How the Student Loan Crisis Drags Down Home Prices

March 4, 2013 By Leave a Comment

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Pity the college graduate, burdened with shocking levels of student-loan debt and looking for a job in the worst employment market in two decades.

But save a little pity for the rest of us.

The staggering amount of outstanding student debt — nearly $1 trillion owed – is beginning to impede the U.S. economy as a whole, a new report from the New York Federal Reserve suggests, chiefly by robbing the housing market of its richest crop of new buyers: young college graduates.

The statistics in the report are dismaying in themselves. With the number of borrowers approaching 40 million nationally, including more than 40 percent of 25-year-olds, the average balance on their loans has risen to $25,000. About 6.7 million of all student borrowers, or 17 percent, are delinquent on their payments three months or more.

“Delinquent student loan borrowers have a very difficult time accessing credit and the share of those borrowers is greater today than in the past,” said Donghoon Lee, a senior economist for the New York Fed and one of the authors of the report.

(Read More: Student Debt Climbs as Credit Gets Tighter)

For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers are no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.

The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.

“These are the people you’d expect to buy big houses,” said student loan expert Heather Jarvis. “They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already.”

 

For years, economists and student advocates warned that the greater debt load would have an adverse impact on graduates’ borrowing power. Now the statistical evidence is mounting. Last month, a Pew Research Center survey found that the share of millennials who own their homes had fallen from 40 percent to 34 percent during the recession, with a similar decline in residential debt.

Everyone has had a harder time qualifying for a mortgage since credit standards tightened in 2008, of course. And it could be that younger people suddenly prefer renting (or living at home). But by looking at mortgage originations, the New York Fed’s report ties college graduates’ lack of home ownership more directly to borrowing woes.

The implications for the housing market are serious. The number of first-time homebuyers, more than half of whom are aged 25 to 34, has been shrinking since the recession struck, and young buyers now make up their smallest share of the housing market in more than a decade.

(Read More: Four Ways to Make Your Tax Refund Pay You Back)

In February, the Consumer Financial Protection Bureau asked private lenders to suggest options for relief of student loan borrowers. “They are increasingly concerned about the effect of student debt on household formation to see if there’s anything they can do to thaw the marketplace,” said Mark Kantrowitz, publisher of the financial aid website Finaid.com.

But existing efforts to prevent delinquency on federally backed loans — such as basing the size of borrowers’ payments on their income — have sometimes made getting a mortgage more difficult. “It confuses the mortgage process,” said Jarvis. “Income-driven programs do help them afford a home and ought to make them more creditworthy, but they have not communicated well.”

The best fix for everyone would be a faster growing economy, which would provide jobs and higher incomes to those who have borrowed. Until then, Jarvis sees the average college grads’ situation as a Catch-22. “If you don’t prioritize your student loan debt you won’t be able to get credit in the future,” she said, “and if you do pay it, you won’t be able to afford anything else.”

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U.S. Homeowners Are Repeating Their Mistakes

February 18, 2013 By 2 Comments
U.S. Homeowners Are Repeating Their MistakesPhoto illustration by 731: Hand: Getty Images

Global Economics

By Brendan Greeley on February 14, 2013

If there’s one thing Americans should have learned from the recession, it’s the importance of diversifying risk. Middle-class households had too much of their net worth tied up in their homes and were too exposed to stocks through 401(k)s and other investments.

Despite the hit many Americans took, there’s little sign they’ve changed their dependence on homes as the mainstay of their wealth. Last year, Christian Weller, a professor at the University of Massachusetts, looked at Federal Reserve data for households run by those over 50. The number of families with what Weller calls “very high risk exposure”—a low wealth-to-income ratio, more than three-quarters of their assets in housing or stocks, and debt greater than a quarter of their assets—had almost doubled between 1989 and 2010, to 18 percent. That number didn’t decline during the deleveraging years from 2007 to 2010; its growth just slowed to a crawl.

The Fed will conduct a new wealth survey in 2013, but don’t look for a rational rebalancing. The same pressures that drove families to save less before the recession are still in place: low income growth, low interest rates, and high costs for health care, energy, and education. Families have been borrowing less since 2007, but the rate of the decline has slowed. As soon as banks start lending again, Weller says, people will put their money back into housing. “The trends look like they’re on autopilot,” he says. “They don’t suggest that people properly manage their risk.”

In a 2012 paper for the National Bureau of Economic Research, economist Edward Wolff concluded that from 2007 to 2010, the median American household lost 47 percent of its wealth. Average wealth—a number that includes the richest Americans—declined only 18 percent. Houses make up a smaller share of the wealth of a rich family. The wealthy also benefit from better financial advice, Weller says.

A home is what economists call a consumption good; you have to live somewhere. It’s also a store of wealth. Unlike other assets, you can’t buy a portion of a house. “You want to consume a big home,” says Sebastien Betermier, an assistant professor of finance at Desautels Faculty of Management at McGill University. “But if you want to buy that home, it’s a huge investment—probably more than you really want.” Betermier, who studies consumers’ financial decisions, says homeownership makes it harder to diversify risk. Since 1983, for the richest 20 percent of U.S. households, the principal residence as a share of net worth has been around 30 percent. For the next 60 percent—most of us—housing has risen from 62 percent to 67 percent of total wealth.

To compound the problem, home equity dropped for this middle group even as home values rose. Rising house values, low interest rates, and easy refinancing encouraged property owners to take out home equity loans. And Wolff’s analysis shows the middle class reducing their cash cushion from 21 percent of assets, starting in the early 1980s, to 8 percent just before the recession. Cash is bad luck insurance; you pay a premium because you don’t earn a return on it, but it’s available in case of an emergency. Americans borrowed against their homes, spent the cash, and were left only with risk.

How can the middle class manage risk better? Financial education would help. Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania, is alarmed at how few people understand basic principles. “What we do know is that people who are more financially literate … do accumulate more wealth,” she says.

The other option is for banks to devise ways to reduce housing risk. When Weller worked as a banker in Germany in the 1980s, the bank would set up a savings account with automatic deposit for every mortgage customer. That way, the client would build up a cash reserve to pay the mortgage in a bad month. This remains a common practice in Germany, where banks hold on to their mortgages rather than securitize and sell them.

Weller, Betermier, and Mitchell agree that the mortgage interest deduction contributes to the problem, as it encourages families to move their assets into housing. “When people think about renting vs. buying, the tax subsidy looms large,” says Wharton’s Mitchell. Weller endorses an approach suggested by Senator Barack Obama in 2008: Turn the deduction, which lowers taxable income, into a flat credit, which cuts your tax bill by a fixed amount. That would lead to slower growth in house prices, says Weller, since the credit wouldn’t rise even if people took on a bigger mortgage to buy a more expensive house. As the price of housing climbs more slowly, the shift of a family’s savings into housing would.

In 1999, Robert Shiller of Yale University proposed a way to hedge house values. New owners would buy an option with their mortgage, tied to an index of house prices (such as the one developed by Shiller and Karl Case). The option would function as home value insurance. But “when you buy insurance and you don’t die,” says Shiller, “you think how I spent all this money and got nothing. It takes sophistication.” The problem with his idea, he says, as with similar approaches by the Bank of Scotland and Bear Stearns, was that house prices were rising. People don’t buy insurance for a risk they don’t see.

This leaves Shiller, like Wharton’s Mitchell, pushing for education. At the Obama Treasury several years ago, he suggested the White House hold conferences on housing risk. “They would invite top financial organizations,” he says, “and ask them ‘What are you doing about this?’ ” At the time, Treasury and the banks had more pressing things to do. The federal government could also resort to regulation. Shiller points to the example of Franklin D. Roosevelt, who mandated that homeowners buy fire insurance with their mortgages. “I think it could be expanded to home value insurance,” he says.

The best remedy of all would be a higher savings rate. Mitchell tells her daughters, who are in their twenties, to hold off buying a house and save 25 percent of what they earn. But, she says, “They don’t find this very helpful.”

 

The bottom line: Americans still have too much of their net worth tied up in their homes. There are limited options to encourage diversification.

 

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As the sun rises, hundreds gather in Westchester to see Endeavour

October 12, 2012 By Leave a Comment

L.A. NOW

SOUTHERN CALIFORNIA — THIS JUST IN

As sun rises, hundreds gather in Westchester to see Endeavour

October 12, 2012 |  7:45 am

Crowds at shuttle
Early morning light bathed Endeavour’s weathered body in a pink glow Friday morning as more than 500 people, many from the neighborhood, gathered in a Westchester parking lot to catch a glimpse of the space shuttle on the first leg of its final journey.

A chattering crowd of hundreds converged at the intersection of Sepulveda Boulevard and La Tijera Boulevard. As the sun began to rise, some thrust phones into the air to snap a picture. Others stood on stepladders and folding chairs, hunting for any elevation gain that would give them a better view.

Other crowds spilled into local businesses along Sepulveda Boulevard, including a Coffee Co. facing south toward the shuttle’s parking spot. Owner Gus Kazemi, 56, pulled tables off a raised concrete platform at the entrance to the café, where more than two dozen people leaned over the metal railings toward the shuttle.

“I feel like a part of a larger community, not just the United States,” said Matthew Lucy, 34, who gathered with his wife, Katinka, and daughters Sofia, 6, and Madeleine, 4, inside the Coffee Co. café.

In the parking lot, crews were working to widen the computerized transporters carrying Endeavour so they can travel over medians on Manchester Boulevard.The shuttle will continue east down Manchester, passing into Inglewood city limits at Glasgow Avenue, where it will again stop for several hours for more power line work. There, crews will also move the orbiter onto the dolly system that will tow it over the 405 Freeway beginning about 10 p.m. Friday.As the crowd grew, onlookers stayed quiet and orderly behind the police barricades erected to create a boundary for the shuttle. Officials said the crowd had been orderly all night, but are concerned that as more people arrive during the day, the sizes could get unmanageable.

Sidewalks will remain closed for much of the remaining route, said Los Angeles Fire Department Battalion Chief Michael Bowman.

“We just said, ‘Let’s keep it open, let people enjoy it,’ but we may not have that opportunity again,” Bowman said.

Many people wore hoodies and pajamas. Parents held hands with children wearing school uniforms and backpacks, stopping to see the shuttle on the way to school.

“When else do you get to see something like this in your own backyard?” said Jennie DiPaolo, 49, whose two sons, Luke and Matthew, were wearing red St. Anastasia Catholic School sweat shirts. “We can go see it in the museum, but this is our neighborhood. We drive by here every day.”

– Christine Mai-Duc and Andrew Khouri in Westchester

Photo: Folks gathered on the corner of Westchester Parkway and McConnell Avenue on Friday to see the space shuttle Endeavour leaving LAX for the streets of Westchester. Credit: Lawrence K. Ho / Los Angeles Times.

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Space shuttle Endeavour makes its last landing at LAX

September 21, 2012 By Leave a Comment

L.A. NOW by LA Times

SOUTHERN CALIFORNIA — THIS JUST IN

Space shuttle Endeavour makes its last landing at LAX

September 21, 2012 | 12:50 pm

Endeavour City Hall
Space shuttle Endeavour has touched down at LAX, marking its final landing after a three-decade career in space and bringing an end to NASA’s space shuttle program.

As elsewhere along its choreographed flyover in California, eager fans of the shuttle — filled with both curiosity and nostalgia — gathered at the United Airlines hangar to watch the Endeavour taxi in. A man holding an American flag popped out of the roof of the cockpit of the 747 carrying Endeavour on its back.

As the shuttle flew low over LAX, Kathy Sanders-Phillips was teary-eyed.

PHOTOS: Space shuttle Endeavour 1991-2012

“Oh my god,” she said. “Oh my god.”

Sanders-Phillips watched the shuttle from the United hangar with her husband, Ken Phillips, the aerospace curator at the California Science Center who first thought to bring an orbiter to the museum in 1991.

Phillips said he feels a personal connection to Endeavour — his college friend, Ron McNair, was one of the astronauts killed when Challenger exploded. Endeavour was built to replace Challenger.

“I have to hope Ron is looking down on this,” Sanders-Phillips said, her voice breaking.

A welcome ceremony will be held in the hangar for donors and employees of the California Science Center, NASA and local foundations.

Nine-year-old Julian Caldera was there and excited he had been able to meet three astronauts on hand.

“Not many little kids get to do that,” he said.

Astronaut Mike Fincke, who flew Endeavour’s final mission last year, explained to Julian how shuttles land and where they sit. Fincke said he wanted to go to space as a 3-year-old, after watching astronauts walk on the moon.

FULL COVERAGE: Endeavour’s final journey to L.A.

The former Endeavour astronaut said he’s glad to see the shuttle being well-received in Los Angeles

“I can feel the vibe; it’s just electric” — but is more excited to see how it affects children like Julian. They’re going to be inspired, and they’re going to be the next generation to come of doctors and engineers and scientists and astronauts,”Fincke said.

“It happened for me, and I know it’s going to happen for all these other kids.”

Some gathered at the hangar couldn’t believe this moment had finally arrived.“It’s here. It’s really here,” said Science Center President Jeffrey Rudolph.Ken Phillips, aerospace curator for the museum, described it as an “adreniline-charged day.”

“It’s hard to find the words to describe today,” Phillips said.

In Santa Monica, crowds lined the pier as well as points along the beach as the shuttle entered L.A. County.

“Amazing, amazing, amazing,” said Derek Johns, 41, of Los Angeles, who shot photos at the pier.

“I got chills,” said Dave Atkinson, an El Segundo councilman who watched the shuttle from the city’s overlook. “This is America at its finest.”

At the charter school near the California Science Center, children cheered and ran as Endeavour made a low pass over its future home.

“That was awesome,” said fifth grader Yaslynn Thomas. “Awestruck. I never thought a space shuttle would ever come to a school. I always thought it would go to a special space landing place.”

ALSO:Space shuttle Endeavour: Where to spot the shuttle

Space shuttle Endeavour in California: Submit your photos

‘Space geeks’ welcome shuttle Endeavour to Edwards Air Force Base

— Kate Mather at LAX, Jeff Gottlieb at El Segundo bluffs, Matt Stevens at Santa Monica Pier and Rosanna Xia at California Science Center

Photo: The space shuttle Endeavour flies over City Hall in Los Angeles during flyovers of Southland landmarks. Credit: Marc Martin / Los Angeles Times

 

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Olympic Medal Count 2012: Early Day 5 Standings and Bold End-of-Play Predictions

August 1, 2012 By Leave a Comment

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Rob Schumacher-USA TODAY

The London Olympics are going strong, and Day 5 looks to continue the fun and excitement.

After the crowing of Michael Phelps’ Olympic record on Tuesday, we turn our heads to some different action.

Medals will be handed out in 11 different sports on Wednesday. From kayaking to weightlifting, athletes will rise to the occasion for their countries or falter and return home without realizing their Olympic dreams.

Most of the medals being earned today are not in the high-profile events, but they add to to the overall medal count all the same.

London Olympics Medal Count as of Aug. 1, 8 a.m. ET.

Olympic Medal Tracker Gold Silver Bronze
China Total: 23 13 6 4
United States Total: 23 9 8 6
Japan Total: 13 1 4 8
France Total: 11 4 3 4
South Korea Total: 8 3 2 3
For full medal results, check out Bleacher Report’s official leaderboard.

 

Quiet Day for Americans

Wednesday won’t be a day filled with medal upon medal for the USA. There are opportunities here and there to snag a few, most notably in the men’s individual all-around gymnastics finals and women’s 4×200-meter freestyle relay, but overall it should be fairly quiet on the American front.

The American contingent will be focused on preliminary action. Misty May-Treanor and Kerri Walsh-Jennings look to continue their Olympic set and match records in beach volleyball, and Team USA attempts to continue their domination in women’s basketball.

Don’t look for a big influx in gold on Wednesday.

Gymnastics Redemption

After a disappointment in the team competition, the men will go their separate ways and look for individual gold. This will be their chance to some sort of redemption after not claiming a medal as a group.

The men are talented and can come away with some individual hardware. Supposedly they have the best talent since the 1984 squad, but they have yet to live up to that potential in London.

It will be interesting to see what their mindset is entering the competition after their previous performances. As much as they were celebrated entering the Games, it is time for the men to step up. Maybe they can be inspired by what the women did on Tuesday.

China Will Extend Gold Lead

With the Americans only having a select few opportunities to close the gap on gold, look for the Chinese to extend their lead.

They already have one gold guaranteed as the gold-medal match in women’s table tennis features Ding Ning and Li Xiaoxia.

Their early grasp on gold may be difficult to overcome, but it’s still early in the Games, and the Americans have plenty of opportunities to close the gap as the days pass. But for today, it looks as if they will extend the lead and continue their firm grasp over the rest of the world.

I hope you enjoyed the article! -

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For Olympic Winners, Losing Track of a Medal Is a Personal Bust

July 25, 2012 By Leave a Comment

Michael Phelps, Shaun White Had Prizes Go Missing; When an eBay Knockoff Will Do

By STU WOO and GEOFFREY A. FOWLER

Chicago White Sox shortstop Alexei Ramirez won gold for Cuba’s baseball team in 2004. But he lost the medal when he moved to Chicago. Losing an Olympic medal is more common than you might think, but getting a replacement can be an Olympian task.

When Dutch rower Diederik Simon arrived at an Athens beach party during the 2004 Olympics, he noticed something missing from his pocket: the silver medal he had just won. “I was panicking, and I didn’t tell anybody,” he says.

Mr. Simon spent the celebration quietly searching for his medal. Before midnight, though, he gave up and went to the police station. Filling out a lost-property report, the officer asked him, “What color was the lost item? Ah, yes, silver.”

In the coming days, Olympians at the London Games will win about 3,000 medals, each the culmination of years of hard work. And in a moment’s carelessness, a few of those medals will be lost, perhaps as soon as the medal celebration itself.

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Chicago White SoxAlexei Ramirez’s gold medal replica.

After winning gold in the 1988 Seoul Games, Italian rower Davide Tizzano made the traditional leap into the water. Then a teammate jumped on him, jarring the medal from his hand. It sank to the muddy bottom of the Han River.

“I feel exactly like it was yesterday, the feeling of the medal going down, going down,” he says. For the team picture, he borrowed a medal from another Italian rowing team that won gold. A security guard who was also a diver eventually recovered the hardware.

It is up to the Olympic host countries to make the medals, which are typically alloys. Organizers of the London Games say their gold medals, which weigh just under a pound, are actually 92.5% silver and just 1.34% gold. The remainder is copper.

Journal Report

Read the complete Olympics Preview report.

Losing a medal happens more often than one might think. Snowboarder Shaun White once found one of his gold medals, which he has admitted to misplacing a few times, in a seat pocket of his mother’s car. Another time, his mom had taken the medal to the dry cleaner—the ribbon was dirty—and had forgotten about it.

It can be harder to keep track of multiple medals. Swimmer Michael Phelps recently admitted that he was a little foggy about where one of his 16 medals was located. “There are a couple of options of where it could be, but I think when we were traveling—uh, somebody was holding on to it,” he said in an interview on “60 Minutes.”

The police can sometimes solve medal mysteries. Tristan Gale, a skeleton-racing champion at the 2002 Salt Lake City Games, had her gold stolen by burglars last year. She recalls visiting San Diego-area pawn shops and asking, “Hi, I’m looking for an Olympic gold medal.” It took police a week to recover the medal. They busted three thieves, who pleaded guilty.

Mr. Simon, the Dutch rower, grew nervous with each passing day about a planned photo-op with Queen Beatrix of the Netherlands. “I didn’t want to be standing there without a medal,” he says.

A taxi driver found the award in his cab and, after taking photos with it, turned it in. Athens officials gave him his own medal ceremony with Mr. Simon, as well as a set of commemorative stamps.

It is hard for thieves to pawn a medal since it is easy to identify the award’s rightful owner. Athletes can sell their own medals, but Olympic officials frown on the idea. In a 2010 sale from Heritage Auctions, of Dallas, a gold medal from the 1980 “Miracle on Ice” hockey team fetched $310,700.

For athletes who don’t find their missing awards, the International Olympic Committee does offer replicas.

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BEIJING GAMES GOLD MEDAL

The IOC keeps medal molds from modern Games in the Olympic Museum in Lausanne, Switzerland, a spokeswoman says. She adds the organization, which has 34,237 medalists in its database, gets one or two replacement requests every year. The replacements have the word replica on them, usually in tiny print on the bottom edge.

The U.S. Olympic Committee says replicas generally cost the athlete between $500 and $1,200, depending on the intricacy of the design.

Getting an Olympic replica takes months. Alexei Ramirez, a Chicago White Sox shortstop who won gold for Cuba’s baseball team in 2004, says someone stole his medal as he and his wife relocated to the U.S. The White Sox sent the IOC a police report and payment this past spring. Two months later, the team received the new medal—without a strap, since the IOC doesn’t supply replica ribbons—via DHL and surprised Mr. Ramirez with an on-field presentation.

Mr. Ramirez says he keeps his replica in a safe place, but he won’t say exactly where. “That’s a secret,” he says. “I’m not going to tell anybody to make sure it doesn’t get stolen again.”

Some Olympians don’t like talking about their absent-minded moment. Glenn Eller, a shotgun shooter who won gold in Beijing, says only that someone took it while he was out with colleagues in Fort Worth, Texas, in late 2008. “I put myself in a situation that I probably shouldn’t have been in, and someone stole it out of my pocket,” he says. “I’m trying to forget it and go ahead.” He has since received a replica.

Olympic officials warn it can be tough to replicate certain medals if they contain materials other than metal. U.S. water polo goalie Merrill Moses, who had his silver from the 2008 Beijing Games stolen in a burglary of his parents’ house, says his replica medal contained jade that looked painted on, rather than a piece embedded in the back.

Mr. Moses returned that replica to Olympic officials, who told him they found a way to make a better one. In the meantime, he is toting around something else: a $75 knockoff silver medal he bought on eBay. “I do a lot of camps and clinics…and the kids want to see a medal,” Mr. Moses says, adding that he tells them it isn’t the real thing.

Before there was an official process for getting replacement medals, athletes made do with makeshift ones. Olympics historian David Wallechinsky says Canadian high jumper Duncan McNaughton lost his 1932 gold medal. So his friend Bob Van Osdel—the high-jump runner-up who happened to be a dentist—made a mold from his silver medal, filled it with gold and sent the replica to Mr. McNaughton, the historian says.

Corey Codgell, a shotgun shooter who won bronze in Beijing, doesn’t take any chances. She usually keeps her nicked-up medal in her front pocket when she travels. Before letting an audience at an event handle it, she warns everybody: “No one leaves this room until I get my medal back.”

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Streaming Coverage: Get the latest Journal coverage of the 2012 Games right here – every story, video, photo or tweet related to the competition and all news off the field.

Plus, watch video, see photos and view a schedule of events at WSJ.com/Olympics.

Write to Stu Woo at Stu.Woo@wsj.com and Geoffrey A. Fowler atgeoffrey.fowler@wsj.com

Enjoy the Games! -

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Olympics social media: Get as connected as the rings for 2012 Games

July 19, 2012 By Leave a Comment

Olympic FacesThe International Olympic Committee is enhancing its social media hub to include Instagram photos from the Olympic Village (IOC / July 19, 2012)
By Michelle MaltaisJuly 19, 2012, 1:20 p.m.

This summer’s Olympics will be more connected than the five rings of its emblem. It’s on Twitter,Facebook, Google+, Instagram (@Olympics) and foursquare.

And the International Olympic Committee is building up an Olympic Village online by integrating these social media to help connect a worldwide audience with the athletes in the London 2012 Games.

“When I went to the Games for the first time it was back in Barcelona in 1992—those games had an internal email system, and it was groundbreaking,” six-time Olympic British archer Allison Williamson told a press conference unveiling the hub. “In London, I will be sharing photos of the Athletes’ Village and other fun things.”

Through the IOC’s Olympic Athletes’ Hub, you can virtually enter the exclusive Olympic Village to connect with your favorite competitor’s Facebook and Twitter profiles, get Instagram portraits of the athletes and chat directly with a featured athlete in a Twitter #asknathlete Q&A.

“Social media has been a great way to connect with fans and share not just my stories but the stories of other amazing people and athletes,” said South African Paralympic sprinter Oscar Pistorius at the press conference. “I am truly blessed and thrilled to be participating in the 2012 London Olympics and look forward to sharing my Olympic experiences with the social media community and inspiring young athletes to do amazing things.”

Since we all like to pretend we are as informed as the judges, the IOC will soon launch the Olympic Challenge in the Athletes’ Hub, a social game that lets fans compete to predict the outcome of various Olympic events and see how they rank on the leaderboard against their friends and fans around the world.

Photos from various angles of the events will be available on Tumblr: an aggregation of existing social feeds, live from inside the Village with the Instagram portraits, Getty Images shots as well as shots and commentary on the fashion scene.

Enjoy the Games! -

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FHA’s Mortgage Delinquencies Soar

July 10, 2012 By Leave a Comment

Closer to a bailout? FHA’s mortgage delinquencies soar

By Tami Luhby @CNNMoney July 9, 2012: 12:38 PM ET

Delinquencies and foreclosures of FHA-backed mortgages are soaring, putting further strain on the housing agency's finances and making a taxpayer bailout more likely.Delinquencies and foreclosures of FHA-backed mortgages are soaring, putting further strain on the housing agency’s finances and making a taxpayer bailout more likely.

NEW YORK (CNNMoney) — The mortgage market appears to finally be stabilizing — as long as you ignore loans backed by the Federal Housing Administration.

Increasingly, FHA-insured loans are falling into foreclosure or serious delinquency, moving in the opposite direction of loans guaranteed by Fannie Mae and Freddie Mac or those held by banks, which are all showing signs of improvement.

And taxpayers could ultimately be on the hook for FHA’s growing number of troubled mortgages. The agency’s finances are already on shaky ground, and additional losses from loans going sour could prompt the need for a federal bailout, experts said.

“We can’t escape this one,” said Joseph Gyourko, a real estate professor at the University of Pennsylvania’s Wharton School. “This is an arm of the U.S. government.”

The share of government-guaranteed loans, a majority of which are backed by FHA, that were 90 days or more delinquent soared nearly 27% during the year ending March 31. Foreclosures jumped nearly 17%, according to a report published recently by federal regulators.

At the same time, bank loans saw a dramatic improvement, with delinquencies shrinking by 39% and foreclosures declining by nearly 10%. Fannie and Freddie’s portfolio also improved as delinquencies dropped by nearly 15% and foreclosures slid by more than 6%, the quarterly report issued by the Office of the Comptroller of the Currency said.

FHA has also had a tougher time successfully modifying loans. More than 48% of government-guaranteed mortgages re-defaulted 12 months after modification, compared to 36.2% of loans overall, the report said.

FHA’s risky borrowers: FHA doesn’t make loans, but it backstops lenders if borrowers stop paying. With this guarantee in place, banks are more likely to offer mortgages to borrowers with lower credit scores or incomes.

FHA-backed loans made up more than 29% of the market for home purchases in the first quarter of 2012, according to Inside Mortgage Finance, an industry publication.

Housing experts have been warning for years that many FHA-insured loans are not sustainable, especially in these troubled times. That’s particularly concerning because FHA’s share of the market has swelled in recent years as lenders pulled back on providing mortgages that weren’t backed by the government.

One of the main critiques of FHA loans is that they require very low downpayments — a minimum of 3.5%. In an environment where home prices are declining, borrowers can quickly slip underwater and owe more than their property is worth.

“These are very risky loans,” said Ed Pinto, resident fellow at the American Enterprise Institute, a conservative think tank. And loans made in the past three years are “moving into the beginning of the peak delinquency period and they are very big books of business.”

Unless the economy improves significantly over the next few years, FHA will experience even more delinquencies, said Guy Cecala, publisher of Inside Mortgage Finance.

Little room for failure: The dramatic jump in delinquencies comes despite the agency’s efforts to improve the quality of the loans it insures.

Over the past several years, soaring defaults have been eating away atFHA’s emergency reserves, which cover losses on the mortgages it insures. In fiscal 2009, the reserve fund dropped to 0.53% of FHA’s insurance guarantees, well below the 2% ratio mandated by Congress. By late last year, it had fallen to 0.24%.

FHA pledged to shore up its standards and its finances in 2009. The agency has since increased its insurance premiums, established minimum credit scores for borrowers, required larger downpayments from those with credit scores below 580 and banned sellers from assisting borrowers with the downpayment. It also created an office of risk management and cracked down on lenders with questionable underwriting processes.

Despite the emergency fund’s diminishing reserves, FHA maintains that its efforts are working. The loans insured starting in 2009 are much higher quality and should lower delinquency levels over time, an FHA official said.

“We expect the new books will continue with their better performance, primarily because of the steps that were put in place,” he said. “And we are benefiting from having more high-credit borrowers.”

Still, FHA watchers warn that the agency doesn’t have much of a cushion against these rising delinquencies and foreclosures. And if the losses grow too great, the agency could need a taxpayer-funded bailout.

The FHA says that its reserves should be restored by 2014 barring a second recession, but outside experts aren’t so sure.

“They are doing very badly … there’s no two ways about it,” said Andrew Caplin, a New York University economics professor who has studied the agency. “Over the next five years, there won’t be enough of an economic recovery to fix FHA’s finances. Not a chance.” To top of page

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How the West is winning on home prices: Clear Capital

July 10, 2012 By Leave a Comment
REAL ESTATE
How the West is winning on home prices: Clear Capital
By Jessica Huseman

• July 10, 2012 • 8:14am

Quarterly home values in June improved nationally, continuing a positive trend from the spring. National prices rebounded with quarterly and yearly gains of 1.7%, according to Clear Capital, which forecast continued growth through the remainder of the year.

National home prices picked up notable momentum over last month’s marginal gains of 0.1%, the Trukee, Calif.-based data and valuation company said. It predicted additional growth of 2.5% forecasted through the end of the year.

“June home price trends provided further evidence that housing has turned the corner, with the momentum of the recovery picking up speed,” said  Alex Villacorta, director of research and analytics at Clear Capital.

Clear Capital uses a rolling quarter measure, which compares the most recent four months to the previous three months. The rolling quarters have no fixed start date and can be used to generate indices as data flows in to reduce multimonth lag time.

The West came in with the highest gains, showing quarter-over-quarter growth of 3.5% — an increase of 0.8% over May and annual price gains of 4.1%. Clear Capital expects the trend to continue through 2012 with an additional 5.75% growth over the next two quarters.

While the recovery generally began in the lower-priced segments, growth spread across all price tiers in the West, which the report calls an “important step in the progression of this recovery.”

In the quarter, low-tier gains in the West hit 3.6% (sales less than $140,000), mid-tier gains reached 3.1% (homes selling between $140,000 and $347,000) and top-tier gains climbed to 3.2%. This led the West to push ahead of the South, the next closest region, by 2%.

The South continued to grow in June, pushing up 1.5% over the rolling quarter, slightly above May’s 1.2% gain.

The Midwest saw the largest increase over last month in quarterly home prices, rising 1.2% compared to May’s quarterly losses of 2%. It was the only region not posting year-over-year gains, with a loss of 0.6%.

Home prices in the Northeast rose 2.3% over the last year. The South experienced a smaller price hike of 1.5% over the last year and during the quarter, an improvement over the annual growth of 0.9% shown in last month’s report.

The top 50 metro markets also posted gains in June, with the large majority of markets seeing quarterly gains and only seven seeing slides. Of those markets that posted losses, only four saw declines larger than 1%.

The report indicates more good news out of Phoenix, which has been showing consistent signs of strength for the past 10 months. Clear Capital reported quarterly growth of 8.7% in Phoenix with annual gains of 20.4%.

Seattle, where prices rose 8.4% over the quarter, could see prices rise 14.4% annually once final numbers of 2012 are in, while Phoenix prices could rise by 10.4% annually.

Atlanta is not positioned to do as well. It sustained the largest declines of all the MSAs. However, the anticipated losses of 3.2% seem mild in comparison to Atlanta’s total declines of 53.5% from peak prices in 2006.

jhuseman@housingwire.com
@JessicaHuseman

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Buffett Extends Real-Estate Bet With ResCap Pursuit: Mortgages

June 19, 2012 By Leave a Comment

By Noah Buhayar and Dakin Campbell - Jun 18, 2012 11:26 AM PM

Buffett Bets Big on Housing with $3.8B ResCap Bid

Warren Buffett, whose prediction last year of a housing recovery was premature, is raising his bet on a rebound with his $3.85 billion bid for a mortgage business and loan portfolio from bankrupt Residential Capital LLC.

Berkshire Hathaway Chairman Warren Buffett

Berkshire Hathaway Inc. Chairman Warren Buffett. Photographer: Andrew Harrer/Bloomberg

The offer “certainly indicates that he thinks the worst is behind us,” Jeff Matthews, author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett,” said in a phone interview. “Yes, he’s been wrong about housing before. But if you look at any credit metric, if you look at any of the banks and what’s happening in their loan portfolios, it’s getting better.”

Foreclosure filings in the U.S. have fallen on an annual basis for 20 straight months, according to RealtyTrac Inc., and home prices jumped 1.8 percent in March, the biggest monthly increase in at least two decades, as record-low mortgage ratesand a dwindling inventory of properties available for sale strengthened demand.

Buffett’s Berkshire Hathaway Inc. (BRK/A) has prepared for a turnaround by buying a brickmaker, expanding its real estate brokerage and wagering on commercial property through a company jointly owned with Leucadia National Corp. (LUK) The venture, called Berkadia Commercial Mortgage LLC, was formed from a loan- servicing and mortgage business purchased out of bankruptcy in 2009 and once owned by ResCap’s parent.

Berkshire was little changed today at $123,656 as of 2:15 p.m. in New York trading. It’s risen 7.8 percent this year.

Auction Approval

Ally Financial Inc. (ALLY), a Detroit-based auto lender majority owned by U.S. taxpayers, put its ResCap unit into bankruptcy last month to distance itself from the mortgage lenders’ losses and help repay its 2008 bailout following the U.S. housing crash and subsequent credit crisis.

U.S. Bankruptcy Court Judge Martin Glenn is considering approving auctions for the assets at a hearing today in Manhattan. Berkshire said in a June 11 court filing that it’s seeking to replaceFortress Investment Group LLC (FIG)’s Nationstar Mortgage Holdings Inc. as the stalking-horse, or initial, bidder at an auction for ResCap’s mortgage business. Berkshire has also proposed replacing Ally as the first bidder for the lender’s loan portfolio.

The billionaire’s Omaha, Nebraska-based firm, which is a ResCap bondholder, offered to match Fortress’s price of about $2.4 billion for the mortgage operations. It’s also proposing fees that are about $60 million lower than Nationstar’s if it’s outbid. Berkshire said it’s prepared to pay $1.45 billion for the loan portfolio, compared with Ally’s $1.4 billion for a sale outside the bankruptcy plan backed by the car lender.

‘Real Offer’

At the hearing today, Glenn asked ResCap’s lawyers to explain why an affiliate of Fortress deserves to be the lead bidder when Berkshire’s offer has a lower breakup fee. ResCap, Berkshire and Nationstar will return to court later today to argue about who should be named the first bidder for a court- supervised auction of ResCap’s mortgage-servicing unit.

The judge can either accept Nationstar as the stalking horse for the mortgage unit, name Berkshire in its place, or refuse to grant any company the protections, such as the breakup fee, that come with being the initial bidder.

Buffett has “come out with what appears to be a very real offer to buy the assets,” said John McKenna, a managing director at Miller Buckfire & Co., a New York-based financial advisory firm. “The court will ferret out whether it is a tactic or a legitimate interest in acquiring the assets.” A buyer can’t “just show up and feign interest in order to generate a better return.”

Stalking Horse

Nationstar said Berkshire’s request shouldn’t be granted because it may discourage potential investors in future bankruptcies from devoting the time and money required to be a stalking-horse, according to a June 14 court document. Susan Fitzpatrick, a ResCap spokeswoman, Fortress’s Gordon Runte and Ally’s Gina Proia declined to comment. Buffett didn’t respond to a request for comment sent to an assistant.

ResCap rejected Buffett’s offer to be the initial bidder and asked the court to approve the Nationstar and Ally proposal on June 14. Should Glenn approve ResCap’s plan, Berkshire still could bid in the auctions. It wouldn’t have the advantages given to the stalking horse, including any breakup fee.

The court will probably affirm Nationstar as the initial bidder for the mortgage assets, beginning a three-month auction process, Douglas Harter, a Credit Suisse Group AG analyst, wrote in a June 13 note after meeting with the firm’s management. He said he expects other bidders to emerge.

Funding Advantage

Acquiring ResCap’s mortgage business would give Berkshire contracts to service loans, a function Berkadia provides for commercial real-estate investors. It would also give Buffett another platform to originate mortgages, which his firm already does for buyers of its Clayton unit’s pre-fabricated homes.

Berkshire, which holds the second-highest credit rating from Standard & Poor’s, can access funding cheaper than almost any company in the U.S. It sold $750 million of five-year bonds paying a 1.6 percent coupon last month.

ResCap, once among the largest subprime mortgage originators, reduced its assets to $15.7 billion in the first quarter from more than $130 billion in 2006. The firm is the fifth-largest U.S. mortgage servicer, handling the billing and collections on about $369 billion mortgages in the first quarter, according to Inside Mortgage Finance, a trade journal.

Lenders Retreat

Some of the largest home lenders including Bank of America Corp. (BAC) have retreated from servicing and underwriting loans as new international rules designed to avert another financial crisis force banks to raise capital. That’s creating an opportunity for investors like Buffett to scoop up assets at discounted prices and benefit from the rebound in housing, said David Lykken, the managing partner of consultant Mortgage Banking Solutions.

Since the collapse of the housing market, investors have been asking, “When’s the time to catch this falling knife?” he said. If Berkshire wins the auction for the loan portfolio, the firm may be able to increase the assets’ value by modifying some of the mortgages, he said.

Buffett has said the real-estate market will rebound because a growing number of households will need properties while supply has dropped after builders retreated following the collapse. U.S. housing starts have plunged about two-thirds since 2006 and property prices are more than 35 percent below their peak that year.

Market Rebound

“Housing will come back — you can be sure of that,” Buffett wrote in a February letter to Berkshire shareholders. “Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while ‘doubling-up’ may be the initial reaction of some during a recession, living with in- laws can quickly lose its allure.”

Berkshire is the largest investor in Wells Fargo & Co. (WFC), the biggest U.S. home-loan originator, and has a preferred stake in Bank of America, the fourth-largest U.S. mortgage lender. Buffett’s firm also has subsidiaries that make carpet, building insulation and roofing materials. Its subsidiary Acme Brick Co. last year bought Montgomery, Alabama-based Jenkins Brick Co.

The HomeServices of America Inc. unit has struck deals to acquire real-estate brokerages inConnecticut, Oregon and the state of Washington this year on the expectation that home sales will rebound as banks liquidate seized properties after settling foreclosure-misconduct claims. The housing market is “starting to show a pulse,” HomeServices Chief Executive Officer Ron Peltier said in an April interview.

$1 Offer

Berkshire attempted to buy ResCap for $1 before the bankruptcy last month, the mortgage lender said in a June 14 court document. “Neither ResCap entering into bankruptcy nor a sale of ResCap’s mortgage production platform is in the best interests of Ally, the U.S. Treasury, Berkshire and other significant stakeholders in both Ally and ResCap,” Berkshire said in a May 3 letter, according to the filing.

Buffett’s firm proposed taking on ResCap’s potential liabilities, such as mounting litigation costs, according to three people familiar with the matter who requested anonymity because talks were private. Berkshire wanted to avoid a ResCap bankruptcy because it held unsecured debt, the people said. Ally rejected the proposal after deciding that a bankruptcy filing and sale better protected the company from future liabilities, the people said.

Debt Investments

Buffett’s firm invested in ResCap’s secured and unsecured bonds more than two years ago, according to a June 4 court filing, in which Berkshire called for a probe of the mortgage lender’s pre-bankruptcy deals. Prices for three of ResCap’s unsecured bonds climbed after the document was filed, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Two days later, Berkshire had sold its unsecured debt, which had a face value of more than $500 million, according to court documents. Berkshire said in a court filing it holds more than $900 million in ResCap’s junior secured bonds. ResCap’s 9.625 percent junior secured notes, which Berkshire’s General Re unit owned as of Dec. 31, added 0.3 cent to 95.3 cents on the dollar at 1:48 p.m. in New York, according to Trace. They’ve risen from 56.9 cents in November.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

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