Real Estate Impact Huge Under Accounting Changes

Oct 1, 2009 | No Comments | Sean Mills

This is a feature article from Globe St. on the ongoing debate of how corporate America and the individual investor are going to be affected by the “mark to market” FAS change.  FAS 157 has many implications for a lessor and lessee, thanks Uncle Sam.  Good cursory knowledge for the possible changes on the horizon.-Sean
LOS [...]

This is a feature article from Globe St. on the ongoing debate of how corporate America and the individual investor are going to be affected by the “mark to market” FAS change.  FAS 157 has many implications for a lessor and lessee, thanks Uncle Sam.  Good cursory knowledge for the possible changes on the horizon.-Sean

LOS ANGELES-New accounting standards requiring property to be marked to market and proposed changes in lease accounting rules could have an immense impact on the balance sheets, income statements and overall financial outlook of US corporations, many of whom are unprepared for the changes, according to a new report from CB Richard Ellis.

The white paper by CBRE, titled “FAS Talking–Unpacking Real Estate’s Impact on Financial Statements,” says that the estimated balance sheet impact of the proposed lease accounting changes alone could be well in excess of $1 trillion for US companies. The report says that the combined effects of mark-to-market and the lease accounting changes hold the potential to negatively impact earnings, capital requirements, debt covenant ratios, credit ratings and other measurements of corporate financial health.

Todd P. Anderson, CBRE senior managing director of global corporate services who co-authored the report along with CFO Michael M. Omiya of Boeing Realty Corp., explains to GlobeSt.com that the changes in accounting standards are “a continuation of the effort to have generic drugs without prescription greater financial transparency, in particular in the financial statements for publicly traded corporations.”

The white paper analyzes the potential impacts of both the mark-to-market requirement and the proposed lease accounting changes–which could go into effect as early as 2011 or 2012–and discusses courses that corporations can purse in order to mitigate the effects of the changes. The mark-to-market requirement, known as FAS 157, went into effect for financial assets as of Nov. 15, 2007 and for non-financial assets including real estate as of Nov. 15, 2008…..

To read the whole story go to Globe Street.

OCC and OTS: Modification Re-Default Rates

Oct 1, 2009 | No Comments | Sean Mills

Here is some more data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision: OCC and OTS Release Mortgage Metrics Report for Second Quarter 2009
Modified Loan Performance … [T]he percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the [...]

Here is some more data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision: OCC and OTS Release Mortgage Metrics Report for Second Quarter 2009

Modified Loan Performance … [T]he percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the months subsequent to modification for all vintages for which data were available. Modifications made in third quarter 2008 showed the highest percentage of modifications that were 60 or more days past due following the modification. Modifications made during fourth quarter 2008 and first quarter 2009 performed better in the first three to six months after the modification than those made in the third quarter 2008.

Note: This doesn’t include HAMP yet because all of those modifications are still in the “trial period”. That raises a question: If a borrower re-defaults during the trial, will they still be considered a “re-default”? Something to watch for if the re-default rate drops sharply next quarter – they might be excluding the trial period re-defaulters.

Click on graph for larger image.

This graph shows the cumulative re-default rate by quarter of modifications. About 25% to 30% of modifications fail in the first three months.

For Q1 and Q2 2008, about 55% of borrowers have re-defaulted. Q3 2008 will probably be worse, and Q4 2008 and Q1 2009 about the same.

Over time, I expect a very high re-default rate since many of these modifications are just “extend and pretend” (the missed payments and fees are added to the principal, and the rate is reduced for a few years), although about 10% of borrowers received a principal reduction in Q2 (more than double as in Q1).

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UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT

Oct 1, 2009 | No Comments | Sean Mills

SEASONALLY ADJUSTED DATA
In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week’s revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week’s revised average of 554,250.
The advance seasonally adjusted insured unemployment rate was [...]

SEASONALLY ADJUSTED DATA

In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week’s revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week’s revised average of 554,250.

The advance seasonally adjusted insured unemployment rate was 4.6 percent for the week ending Sept. 19, unchanged from the prior week’s unrevised rate of 4.6 percent.

To read the whole report: Source prescription medications Article

Mortgage Demand Falls Despite Lower Rates

Oct 1, 2009 | No Comments | Sean Mills

U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.
Home loan applications fell a seasonally adjusted 2.8 percent in the Sept. 25 week, driven down by a 6.2 percent drop in [...]

U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.

Home loan applications fell a seasonally adjusted 2.8 percent in the Sept. 25 week, driven down by a 6.2 percent drop in demand for purchase loans and a 0.8 percent decline in refinancing requests.

Borrowing costs inched closer to record lows, with average 30-year rates dipping 0.03 percentage point to 4.94 percent.

The 30-year rates were the lowest since the week ended May 22, at 4.81 percent, after hitting an all-time low of 4.61 percent in March, according to the industry group.

A year ago, before intensive government interventions, 30-year rates averaged 6.33 percent.

Signs of life have emerged in both home sales Buy Propecia and prices, helped by government stimulus programs including an $8,000 first-time home buyer tax credit.

The outlook for housing is split, however. Some in the industry predict another sales slide if the tax credit is not renewed and others say there will be a gradual recovery slowed by the usual winter sales malaise.

“We’re going to see another leg down, and if we lose the tax credit it will be a significant leg down,” said John Burns, president of John Burns Real Estate Consulting in Irvine, California.

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Voros: Homeowners in limbo real `hidden’ inventory

Oct 1, 2009 | No Comments | Sean Mills

When a bank forecloses on a home, you probably think that sticking a “Bank Owned For Sale” sign in front of the property soon follows.
Or when a homeowner misses three, four or even nine months of payments, you probably think the bank’s next step is sticking an eviction notice on the door.
Generally speaking, you would [...]

When a bank forecloses on a home, you probably think that sticking a “Bank Owned For Sale” sign in front of the property soon follows.

Or when a homeowner misses three, four or even nine months of payments, you probably think the bank’s next step is sticking an eviction notice on the door.

Generally speaking, you would be correct. Every day banks are placing foreclosed properties on the market, and every day homeowners who default on home loans are receiving eviction notices. That just has to happen when some 350,000 homes a month, or more than 4 million a year, are being foreclosed on across the country.

But presuming that all those properties will hit the market in a timely fashion or that there’s a defined period for a foreclosure-related eviction, though, would be incorrect.

Fact is there are no prescribed time periods for either scenario. Because of this arbitrary manner in which homes become official statistics, there’s a chunk of homes that miss the radar screen of economists.

This “hidden inventory,” as it is known, is the subject of much debate.

Are banks holding back properties to keep prices stabilized in order to minimize loss on bank-owned sales?

Is incompetence coupled with an overwhelming number of foreclosures causing delays in homes hitting the market, skewering the actual real estate picture?

Sean O’Toole, founder and CEO of ForeclosureRadar, a Discovery Bay-based 

tracking firm, is one of the few voices who believes there is no grand conspiracy by banks when it comes to the housing market. In California, he believes this hidden inventory represents about a month of backlogged homes that normally would be on the market.

 

On a recent post on the ForeclosureRadar.com, O’Toole wrote, “At the current rate of REO sales, that means that even if banks are purposefully withholding properties, the truth is that it can’t be very many — a month at most.”

While O’Toole’s math uses actual figures to extrapolate the hidden inventory number, the real wild card lives and breaths in those homes that are in limbo, here payments have stopped, the homeowners remain and the bank is doing nothing but waiting for who knows what. There is no official figure for those.

With the country looking at 4 million foreclosures this year, conspiracy theorists can look at these homeowners in limbo and use it as fuel for their argument that banks are manipulating the housing market by keeping them out of that statistical world by doing nothing.

My take: The housing market is at a critical junction, and there is a real potential for a flood of new foreclosures.

Along with the unknown number of properties in purgatory, there are some 1 million pay-option mortgages originated at the height of the real estate bubble that are due to reset throughout the next year. Some will see their payments double.

These prescription drugs online without prescription two unknown factors — homeowners in limbo and pay-option resets — do not appear to be taken as a serious threat in the real estate industry, but you can be sure they will certainly feed the foreclosure fire well into next year.

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