Tag Archives: Federal Housing Finance Agency

Comparing the Minnesota Home Price Index to Inflation, are we at the bottom? Case Shiller, FHFA, and CPI


I pulled some stats from the St Louis Federal Reserve to see how real estate performs with inflation over time.  The result of this is not what I was expecting.  I wanted to show that home prices pace inflation proving it is a nice hedge against inflation.  That is true, however what I discovered is a little more interesting.

click to enlarge

The blue line is CPI, Core Inflation while the Red Line is FHFA’s Minnesota Home Price Index.  Up until the mid 1990’s the home price index tracked just above the CPI, just like I expected.  What I couldn’t help noticing is this Giant Bubble…  Home Prices are still approx 17% apart as of April 2011 (the latest Home Price Index on this chart).  We have dropped even closer since, so our spread is probably closer to 10% now, within negotiating terms.  Sellers are receiving approx 92% of their asking price now.  We are fairly close to the bottom when you look at it in those terms,  within 10% assuming the market doesn’t over-correct…

Going forward I believe we are going to see high inflation like we did in the later 1970’s and early 1980’s, probably more so.  (see Monetary Base chart from earlier post).   If inflation kicks in and home prices find their equilibrium with CPI again, the future may look something below (maybe with a few more peaks and valleys..):

Just a Guess at the Future

Interestingly enough, I spent some time downloading the CPI into excel and running that up against Case Shiller’s Index.  These are indexed at different reference points, so we are only really trying to gauge the separation between them not the actual index value.  The Case Shiller Index suggests to me that we are at bottom when compared to CPI, or at least very close to.  The Minneapolis Case Shiller Index is updated as of July 2011, probably more accurate than April 2011 from the FHFA Home Price Index…

What’s your prediction?  Care to take a guess?  Do you think we will over-correct first?  It is still anyone’s guess at this point…

Inventory has come down, rates are record lows, affordability all time high, rents increasing…  the only thing missing is jobs.

Advertisements

2 Comments

Filed under Uncategorized

FHFA Lawsuit against Banks, Update


Seal of the United States Federal Housing Fina...

Image via Wikipedia

I am not sure where this lawsuit is going yet, I don’t understand what can be gained by it other than politically.  At the same time, I’m not sure that FHFA doesn’t have a case. 

It seems counter-intuitive to me to spend billions of dollars to bail out banks only to turn around and sue them putting them back into the same position again.  Wouldn’t it have been easier just to let them fail?  Would have saved everyone a lot of money, and with the same net result…

Basically FHFA is claiming that many of the loans in the security bonds sold by these banks were misrepresenting what was contained in the securities; summarized in 2 categories.  Category 1, LTV ratios and Category 2, Owner Occupant Status.   It seems to me the later one is probably more related to the borrower than the bank that originated the loan as far as “fraud” is concerned…  I wonder if FHFA will expand this to go after the borrowers that stated they were owner-occupying they weren’t?

I suspect this will get brushed aside with a settlement and slap on the wrist…  But in the mean time, here is some information on FHFA’s claim against the banks. (read full article from HousingWire)

Major banks and others acquired during the financial crisis allegedly misrepresented the owner occupancy and loan-to-value ratios by sometimes as many as 50 percentage points or more on securities sold to Fannie Maeand Freddie Mac, according to the lawsuits the Federal Housing Finance Agency filed last week….

…It looked at whether or not the borrower’s tax bill was sent to the property’s address or a different one, whether the borrower claimed a tax exemption or whether the mailing address of the property was reflected in credit reports, tax or lien records.

On one securitization underwritten by JPMorgan Chase (JPM: 33.44 -3.44%), owners did not occupy 2.5% of the underlying properties, according to the prospectus given to investors. After conducting the test, the FHFA found this number to be at 14.6%, more than five times the amount disclosed to investors.

“The data analysis revealed that for each securitization, the prospectus supplement misrepresented the percentage of non-owner occupied properties,” according to the lawsuits.

The FHFA also conducted retroactive automated valuation models to determine the value of the properties at the time the mortgages were originated. This was done to uncover any possible faulty loan-to-value ratios.

The prospectus for one security issued in 2007 underwritten by Bank of America (BAC: 6.99 -3.59%) stated all of the loans held a LTV ratio of less than 100%. According to the FHFA analysis, more than 8.8% of the loans in the security actually held LTVs above 100%. Another security issued by Countrywide Financial Corp. showed 27% of the loans held LTVs higher than 100%, according to the analysis, as opposed to none.

3 Comments

Filed under Uncategorized

Federal Housing Financing Agency (FHFA) Sues Banks over Mortgage Backed Securities


Seal of the United States Federal Housing Fina...

Image via Wikipedia

It is news like this that makes it near impossible to predict the market correction.  Depending on what happens here, it could either mean the mortgage business gets cleaned up or that it will shut all mortgage lending down – thus sending us into further housing slump…  Or it could just be a blip on the radar and not have any real impact.

We just spent Billions on bailing these banks now, now our Government is suing them?  Will we then need to bail these banks out after the lawsuit??  I don’t get it…

We are in uncharted waters here and I am not sure how this will play out…  I’ve got a gut feeling this is not going to help anyone out.  If we are not careful through this mess, we are heading in the direction where the only way you can get a mortgage is if the Government grants you one. (technically you give the mortgage lien on the property and receive the money or the note…)

The Federal Housing Finance Agency is ready to file suit against the nation’s largest banks, accusing the financial institutions of misrepresenting the quality of mortgage backed-securities sold in the run-up to the 2008 financial meltdown, The New York Times reported Thursday.

According to the article, the FHFA lawsuits will target Bank of America (BAC: 7.33 -7.33%), JPMorgan Chase (JPM: 34.92 -3.80%), Goldman Sachs (GS: 106.69 -4.88%) andDeutsche Bank (DB: 37.00 -4.15%) among other large MBS players.

Read Full Article from HousingWire

UPDATE:

The FHFA alleges these institutions, their executives and some lead underwriters violated federal securities laws, violated common law, failed to conduct proper due diligence and provided allegedly false information when selling these products.

What the FHFA seeks in recovery will not equal what the GSEs paid for the MBS sold. However, in each suit, the FHFA disclosed how much Fannie and Freddie bought from each particular bank and subsidiary in the case of BofA.

  • JPMorgan Chase: $33 billion
  • RBS: $30.4 billion
  • Countrywide: $26.6 billion
  • Merrill Lynch: $24.8 billion
  • Deutsche Bank: $14.2 billion
  • Credit Suisse: $14.1 billion
  • Goldman: $11.1 billion
  • Morgan Stanley: $10.5 billion
  • HSBC: $6.2 billion
  • Bank of America: $6 billion
  • BarCap: $4.9 billion
  • Citi: $3.5 billion
  • Nomura: $2 billion
  • Société Générale: $1.3 billion
  • First Horizon: $883 million

2 Comments

Filed under Uncategorized

Federal Housing Financing Agency: MN Home Price Index 8-24-2011


We have several Home Price Index’s to watch, all tracking the same thing.  Case Shiller Index is my preferred one to watch, mainly because of S&P Moody’s reputation for accuracy.

The FHFA (Federal Housing Financing Agency) released their Home Price Index yesterday for Minnesota.  Seems in line with Case Shiller’s Index.  The big difference with this one is that Q1 1980 = 100 for the Index.

 

FHFA MN Home Price Index 8-24-2011

Leave a comment

Filed under Uncategorized