Housing Recovery Benefits Title Insurance Industry: Fitch

With revenue up and the housing market showing a sustained recovery, Fitch Ratings says the outlook for the U.S. title insurance industry is “stable.”

According to the ratings agency, its stable rating outlook is based on its belief that “ratings actions for the industry will on balance approximate current levels over the next 12-18 months as financial performance has improved recently.”

The agency points to improved revenue and reduced expenses as signs of stability. Operating profit margins for Fitch’s title universe rose to 10.3 percent in the first nine months of 2012, a dramatic jump from 6.1 percent during the same period in 2011. Earnings improved for all underwriters, but the real stars were First American Financial and Fidelity National Title, which both posted pretax earnings in the hundreds of millions of dollars.

In addition, title revenues increased by more than 15 percent from January to September as refinancing activity outpaced expectations and housing markets found solid ground.

The period’s underwriting combined ratio reached 90.7 percent, a level not seen since 2006.

“The title insurance industry is benefitting from an improving housing market that is showing less home inventory and increasing home prices nationally,” Fitch says in its report.

While mortgage originations are expected to fall off somewhat in 2013, Fitch notes that the drop will mostly be driven by a decline in refinance activity, which will be offset by growing purchase originations. As the agency points out, “purchase orders typically bring in twice the revenue of refinance orders for title insurers.”

Additionally, open order counts for title underwriters were 20 percent higher at third-quarter 2012 compared with the same period in 2011. According to Fitch, the order flow should provide a “strong pipeline of activity for the first half of 2013 and a cushion against a potentially weaker second half in an uncertain economic environment.” As a result, revenue is expected to grow in 2013, though at a more modest rate than in 2012.

While capital strength varies from company to company, Fitch says it continues to view the industry as “adequately capitalized.”

The biggest threat to the industry at this point, Fitch says, is Washington’s potential failure in avoiding the fiscal cliff. If that were to occur, economic growth would fall off drastically, leading to sustained mortgage and real estate market activity declines and a “return to sizeable title insurer operating losses and capital deterioration.”

On the other hand, if the cliff can be avoided and the housing market is allowed to grow further, Fitch anticipates an improvement in industry capitalization to historical levels.

By: Tory Barringer, DSNews

How the New 3.8% Tax Works

The 3.8% tax on net investment income beginning Jan. 1 applies to dividends, interest (except from municipal bonds), net capital gains, rents, royalties and investment annuities for most joint filers with adjusted gross income of $250,000 or more ($200,000 for singles).

Example: A couple has adjusted gross income of $240,000, not counting their investment income. If they have $2,000 of interest, $4,000 of dividends and $1,000 of net capital gains, the 3.8% tax won’t apply. But if they have the same interest and dividends plus a $10,000 net capital gain, then they’ll owe a new tax of $228 on $6,000, the amount of their investment income above $250,000.

Things get more complex for retirees. Defined-benefit pension payments and individual retirement account payouts aren’t themselves subject to the 3.8% tax, but they can raise adjusted gross income.

Example: A widow has $210,000 of adjusted gross income from pensions and IRA withdrawals, so she doesn’t owe the new tax even though that income is above $200,000.

But if instead she has $120,000 from pensions and IRA payouts, plus a $100,000 net taxable gain from the sale of her home—after subtracting her cost basis and the $250,000 exclusion—then she will owe $760 of new tax on $20,000.

“For people under the thresholds, the timing of investment income will become very important,” notes Sharon Kreider, a CPA in Sunnyvale, Calif., who has studied the new levy.

By: Laura Saunders, Wall Street Journal

Shadow Inventory Shrinking…in Most Regions

The Mortgage Bankers Association (MBA) released their 3rd Quarter Delinquency Survey last week. The report revealed that both the delinquency and shadow inventory numbers are improving. DSNews, reporting on the survey, explained:

“The Mortgage Bankers Association noted in a Thursday report that a four-year low in serious mortgage delinquencies and a drop in the percentage of loans in foreclosure for the third quarter suggest fewer homes are part of the shadow inventory that’s always threatening prices and creating market uncertainty.”

This is great news. However, we must realize two things:

  • The inventory level is still four-times the normal average
  • Foreclosure backlogs still exist in certain judicial foreclosure states

Back in September, we explained that the foreclosure challenge in most parts of the country is diminishing with the major exception being the Northeast. A new report confirms that states in the Northeast are now leading the nation in percentage increase in foreclosure activity. In Realty Trac’s latest Foreclosure Market Report, it was revealed that:

“The three states with the biggest annual increases in foreclosure activity in October were New Jersey (140 percent), New York (123 percent) and Connecticut (41 percent).”

These same states were rocked by super storm Sandy which will result in a continued delay in these properties coming to market. RealtyTrac’s vice president Daren Blomquist explains:

“We continued to see vastly different foreclosure trends across the country in October, depending primarily on how each state’s foreclosing infrastructure was able to handle the high volume of delinquent loans during the worst of the foreclosure crisis in 2010. Unfortunately the three states dealing with the biggest rebound in deferred foreclosure activity— New Jersey, New York and Connecticut — also had to deal with the devastation to homes inflicted by super storm Sandy. The foreclosure moratoriums being put into effect as a result of the storm will likely extend the already-lengthy time to foreclose in these states, further prolonging a fundamentally sound housing recovery.”

Things are looking better in the vast majority of communities across the country. However, the Northeast should still be looking for prices to soften as Mark Zandi of Moody’s Ecnomy explained in a recent Wall Street Journal article:

“Some markets are still going to suffer more price declines.”


By: The KCM Crew, KCM Blog

Freddie Mac Paints Realistic Picture of a 'Healthy' Market

The housing market is slowly but surely getting back up to speed, but don’t expect it to recover to peak levels, Freddie Mac says in its latest U.S. Economic and Housing Market Outlook.

In the November outlook, Freddie Mac takes into account recent trends, housing indicators, shifting demographic patterns to put together a picture of what makes a “healthy” housing market. According to the GSE’s projections, the current trajectory of the recovery should bring the market to a healthy state by 2017.

According to the data, housing starts should increase to about 1.7 to 1.8 million homes per year, a pace below the 2.1 million peak set in 2005. However, Freddie Mac VP and chief economist Frank Nothaft said the projected pace should be “much more sustainable” given the pace of household formations.

Starts in Q3 reached about 790,000, according to the GSE’s data.

Home sales are expected to increase to about 5 percent of the housing stock, or 6.5 to 7 million homes per year, compared with sales of 7 percent of the stock in 2005. At the same time, home price appreciation is anticipated to rise gradually to about 3 percent per year, far lower than 11 percent in 2005.

Meanwhile, Freddie expects vacancy rates to ease further to about 1.7 percent for on-sale homes and 8 percent for rental homes, down from peaks of about 3 percent in 2008 and 11 percent in 2009, respectively.

Seriously delinquency rates are forecast to hover near 2 percent, down from the peak of 9.5 percent in 2010.

While the projections may not impress those who expected a return to peak levels, Nothaft the slow but steady path will be better in the long run.

“What a healthy housing market should look like will dismay those who keep comparing housing to what it was during its peak years,” he said. “However, taking into account recent trends, key housing indicators and the shifting demographic patterns that will define a new and realistic trajectory toward a healthy housing market, the long-term prognosis is promising—just don’t expect the housing market to wake up at 98.6 degrees tomorrow morning.”

By: Tory Barringer, DSNews

Rent Prices Continue to Rise Faster than Asking Prices

Rent prices are climbing faster than asking prices and are rising in metros where asking prices are falling, according to a report from Trulia.

Year-over-year, nationwide rent prices were up 5.1 percent in October, while asking prices were up 2.9 percent during the same period when including foreclosures.

Out of the top 25 rental markets in the United States, Houston led with a 16.5 percent yearly increase. Miami and Oakland took the next two spots with a 10 percent gain in rent prices, Trulia reported.

Denver was ranked number 4 with a 9.4 percent increase and Seattle fifth for its 8.8 percent improvement.

Chicago, which saw a 5.3 percent yearly dip in asking prices in October, still experienced a 7.7 percent gain in rent prices during the same one-year period.

Asking prices also fell in Albuquerque, dropping 2.2 percent, but rent prices moved up by 3.1 percent.

The trend was reversed in Las Vegas, where asking prices were up 10.9 percent from October 2011, while rent prices moved downward by 1.8 percent. In Memphis, rent prices were also down, falling 0.6 percent, yet asking prices increased 7.1 percent over a one-year period.

Overall, most metros saw rent prices and asking prices increase. Out of the 100 largest metros, 69 took part in the yearly gain in asking prices.

“In markets like Denver, San Francisco, and Oakland, where prices and rents are both rising, higher prices mean higher down payments, but rising rents make it harder to save enough,” said Jed Kolko, Trulia’s chief economist, in a release.

When tracking asking price increases among metros, Phoenix led with a reported 24.9 percent yearly gain. Cape Coral-Fort Myers, Florida ranked second with a 15.7 percent increase, followed by San Jose (12.7 percent); Warren-Troy-Farmington Hills, Michigan (11.8 percent); and West Palm Beach, Florida (11.3 percent).

“Home prices are climbing in most local markets and in eight of the eleven swing states,” Kolko added. “Rising prices have taken pressure off the presidential candidates from having to come up with detailed plans to help the housing market, and that’s a big reason why they haven’t focused on housing in the 2012 campaign.”

Trulia’s findings are based on the for-sale homes and rentals listed by the company.

Mortgage Insurers Join GSEs in Effort to Shorten Short Sale Process

Fannie Mae and Freddie Mac servicers will be able to skip a step when attempting to get a short sale or deed-in-lieu of foreclosure approved.

On Wednesday, the GSEs announced standard delegation agreements were reached with nine mortgage insurers to allow servicers to approve of short sales and deeds-in-lieu without a separate review process with the mortgage insurer. The agreement takes effect November 1 and should speed up the process for the foreclosure alternatives. The short sale or deed-in-lieu still has to meet the GSEs’ requirements, but servicers don’t have to wait for mortgage insurers to offer their stamp of approval.

“Short sales and deeds-in-lieu are important tools to prevent foreclosures and help struggling borrowers,” said Leslie Peeler,SVP of national servicing organization at Fannie Mae. “These delegation agreements create an even more streamlined process that will ultimately help more families avoid the costly effects of foreclosure and benefit taxpayers. We are pleased that the mortgage insurance companies have stepped up to the plate with us to help more homeowners.”

Tracy Mooney, SVP of servicing and REO at Freddie Mac, said, “We applaud the nation’s mortgage insurers for committing to work with us and our servicers to help more borrowers obtain short sales and other foreclosure alternatives.”

The mortgage insurers that signed onto the agreement are CMGMortgage Insurance Company; Essent Guaranty, Inc.; Genworth Mortgage Insurance Corporation; Mortgage Guaranty Insurance Corporation; PMI Mortgage Insurance Co.; Radian Guaranty Inc.; Republic Mortgage Insurance Company; Triad Guaranty Insurance Corporation, and United Guaranty Mortgage Insurance Company.

The GSEs require mortgage insurance for borrowers who make a downpayment that is less than 20 percent of the property value when taking out a loan.

The announcement adds to Fannie Mae and Freddie Mac’s new standards for short sales, which also take effect November 1. The new guidelines for short sales were adopted to streamline the short sale approval process.

By: Esther Cho, DSNews

Warren Buffet Bets Big on Real Estate

As reported on Bloomberg:

“Warren Buffett’s Berkshire Hathaway Inc. is extending its bet on the U.S. housing market by forming a venture with  Brookfield Asset Management Inc. as low interest rates, inventory and prices spur a real-estate rebound. Berkshire’s Home Services of America Inc. unit will be the majority owner of the venture to manage a U.S. residential real-estate affiliate network… The firms plan to offer a new franchise brand, Berkshire Hathaway Home Services, starting next year. Brookfield’s network has operated under the Prudential Real Estate and Real Living Real Estate brands.”

According to the new company’s announcement:

“This new franchise brand joins the existing brands and affiliate networks of Prudential Real Estate and Real Living Real Estate and will be available in 2013.The resulting combined networks of more than 53,000 Prudential Real Estate andReal Living Real Estate agents were responsible for generating in excess of $72 billion in residential real estate sales volume in 2011, and operate across more than 1,700 U.S. locations.”

Mr. Buffett purchased a large number of real estate companies and plans to use the iconic Berkshire Hathaway name in the rebranding. We assume this is a great sign that he believes a real estate recovery is guaranteed.

Source: KCM Blog