insurance Corp.

In that same period, the number of U.S. banks dropped 3.5 percent, or from 8,305 to 8,012.

It is hard to pinpoint exactly why lending in New Jersey was on an upswing last year, although John McWeeney Jr., co-chief executive of the New Jersey Bankers Association, says it could be as simple as banks making the effort to lend.

“Most of our members are community banks, and they make their money on bringing in deposits and making loans. They want to make loans,” McWeeney said.

David J. Hemple, president and CEO of Century Savings Bank in Vineland, said its loan volume increased last year after customers fled the larger banks. While mortgage lending was relatively flat for the bank, it managed to surpass its goal of originating $1 million worth of commercial loans each month, he said.

“We’ve picked up some good business loans,” he added. “These were businesses that had a good history, but they got a call from their bank that their line of credit had been canceled due to non-usage. When you’re told that, it doesn’t make too many businesses want to stay with their original bank.”

New Jersey banks also have shown resilience during the economic downturn. The FDIC reported that 140 banks failed in 2009; only two of them were based in New Jersey.

“A lot of our banks have stuck to good underwriting throughout this and they’re not experiencing problems,” McWeeney said.

A review of publicly traded banks with branches in southern New Jersey showed most reported lending growth in 2009.

TD Bank, for instance, with 37 branches in the region, said its average loans increased $6 billion across the United States, with business loans up 6 percent and personal loans up 25 percent.

For Gloucester County-based Parke Bank, which has a branch in Northfield, net lending increased 9.5 percent, totaling $591 million at the end of 2009.

“We’re still in the market for loans if they make financial sense in this economy,” Parke CEO Vito S. Pantilione said.

Parke entered into a joint venture last year with another company to originate and sell Small Business Administration loans. From August to December, the bank closed $4 million in such loans, Pantilione said.

While numbers show lending was up, money is not free-flowing as it was before the recession, McWeeney said. Winning loan approval still requires a good credit history, acceptable income and, for entrepreneurs, the ability to show that your business will turn a profit.

Mays Landing resident Craig Phillips had all those essentials going for him when he was recently approved for a $100,000 loan from TD Bank. Phillips, 63, needed the loan to open a business, Ocean City Dog and Kitty, which will debut on the Ocean City Boardwalk on April 2 selling pet toys and treats.

“I’ve done business with TD Bank for many years with my other business (Pet Pros Pet Supplies in Somers Point) and my personal accounts,” he said. “I demonstrated that we’ve had a good balance, we never had a problem with bounced checks.”

Phillips also got the loan backed by the SBA, which has various programs that will guarantee bank loans for small businesses, effectively sharing in the risk should the borrower default.

Despite his sterling background and the SBA’s backing, the loan approval still took several weeks, Phillips said, because the bank wanted to fully review his application.

“Those days of just going in and asking for the money, that’s all changed now,” said Joe Molineaux, director of the Small Business Development Center at The Richard Stockton College of New Jersey.

He said that banks are lending, but borrowers need to be realistic about whether they can get a loan. That includes recognizing whether you have decent credit, some form of collateral and a track record for understanding a business and showing that you can make money.

By Jody Shenn and John Gittelsohn

Jan. 19 (Bloomberg) — The U.S. Treasury Department has failed to win agreements to get struggling borrowers’ home- equity debt reworked, among the biggest roadblocks to reducing foreclosures that may reach a record 3 million this year.

None of the lenders holding a combined $1.05 trillion of the debt has signed contracts requiring participation in the second-mortgage modification plan announced eight months ago. The largest banks remain “committed” to joining, Meg Reilly, a department spokeswoman, said in an e-mail.

President Barack Obama in February announced a $75 billion program to cut first-mortgage payments. The Treasury detailed a plan on April 28 in which second-mortgage owners modify or retire debt when the first lien is changed, saying it would be running in a month. The near-record level of home-equity debt held by lenders including Bank of America Corp. and Wells Fargo & Co. may lead to foreclosures that threaten housing stability after the worst slump since the 1930s.

“The issue of the second liens has to be escalated,” said Richard Neiman, New York’s banking superintendent and a member of the Troubled Asset Relief Program’s Congressional oversight panel. The government should consider forcing banks to participate and to recognize the “true value” of second liens, he said.

Bank of America, Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. carry such mortgages at about $150 billion more than their value, according to estimates by Joshua Rosner, an analyst at Graham Fisher & Co. in New York.

Equity lines and other second mortgages rank junior to typical mortgages, meaning they get wiped out in a foreclosure unless sale proceeds from a seized home exceed the first debt.

Still Struggling

As Obama’s Home Affordable Modification Plan, or HAMP, lowers first-mortgage payments, some borrowers are still left with bills they can’t afford, according to Newport Beach, California-based Pacific Investment Management Co.

“Modifying the first mortgage doesn’t necessarily get the homeowner to good shape,” Scott Simon, head of mortgage-bond investing at Pimco, manager of the world’s biggest fixed-income fund, said in a telephone interview.

About 25 percent of homeowners who received trial loan modifications are failing to keep up with their reduced payments, the Treasury said Jan. 15.

Loan Modifications

Of an estimated 3.36 million U.S. homeowners with delinquent payments eligible for loan modifications under the Obama plan, 66,465 received permanent changes, according to Treasury data. That group saw its total median debt burden — mortgage, junior liens, alimony, car payments and other bills — reduced to 55 percent of gross income from 72 percent.

Rosner said overvalued home-equity debt prevents residents from getting the aid likeliest to keep them in their homes: principal forgiveness.

First-mortgage owners usually won’t agree to the deeper principal reductions needed to reduce the loan to at or below the home’s value when home-equity holders aren’t willing to make sizable cuts, said John Taylor, chief executive officer of the Washington-based National Community Reinvestment Coalition.

Three million U.S. homes will be repossessed this year as high unemployment and depressed values leave borrowers unable or unwilling to make their payments or sell, RealtyTrac Inc. forecast on Jan. 14. Almost 10.7 million, or 23 percent, of residential properties with mortgages were in negative equity as of Sept. 30, according to First American CoreLogic.

Targeting Principle

Policy makers may be able to reduce re-defaults on modified debt from an average of 57 percent within a year “significantly” more by getting mortgages lowered rather than by spurring larger payment cuts, New York Federal Reserve Bank researchers wrote in a December paper.

The government is considering changes to permanently cut balances on which borrowers owe more than the property is worth, said Michael Barr, the assistant Treasury secretary for financial institutions.

“We are in the process of reviewing that now as we have been continually,” Barr said on a conference call last week. “You have to be very careful not to design a program that would change people’s behavior across the country.”

Bank of America CEO Brian Moynihan “recommitted” to participating in the Treasury program this month as part of “our aggressive efforts to help customers,” Rick Simon, a company spokesman, said in an e-mail.

Awaiting Final Guidelines

“We are waiting for final guidelines,” Simon said.

Citigroup is “actively engaged with the U.S. Treasury in finding a workable solution,” Mark Rodgers, a spokesman, said in an e-mail.

Wells Fargo is working with the government “to understand the program specifics,” Mary Berg, a spokeswoman for the San Francisco-based bank, said in a phone message.

Tom Kelly, a spokesman for New York-based JPMorgan, declined to comment.

Banks’ reluctance to write down second mortgages also hampers short sales, when homeowners sell a house for less than they owe, minimizing the damage to themselves, their communities and their lenders.

“If I had to name one sticking point, it’s the second mortgage,” said Ethan W. Gregory, an agent with First Coast Realty Associates in Jacksonville, Florida, who specializes in short sales.

‘Nuisance Value’

Holders of home equity loans often hold up loan workouts to extract money from deals when their junior liens are technically worthless, said Dave Walker, chief credit officer of PennyMac Mortgage Investment Trust, a Calabasas, California-based company managing $2.85 billion in distressed mortgage debt.

“The typical focus of a second lien investor is to extract a ‘nuisance value’ out of the second lien rather than rehabilitate the loan,” Walker said. “If the second lien is entirely underwater, they have little or no potential recovery through liquidation of the property and their interest is wiped out at foreclosure. However, they can often demand a small payment — $1,000 to $3,000 — to release their lien.”

Americans tapped home equity as values more than doubled between the start of 2000 and the market’s apex, and took “piggyback” loans in lieu of down payments.

Home prices rose in each of the six months through October, increasing 5.3 percent, after a record 33 percent plunge from the 2006 peak, an S&P/Case-Shiller index for 20 metropolitan areas showed. Gains were driven by a decline in the share of sales involving “distressed” properties that will reverse this year as foreclosures climb, Deutsche Bank AG said Dec. 18.

The government’s Home Affordable program offers subsidies to lenders, bond investors, loan servicers and consumers to rework first mortgages so that payments, insurance and taxes don’t exceed 31 percent of a borrower’s income.

Lender Relief

The Treasury said in April that home-equity lenders would receive a subsidy to reduce interest rates to as low as 1 percent. Lien holders could get as much as 12 cents on the dollar to retire debt. Officials said on a conference call that within about a month its program would start helping borrowers, and that as many as half of “at risk” homeowners had second mortgages.

The Treasury “has been working to create program infrastructure and technology, including a new platform that matches second liens to first liens modified under HAMP,” Reilly said Jan. 7. “Because there has not been a systematic method of notification to second lien holders when a first lien on the same property is modified, ramp up has taken some time.”

Fink’s View

BlackRock Inc. CEO Laurence Fink, who oversees the world’s largest asset manager, has called the government’s effort flawed because of its treatment of second mortgages, which he said should be wiped out before first liens are touched.

“There is modification going on protecting our banks, protecting their balance sheets,” Fink said in a September interview. With the right types of changes, he said, “the homeowner is better off, America is better off, and you could say the first lien holder is better off.”

The Federal Deposit Insurance Corp. last year urged lenders to consider whether borrowers’ housing debt exceeds the value of their properties and whether first mortgages have been reworked when determining loss allowances.

Bank of America’s allowance for home-equity losses equaled 6.4 percent of its $152 billion portfolio as of Sept. 30, according to a slide from an earnings presentation posted on its Web site. Half the portfolio was tied to borrowers with debt exceeding 90 percent of their property’s value.

TARP Approach

U.S. officials should force banks to sell their home-equity loans at current market prices of pennies on the dollar to a government-run entity, which would then forgive the debt, said Taylor, whose community-reinvestment group represents 600 organizations that work with banks on lending in low-income neighborhoods.

“When they were handing out all this TARP money, this would be a very easy conversation, but they still have the ability to do this, if they have the willingness,” he said, referring to capital injections under the $700 billion TARP.

That’s not a reasonable point of view because many banks can’t afford to take the hits to their capital, Rosner said.

If the U.S. were to overpay for the debt, it would allow the lenders to remain solvent, he said, “but for the government to have to subsidize those writedowns, arguing it’s in the best interest of the borrowers, would be merely a backdoor bailout of the banks that brought us to this crisis.”

Loan Servicers

Spokespeople for Fannie Mae and Freddie Mac, the largest owners of first-mortgage risk, declined to comment. The companies were seized by the U.S. in September 2008 and are being supported by unlimited taxpayer capital through 2012, after drawing $111 billion so far.

While Home Affordable allows loan servicers to reduce borrowers’ principal instead of just their payments, such steps aren’t required and decisions are designated to the servicers.

The four largest U.S. banks, which own almost $450 billion of home-equity debt, are also the biggest servicers handling payments and collections on loans held by others.

“If they can get the first to eat it, why would they want to on the second?” said Pimco’s Simon, who added that his firm would support principal reductions being done on a “loan-by- loan” basis.

To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net.

The government isn't doing enough to protect the homeowner or the first lien holder

Housing starts are down 40% in the Northeast

By Inman_News

Created 01-20-2010

Housing units authorized by building permits were up year-over-year and month-to-month in December, even as housing starts and completions were down on a monthly and year-over-year basis, according to a report [1] on new residential construction by the U.S. Census Bureau and the Department of Housing and Urban Development.

“Builders have acted prudently by cutting back production during a period of low demand and uncertainty in the overall market,” said Joe Robson, chairman of the National Association of Home Builders, in a statement.

“With inventories so low, we’re seeing an increase in permits as builders understand they need to ramp up production to take full advantage of the short window offered by the homebuyer tax credit and the expectations of increased demand as the economic recovery begins to take hold later in the year.”

In December, the number of privately owned housing units issued building permits rose an estimated 10.9 percent to a seasonally adjusted annual rate of 653,000 from a revised November rate of 589,000. The rate increased an estimated 15.8 percent year-over-year, from 564,000 in December 2008.

The Northeast saw the biggest year-over-year increase — 45 percent — in total units authorized, while the South saw the smallest increase, at 5.6 percent.

Of the units authorized by permits last month, 508,000 were for single-family homes. That’s an estimated 8.3 percent above the revised November figure of 469,000 and 37.3 percent higher than in December 2008. The West saw the biggest increase, 48 percent, year-over-year.

In buildings with five units or more, authorizations were at a rate of 127,000 in December, or an estimated 33.7 percent higher month-to-month and 27 percent lower year-over-year.

Housing units authorized by building permits in all of 2009, an estimated 571,600, were an estimated 36.9 percent below 2008’s figure, 905,400.

Privately owned housing starts in December fell an estimated 4 percent to a seasonally adjusted annual rate of 557,000 from a revised November estimate of 580,000, but rose slightly — an estimated 0.2 percent year-over-year from 556,000.

In the Midwest and the South, housing starts year-over-year rose 15.8 and 9.5 percent, respectively, but in the West and the Northeast, starts fell 19.4 and 19 percent, respectively.

Single-family housing starts in December fell to 456,000, an estimated 6.9 percent below the revised November rate
of 490,000. In all regions but the Northeast, however, such housing starts rose year-over-year, with a 30 percent rise in the Midwest, a 23.3 percent rise in the South, and a 15 percent rise in the West.

In the Northeast, single-family starts fell an estimated 27.5 percent.

The December rate for buildings with five units or more was 92,000, or 15 percent higher month-to-month and 40.3 percent lower year-over-year.

Housing starts last year overall dropped an estimated 38.8 percent from the year before, from 905,500 to 553,800.

Privately-owned housing completions in December fell to a seasonally adjusted annual rate of 768,000, an estimated 11.2 percent from the revised November figure of 865,000, and 25.3 percent below the December 2008 rate of 1,028,000.

Completions in every region fell year-over-year, with the West experience the largest drop, down 39.8 percent. In the Northeast and South, completions fell 27.6 percent and 22 percent, respectively. The Midwest saw the smallest decrease at 6.8 percent.

Of those completions last month, 503,000 were single-family units, an estimated 11.1 percent below the revised November rate of 566,000. Single-family completions year-over-year dipped 41.4 percent in the West and 32.4 percent in the South. Such completions stayed flat in the Northeast and rose a bit, 4.3 percent, in the Midwest.

In buildings with five units or more, the December rate was 245,000, or 13.1 percent lower month-to-month and 23.4 lower year-over-year.

Throughout 2009, completed housing units dropped an estimated 28.9 percent, to 796,000 from 1.12 million in 2008.

By Lou Barnes, Friday, January 8, 2010.

 Inman News

 Flickr photo by Doing.Over the holidays, long-term interest rates rose almost a half-percent, the 10-year Treasury note moving into the 3.8 percent range — the highest since the “double top” last summer. Mortgages have held remarkably well, with the lowest-fee stuff up to about 5.25 percent.

 A renewed, two-group consensus drove the jump: The economy is in a solid recovery, or even if it isn’t, immense Treasury borrowing will force rates higher. Both groups agree that the Fed should stop its assistance, either because the economy no longer needs it, or because even if the economy does need help, to continue assistance would produce inflation.

 I think this consensus is mistaken. There is no meaningful recovery under way, and the Fed has already pulled up short. More data like today’s will add to policymaking tension, force the administration’s hand, and soon have the Fed back to buying mortgages, Treasurys or both.

 Today’s payroll report will be spun unrecognizably, but the reality is that no job creation is under way. New claims for unemployment insurance have fallen one-third from their peak last spring, but that positive signal is more than offset by an extraordinary shrinkage in those even trying to find jobs — 661,000 souls gave up last month.

 The rate of unemployment stayed put, but the condition of the workforce is deteriorating.

 Some sectors are OK. Health-care employment is unhinged from economic reality; big parts of technology are untouched (innovation is notably miraculous); and giant multinationals are improving.

 However, the giants have no more connection to ordinary citizens than holiday gifts company Scrooge & Marley. The giants can shed labor and disinvest here and redeploy in still-hot emerging markets — into niches big and small all over the world. Nobody has access to adequate credit except those giants.

 The greatest public-policy tension-builder is housing, and new reports added weight to frayed cables.

 The Fed released its December meeting minutes this week. Noted widely: “a few” members wanted the Fed to stay in the MBS-buying business; one wanted it to stop altogether (see Inman News). Fair enough. …

 However, the minutes contain a disturbing litany, repeated in an everybody-knows voice throughout 13 pages: “Sales of new homes increased significantly … Demand for housing continued to firm … The housing sector showed continuing signs of improvement …”

I do not know if the Fed is trying positive jawbone, if it is in self-deception, or if it genuinely doesn’t understand, but it is mistaken.

MGIC, the mortgage insurer, released its latest market analysis and guide to its underwriters: of 73 metro areas, one (Denver) is rated “improving.” The National Association of Realtors’ November measure of pending sales of homes “kerplunked” 16 percent. Seasonally adjusted applications for mortgages fell 22 percent over the holidays, 38 percent below one year ago.

Then, today the U.S. Federal Housing Finance Agency, the regulator of Fannie and Freddie, at last got around to its loan-portfolio performance report for the third quarter. It takes time to account for 30 million loans, but a 90-day lag seems a lot.

Mid-year last year these reports morphed into a “Foreclosure Prevention and Refinance” title, tub-thumping the agencies’ success at obeying administration demands for loan modification. Nothing beats Orwellian double-speak as indicator of failure in big institutions or government.

The FHFA trumpet: “405,700 … active trial and permanent loan modifications” as of Nov. 30, 2009. Bad is good!

Reality: “Trial” mods did increase by 212,000 in the third quarter. However, “completed” ones — people actually making new payments — increased by only 46,000. Perhaps half will redefault. Meanwhile, total delinquencies jumped 312,000 (net of mods), 208,000 of the increase in the 90-day-plus category certain to foreclose.

With tension building, “pretend” is wearing thin.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.

www.FindaShoreHome.com

By Inman News, Wednesday, January 6, 2010. Inman News

Mortgage rates rebounded over the holidays, putting a damper on applications for refinancings, the Mortgage Bankers Association said. Loan applications were down a seasonally adjusted 22.8 percent during the week ending Dec. 25, before registering a nearly imperceptible increase of 0.5 percent for the week ending Jan. 1, the MBA said in reporting the results of its two most recent Weekly Mortgage Applications Surveys. The results included adjustments to factor in the holiday-shortened weeks. Requests for refinancings were down 30.5 percent the week ending Dec. 25, and applications for purchase loans were down a seasonally adjusted 4 percent. Applications for refinancings fell another 1.6 percent the week ending Jan. 1, while requests for purchase loans rose 3.6 percent. The average contract interest rate for 30-year fixed-rate mortgages increased from 4.92 percent to 5.08 percent during the week ending Dec. 25, jumping again to 5.18 percent for the week ending Jan. 1. Average points assessed by lenders, including the origination fee, increased from 1.23 to 1.48 during the week ending Dec. 25, and decreased to 1.28 for the week ending Jan. 1. Average contract interest rate for 15-year fixed-rate mortgages increased from 4.34 percent to 4.57 percent during the week ending Dec. 25, and to 4.62 percent for the week ending Jan. 1. Points on 15-year fixed-rate mortgages increased from 0.91 to 0.98 for the week ending Jan. 1. Many observers expect interest rates will continue to rise as the Federal Reserve winds up $1.25 trillion in ongoing purchases of mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae by the end of March (see story). In a Dec. 8 forecast, the MBA projected rates on 30-year fixed-rate mortgages will rise for the next eight consecutive quarters, from an average of 4.9 percent during the final quarter of 2009 to 6.2 percent by the fourth quarter of 2011.

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