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The Federal Reserve said this week that it “does not expect” to finalize three pending rule changes under Regulation Z of the Truth in Lending Act (TILA) that would have mandated new consumer disclosure requirements for closed-end mortgage loans, home equity lines of credit (HELOCs), and reverse mortgages.

The Fed began crafting the new regulations surrounding mortgage disclosures more than a year ago, in response to claims that borrowers did not understand the terms of the loans they were signing on to, which fueled the unchecked lending practices that put so many homeowners into unsustainable mortgages during the boom years and resulted in unprecedented delinquency numbers in the aftermath.

General rulemaking authority for TILA and federal jurisdiction over consumer protections, however, is scheduled to transfer to the newly created Consumer Financial Protection Bureau (CFPB) in July. Fed officials cited this mandate as the reason for their decision to hold off on finalizing their proposed rule changes.

The Mortgage Bankers Association (MBA) issued a statement voicing its approval of the Federal Reserve’s decision.

“It is wholly appropriate for the Fed to halt these rulemakings,” said John A. Courson, MBA’s president and CEO. “We agree with the board’s analysis that completing these rulemakings, then having the CFPB do its own rulemaking shortly thereafter, would not be in the public’s best interest. A series of unnecessarily duplicative rulemakings would have increased confusion, regulatory burden, and costs to the very consumers these rules should protect.”

The proposed rules were published as part of the Board’s comprehensive review of its mortgage lending regulations under TILA. The first phase of the review consisted of

The Fed had initially proposed two rule changes in August 2009, which would have reformed the consumer disclosures under TILA for closed-end mortgage loans and home equity lines of credit (Docket Nos. R-1366 and R-1367).

The third proposal was issued in September 2010 (Docket No. R-1390) and included changes to the disclosures consumers receive to explain their right to rescind certain loans and would have clarified the responsibilities of the creditor if a consumer exercises this rescission right.

The September 2010 proposal also included changes to the disclosures for reverse mortgages, proposed new disclosures for loan modifications, restrictions on certain advertising practices and sales practices for reverse mortgages, and changes to the disclosure obligations of loan servicers.

All of these pending regulation changes fell under the TILA umbrella and the Fed’s authority. Lenders must also comply with a second set of mortgage disclosure documents under the Real Estate Settlement Procedures Act (RESPA), which is overseen and enforced by HUD.

Authority over RESPA, however, will also transfer to the CFPB in July. The Dodd-Frank Reform Act requires that the CFPB issue a proposal within 18 months after the transfer date to combine, in a single form, the mortgage disclosures required by both TILA and RESPA.

“[A]ny new disclosures adopted by the [Fed] board would be subject to the CFPB’s further revision in carrying out its mandate to combine the TILA and RESPA disclosures,” the Federal Reserve acknowledged in its statement this week. “In addition, a combined TILA-RESPA disclosure rule could well be proposed by the CFPB before any new disclosure requirements issued by the board could be fully implemented.”

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The number of California homes going into foreclosure dropped during the fourth quarter of 2010 to its lowest level in more than three years.
 
According to San Diego-based DataQuick Information Systems, 69,799 Notices of Default (NoDs) were recorded during the three-month period, down 16.2 percent from the prior quarter and down 17.5 percent from the fourth quarter of 2009.

Last quarter’s activity was the lowest since second quarter 2007, the local tracking firm said.

“We don’t know how much of the decline is due to less household financial distress and how much is due to shifts in lender and servicer foreclosure policies,” said John Walsh, DataQuick president. “The level of default activity would certainly be higher if it weren’t for alternative strategies such as short sales or even lengthening grace periods.”

Walsh continued, “The institutions that hold these loans in their portfolios will do whatever it takes to lessen their losses, including waiting. An additional factor is all the turbulence when it comes to the formalities of the foreclosure process.”

California’s priciest ZIP codes saw mortgage defaults rise slightly quarter-to-quarter and fall less on a year-over-year basis than the overall market.

The state’s 82 ZIP codes with median sale prices of $800,000 or more in 2010 logged a 2 percent quarter-to-quarter increase in default notices and a 9.3 percent year-over-year decline.

ZIPs with 2010 medians of $200,000 or less saw fourth-quarter defaults drop 22.2 percent from the prior quarter and drop 19.5 percent from a year ago. But defaults still remain much higher in lower-cost areas.

Last quarter, ZIPs with medians of $200,000 or less collectively saw 11.3 default notices filed per 1,000 homes, compared with just 2.8 default notices filed per 1,000 homes in ZIPs with $800,000-plus medians and 8 filed per 1,000 homes for all ZIPs statewide.

According to DataQuick, mortgages were least likely to go into default in San Francisco, Marin, and San Mateo counties. The probability was highest in Madera, San Joaquin, and Stanislaus counties, which is consistent with the historical norm.

Foreclosure resales accounted for 37.5 percent of all California resale activity last quarter, up from 35.5 percent the prior quarter but down from 40.6 percent a year ago.

Of the 282,643 homes foreclosed on statewide in an 18-month period ending September 2010, about 77 percent were resold, DataQuick reports. A year ago, it was about 85 percent.

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Data released Monday by real estate Web site Trulia says even with the current state of the housing and financial market, it is still more affordable to buy a home than rent one.

Trulia’s latest Rent vs. Buy Index studied the 50 largest cities in the United States and found that it is more affordable to buy than to rent a two-bedroom home in 72 percent of the cities.

Based on the guidelines the company used to conduct the survey, only four cities – New York, Seattle, San Francisco, and Kansas City, Missouri – meet or exceed the price-to-rent ratio of 21 that means it is much more expensive to buy than rent in that area.

According to the survey, a price-to-rent ratio of 1-15 means owning a home in that city is much less expensive than renting, and a ratio of 16-20 means the costs of

homeownership exceed the cost of renting, but financially, it might still make sense to buy.

“Since the start of the ‘Great Recession,’ many former homeowners have flooded the rental market. Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets,” said Pete Flint, CEO and co-founder of Trulia.

He continued, “Though necessary for achieving true economic recovery, stricter bank lending practices have also further aggravated the struggling housing market in the short term. Even highly-qualified homebuyers face intense scrutiny on their income, savings, existing debt and credit history before they can get a mortgage loan.”

The San Francisco, California-based Trulia calculated the price-to-rent ratio using the median list price compared with the median rent on two bedroom apartments, condos, and townhomes listed on their Web site.

Cities that were most affordable to buy versus to rent included Miami, Las Vegas, Phoenix, and Fresno. Las Angeles, Oakland, and Portland were among those that fell in the 16-20 price-to-rent ratio.

“Although owning a home is relatively more affordable in most cities, market conditions have caused an interesting demographic swap between traditional renters and buyers,” said Tara-Nicholle Nelson, consumer educator for Trulia. “For example, lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of long-time homeowners are finding themselves tenants – some by choice and others by necessity.”

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In November, Texas representative Randy Neugebauer sent a letter to the Federal Housing Finance Agency (FHFA) requesting a report from Acting Director Edward DeMarco detailing how much taxpayer dollars are being spent on legal costs for former Fannie and Freddie executives.

A report released last week details just that, and the results are shocking. Currently the bill sits at a hefty $160 million and counting.

The New York Times reports that $132 million of the money went to defend Fannie Mae in government investigations and securities lawsuits.

In 2006, the office of Federal Housing Enterprise Oversight sued three of Fannie’s former executives, Franklin Raines, Timothy Howard, and Leanne Spencer, for more than $200 million, accusing them of manipulating profits and taking inappropriate bonuses. The executives settled, paying back $31.4 million all-together.

The newspaper reports that since then, taxpayers have spent $24.2 million defending those same executives in court.

Currently taxpayers own about 80 percent of Fannie Mae and Freddie Mac. The two GSEs own or guarantee more than 50 percent of the nation’s residential mortgages.

Adding to this disappointing news is a report from BLOOMBERG that says the much awaited report on the future of Fannie Mae and Freddie Mac, initially scheduled to be released later this month, will not be released until mid-February.

Distressed homes accounted for 36 percent of the market share in December, up from 33 percent in November.

A parallel NAR survey shows first-time buyers purchased 33 percent of homes in December, while investors accounted for 20 percent of the month’s transactions. All-cash sales were at 29 percent in December.

“All-cash sales have been consistently high at about 30 percent of the market over the past six months,” Yun said.

Total housing inventory at the end of last month fell 4.2 percent to 3.56 million existing homes available for sale, which represents an 8.1-month supply at the current sales pace, down from a 9.5-month supply in November.

Commenting on the latest existing-home sales numbers, Patrick Newport, U.S. economist for the research firm IHS Global Insight said, “This was a positive report across the board. All four regions posted double-digit gains. Inventory was down. Finally, first-time homebuyers began returning to the market.”

Newport continued, “At some point, the housing market will start to turn. We believe that it will start to improve this year (but that the recovery will be a long one). December’s unexpectedly strong existing home sales numbers may be an early sign that the recovery may have begun.”

Homeowners select to play one of the residents and, as their stories unfold, make important financial decisions for them and see how the consequences of these decisions play out. Fannie Mae provides helpful tips, tools, and links during the process, and users have the ability to go back and revise their decisions should their choices lead to a negative outcome.

Through video reenactment, WaysHome allows homeowners to experience scenarios that address a range of options for averting foreclosure that include repayment plans, forbearances, modifications, deeds-in-lieu, and short sales, with the ultimate goal of empowering borrowers to find the right housing solution for their situation.

In an effort to connect with homeowners who have not yet reached out for help, Fannie Mae will be promoting WaysHome on its corporate Web site, through the KnowYourOptions consumer Web site, and at a series of events in partnership with local faith-based organizations, non-profits, and industry groups in metro regions. Collateral materials and Web site content will be made available at no cost through Fannie Mae’s mortgage servicing and community partners.

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Keeping you informed about the Orange County real estate market, economy and life in the OC is what I'm committed to doing.

For more great Orange County market insight and industry news visit Laguna Niguel Real Estate or view the Orange County Market Trends at Orange County Real Estate.

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