Single-family home sales fell 2.7 percent, completely reversing the increase in February (which was the first increase in seven months). Condo sales rose 3.6 percent, following a 3.7 percent increase in February and an 8.2 percent drop in January.

Sales of single-family homes during the first quarter of this year were down 20.0 percent from those during the same period last year. Condo sales have performed worse, with year-to-date condo sales 28.7 percent lower than those last year. Since their peak in September 2005, single-family existing home sales have declined about 32 percent, surpassing the peak-to-trough drop of about 30 percent seen in the 1990-91 recession.

Even with a drop in home sales for the month, sales’ performance improved considerably for the quarter as a whole. The decline in the first quarter—at a 3.7 percent annualized rate—moderated significantly from the drop of at least 25 percent in each of the previous three quarters.

Existing home sales rose in two regions: 2.3 percent in the Northeast and 2.2 percent in the West. Sales dropped 6.5 percent in the Midwest and 3.5 percent in the South.

Aggressive actions by the Federal Reserve have failed to spur housing demand for several reasons. First, the economy has slowed significantly during the past two quarters, with four consecutive monthly declines in non-farm private employment and a sharp drop in consumer confidence to the lowest level since the early 1980s. Second, tighter lending standards for all types of mortgage loans, including prime loans, have reduced the number of qualified homebuyers. In addition, those who can qualify are reluctant to buy in falling home price markets, according to anecdotal evidence from home builders.

More stringent underwriting standards have been reflected in widening mortgage yields relative to default-free Treasury yields. While the 10-year Treasury yields—the benchmark for fixed mortgage rates—have declined considerably since the Fed started to lower interest rates in September of last year, the spread between the 10-year and conforming mortgage yields widened to about 260 basis points in mid-March.

While currently that spread has narrowed to about 220 basis points, it is still much wider than the 150 basis point seen before the financial turmoil. For the jumbo market, the stress has worsened since last August, with the spread between fixed jumbo and conforming rates remaining elevated at 130 basis points, compared with 100 basis points seen at the start of the credit turmoil.

The housing market continues to experience a significant imbalance, with the inventory of total existing homes rising in March. The number of total homes available for sale increased 1.0 percent from February and 6.6 percent from last March. (The data are not seasonally-adjusted.) A decline in the sales pace and an increase in inventory pushed up the months’ supply of total existing homes to 9.9 months in March from 9.6 months in February. The months’ supply for single-family homes was 9.5 months in March, compared with 7.2 months a year ago. The months’ supply for condos rose from 9.0 months in March 2007 to 12.8 months in March of this year, a record high since record keeping for the condo series starts in 1999.

The huge inventory overhang has further put downward pressure on home prices. The median price for single-family existing homes fell 8.3 percent in March from a year ago, following a record year-over-year drop of 8.9 percent in February. This is the 20th consecutive month of year-over-year decline in prices. From the peak in June 2007, the median price for single-family homes has declined 13.5 percent. The median price for condos fell 2.8 percent from last March, the fifth consecutive monthly drop.

Median or average home prices are not a good measure of home price trend because they are biased by a change in the mix of sales. Measures of home prices that track prices of the same home over time, i.e., those using a repeat sales transaction methodology, are more useful in tracking home price trend.

Yesterday, the Office of Federal Housing Enterprise Oversight released a home price index using this methodology. OFHEO published the overall house price index (including refinancing transactions) on the quarterly basis and publishes the purchase-only index (excluding refi transactions) on a monthly basis. The OFHEO purchase-only House Price Index increased 0.6 percent in February from January, the first monthly increase in eight months. From a year ago, the purchase-only index fell 2.4 percent, slightly moderating from a year-over-year drop of 2.7 percent in January. Since peaking in April 2007, the monthly purchase-only index has declined 3.1 percent.

The OFHEO index portrays a more optimistic picture of home prices than other measures of home prices. It is based on data from Fannie Mae and Freddie Mac. Thus the index includes only conventional conforming loans, largely excluding high-priced homes, especially in areas of the country where home prices have weakened considerably over the past year. The OFHEO data also include relatively fewer subprime loans and adjustable rate mortgage loans, which have performed relatively worse over the past year.

(Orawin Velz is senior director of economic forecasting with the Mortgage Bankers Association. She can be reached at ovelz@mortgagebankers.org.)
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“In the current housing market, loss mitigation has proven to be very important and outsourcing loss mitigation is an area where lenders have show a strong need,” said Cheryl Lang, president of IMS. “Lenders may not have the capacity to hire and train professionals in these areas and IMS provides a third-party option—U.S. outsourced—and what we are trying to do is ultimately provide efficiencies, reducing associated costs, risks and administrative burdens."

The company also offers an online option for its clients to provide borrowers with forms on their web sites that borrowers can fill out to begin the process of loan modification or other action. The online option interfaces directly with client web sites, avoiding the need to rebuild the back end of the interface.

IMS services for REOs include property inspection and maintenance. As REOs continue to cause problems in some heavily impacted regions throughout the country, the company provides technology called Web Phone, enabling property inspectors to upload inspection information in real time. Lang said Web Phone eliminates the need for printed materials and allows servicers to mitigate potential errors in the default department.

“REOs are certainly problematic,” Lang said. “Municipalities are looking for lenders to register these properties—especially in the preforeclosure stage. "There is a period in pre-foreclosure when lenders may hesitate pay to register properties, but registery after the property is foreclosed and vacant is inevitable. REOs create situations where lenders are asked to put forth money on something they are already losing money on. It's an expectation."

As far as assisting with liability for mortgage servicers, the company recently launched a non-profit organization called No Paws Left Behind. It provides tools and resources for homeowners in the foreclosure process to relieve themselves of their pets. Additionally, it also assumes liability for removing pets while a home is still in the foreclosure process. The effort allows lenders and servicers to thoroughly clear a property and also avoid the pitfalls of abandoned pets that are commonly left in homes.
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The Market Composite Index fell to 637.6, a decrease of 14.2 percent on a seasonally adjusted basis from 743.4 one week earlier. On an unadjusted basis, the Index decreased 13.4 percent compared with the previous week and was down 3.2 percent compared with the same week one year earlier. The four-week moving average for the seasonally adjusted Market Index fell by 10.5 percent to 698.7 from 780.8.

The seasonally adjusted Refinance Index decreased by 20.2 percent to 2286.3 from 2866.0 the previous week. The four-week moving average fell by 15.8 percent to 2628.2 from 3120.5. The refinance share of mortgage activity decreased to 49.2 percent of total applications from 53.5 percent the previous week.

The seasonally adjusted Purchase Index decreased 6.4 percent to 357.3 from 381.6 one week earlier. The Conventional Purchase Index decreased 7.5 percent while the Government Purchase Index (largely FHA) decreased 2.7 percent. The four-week moving average was down by 3 percent to 369.9 from 381.5.
 
The average contract interest rate for 30-year fixed-rate mortgages increased to 6.04 percent from 5.74 percent, with points decreasing to 1.04 from 1.05 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
 
The average contract interest rate for 15-year fixed-rate mortgages increased to 5.6 percent from 5.27 percent, with points decreasing to 1.06 from 1.19 (including the origination fee) for 80 percent LTV loans.
 
The average contract interest rate for one-year adjustable-rate mortgages decreased to 6.93 percent from 7.02 percent, with points increasing to 1.38 from 1.28 (including the origination fee) for 80 percent LTV loans. The ARM share of activity increased to 6.6 percent from 6.0 percent of total applications from the previous week.

The survey covers 50 percent of all U.S. retail residential mortgage originations and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
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• American Reverse Mortgage, Ocala, Fla.
• BayCal Financial Mortgage Corp., Burlingame, Calif.
• Beltway Capital Management LLC, Nashville, Tenn.
• BlueDot Financial Inc., Englewood, Colo.
• Buffalo Federal Savings Bank, Chattaroy, Wash.
• Carter & Associates, Atlanta
• Celink, Lansing, Mich.
• CenturyPoint Mortgage, a division of First Century Bank, Atlanta
• Certitude Financial Group, Columbia, Mo.
• Colonial Mortgage Bankers dba First Allied Mortgage, Jericho, N.Y.
• Dallas Home Loans Inc., Plano, Texas
• Express Loan America Inc., Bend, Ore.
• First Western Mortgage Inc., Rogers, Ark.
• Fortes Financial, Laguna Hills, Calif.
• Georgia Capital LLC, Atlanta
• Golden Equity Mortgage Corp., San Diego
• Holland Financial Savings, Aurora, Ill.
• Home Retention Agency, Detroit
• iServe Servicing Inc., Irving, Texas
• LJL Funding LLC, San Diego
• Midcontinent Financial Center Inc., Columbia, Mo.
• Planet Financial Group LLC, Hoffman Estates, Ill.
• Rapid One Mortgage, Chandler, Ariz.
• Southwest Guaranty Ltd., Houston
• Telemetry Investments LLC, New York
• The Mortgage Planning Group, Asbury Park, N.J.
• Traditions Bank, Cullman, Ala.
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Did you now that 97 percent of borrowers use a competitor to finance their next home? Learn how you can successfully work with realtors and other referral sources to change this number to your advantage. Learn effective strategies to reach and keep borrowers in today's challenging market at this 90-minute LIVE Online Workshop from CampusMBA.

This interactive online program will help you acquire and keep borrowers, develop strategies to refill borrower pipelines and build and nurture borrower relationships in this new lending environment.

Key concepts covered at this workshop:

• How to reach borrowers first, before realtors;
• How to incubate buyers through an often-lengthy buy cycle; and 
• How to prevent realtors from referring pre-quals to other mortgage originators/brokers.

For more information about this program, visit http://www.campusmba.org/products/default.aspx?product_code=E2801716W/REGIS&wt.mc_id=LOWMethodsE1.

The workshop is led Steve Kropper, president of Bank on Real Estate (BoRE) Inc., which develops advanced technology to retain and acquire customers for residential lenders and real estate brokers. He is also director of New Homes Realty, an advisor to CircleLending and a consultant to TotalMove. He is a member of the MBA's Loan Production Committee. A regular speaker, instructor and writer, Kropper consistently appears at real estate and residential finance events throughout the U.S., is a contributor to the MBA's Mortgage Banking magazine and teaches in CampusMBA's School of Mortgage Banking.

Program Cost: MBA Member: $79.99 per person; Nonmember: $99.99 per person. To register online, visit http://www.campusmba.org/products/default.aspx?product_code=E2801716W/REGIS&wt.mc_id=LOWMethodsE1) or call (800) 348-8653.

CampusMBA's LIVE Online Workshops allow participants to attend a one-time, interactive, instructor-led course from anywhere in the world. All that is needed is a computer with an Internet connection, Web browser and telephone. All workshops are interactive and include open discussion and question/answer sessions with industry leaders. To learn more about LIVE Online Workshops, visit http://www.campusmba.org/Tools/ProductLists.aspx.

Designation Credit:
Participants in CampusMBA LIVE Online Workshops earn ½ point toward the Certified Mortgage Bankers (CMB) designation per workshop.
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The session, on Monday, May 5 at 10:15 a.m. ET, features Frank and award-winning journalist and author Ron Insana. As chairman of the committee that regulates the mortgage industry, Frank oversees most statutes concerning real estate finance and is the primary author of key legislation intended to modify the regulation of the mortgage process, the GSEs and the secondary mortgage market.

Insana is founder and managing director of Insana Capital Partners. He is a regular contributor on CNBC business and financial news network, providing color commentary on major market and political events. Join us for a timely and informative session on succeeding in this rapidly changing business environment.

The fourth general session, Tuesday, May 6 at 10:30 a.m. ET, features a Regulatory and Legislative Roundup with James Lockhart III, director of the Office of Federal Housing Enterprise Oversight; Brian Montgomery, assistant secretary for housing and federal housing commissioner at HUD; and Ronald Rosenfeld, chairman of Federal Housing Finance Board. They will discuss latest developments in the current public policy debates taking place in the nation's capital on real estate finance issues, such as the foreclosure crisis, restoring liquidity to the mortgage markets, regulatory reform of the government-sponsored enterprises, FHA empowerment and FHASecure, as well as congressional proposals to combat predatory lending. MBA Senior Vice President for Government Affairs Steve O'Connor moderates this panel.

The Opening Reception features legendary Boston Red Sox great Jim Rice on the Expo trading floor. Rice will greet participants and sign baseballs on Sunday, May 4 from 5:00-7:00 p.m.

Who Should Attend:
MBA’s National Secondary Market Conference & Expo 2008, Succeed in a Changing Market, is designed for industry leaders and decision makers from residential and capital markets, including CEOs and senior level executives, mortgage investors, investment bankers, rating agency professionals, risk managers and mortgage lenders.

For more information:
• Download the conference brochure: http://www.mortgagebankers.org/files/conferences/pdf/M2802048_brochure.pdf

• Visit the conference web site: http://events.mortgagebankers.org/secondary2008/default.html; or

• Register at http://events.mortgagebankers.org/secondary2008/register.
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Applying that analogy to the mortgage industry, Seldin suggests the housing market got out of balance because the subprime mortgage availability and abuse facilitated buyers making home purchases beyond their means and builders adding to housing stock to meet the rising demand, both in quality and quantity.

“The market got drunk and it has an ‘overhang,’ pun intended,” Seldin said. “There is an excess supply of houses, some of which can be absorbed over a reasonable time, depending on the location. Housing markets are heavily local, second homes being an example of competition among localities. It is a little more complicated because cost and availability of housing may influence local economic growth which in turn influences the demand for housing.”

Seldin dismissed legislative and regulatory remedies currently on the market, such as a temporary moratorium on foreclosures advocated by some consumer groups. “That may put fear in the hearts and minds of industry,” he said. “If draconian measures are taken to deal with the subprime debacle we may get stuck with institutional changes that affect our mortgage securities markets, foreign and domestic. A major concern in dealing with the current crisis is that we don’t make permanent some temporary changes that are essential to averting catastrophe.”

Seldin recommends a seven-point approach to addressing current market conditions. “The idea of the strategic process is to predict outcomes and adjust behavior, especially to deal with guarding against the downside of uncertainty,” he said.

That approach includes the following:

• Location. “For the housing debacle the micro locations are those with high foreclosure rates and prospective high foreclosure rates, especially due to interest rate resets and fallout from nearby foreclosures that are depressing prices and potentially generating a spiral,” Seldin said. "From a macro point of view it is the nation because of the impact of foreclosures on economic activity leading to a recession….since the various local markets are nodes with a variety of linkages and the scale may move down to individual properties or up to the whole system, we deal with the problem in the context of the whole system. Translated that means that triage is necessary for the most cancerous areas and macro policy will help for the economy in general, but the operations on specific properties need to be dealt with on a micro basis.”

• Timing. Seldin said timing is a “really troublesome issue” because the problems are so far advanced. “The academicians that do the research take a lot of time and the politicians look to act very quickly,” he said. “Business organizations can move the fastest, except that with the securitized mortgages, especially with sliced interests, the servicers’ authority has limitations. Also the information system as to owners of the tranches with different interests is inadequate for expedient actions beyond servicers’ authority. If the best action is a modification of the mortgage, possibly a write down, that is a triage situation that needs concerted action between servicers and regulators in order to adjust authority by overriding contract where appropriate. That is a tough pill to swallow, and as dangerous as a narcotic. An alternative may be to have state government declare a temporary moratorium on foreclosure, but that may be worse. The strategy comes into play because an amputation may be necessary to avoid death; and, it a really tough question, especially because it goes to the issues of whose costs and whose benefits.”

• Balance. Seldin said balance, or rather the lack of it, “is what got us all into this mess. Balance is critical in resolving the ethical and legal issues necessary to get just results. Justice is key to the system, and the FBI investigations into criminal behavior may result in some just punishment, but it will not reverse the damage that has been done. Substantial long term changes in institutional arrangements need to be made. It is in the industry’s interest to be proactive in facilitating a more equitable market structure or regulation, especially if they have any concern that a new administration may come up with onerous regulation with a pendulum that swings too far. And it will make a big difference if government agencies are forthcoming with progress in their research activities and in providing further cooperative efforts with industry.”

• Leverage and Relationships. “The players who are ready to revisit their strategy would do well to consider developing relationships with the players having different interests,” Seldin said. “The subprime crisis is a rallying issue, and no one organization, not even the government of these United States, can do it by itself. It is a team effort and winners know how to work with a team.”

• Control and Vision. “The current situation is among the most complex because there are some many varied interests at work, with different elements of power,” Seldin said. “It makes a lot of sense to know what you can control, and be realistic about the policies pursued. The point of this is two-fold. First, the vision makes a difference. Control is a deceptive power in that we may not really have the control that we think we have. That is because our actions influence actions of others and it keeps on going as events unfold. That is what strategy is about, because it deals with that uncertainty. Progress in our society is made through organizations. The issue now is what you, as players in this crisis, are going to do to enhance the quality of your strategy in whatever role you find yourself.”

Seldin’s consortium received financial support from the Mortgage Bankers Association, the Homer Hoyt Institute, Freddie Mac and the National Association of Realtors.
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