Hidden and not so hidden trends, conclusions and questions from the 2011 full year mortgage and deed recording data:

• Lenders with a local presence and local employees continue to dominate our market. Take that dot com lender! Page 4.
• Indiana University Credit Union and German American were the most active residential and business lenders, respectively. Page 3.
• Record low mortgage interest rates resulted in the smallest number of recorded mortgages between $50 and $500 in the last seven years (and probably since the mid-1990’s). Something else must be holding back the market, Mr. & Ms. Regulator. Chart Page 14.
• The number of recorded deeds representing a transaction was almost identical to 2010. Does this indicate a market bottom? Chart Page 14.
• Possibly. But the number of sales disclosures marked as the Buyer’s Primary Residence was down considerably. Again despite record low mortgage interest rates. Chart Page 16.
• Sales NOT marked as the Buyer’s Primary Residence increased last year. Indicative of more investor activity? Chart Page 17.
• Foreclosures continue to decline. Good for our community and for housing price stability. Charts Pages 18 and 19.

And on the national front it seems to me that positive stories about real estate are out numbering the negative stories by as wide a margin as I can remember in the last five years. Let’s hope these are self fulfilling prophecies!

Have a great and successful 2012!

~John Bethell

“All objects lose by too familiar a view.”
~ John Dryden

Sometimes you’re so close to something that you forget that not everything is obvious. Recently I was asked some questions about the data in our report, what it means and where it comes from. So I thought that I’d start the New Year with an explanation.

The Mortgage Market Share Report has been published monthly by John Bethell Title Company, Inc. and its predecessor All American Title, Inc. since 1996. The report is a summary of the total mortgages recorded in Monroe County for the month and for the year to date. Both the number of mortgages and the aggregate stated original loan amounts are tracked by lender.

At the end of each quarter the report also includes data presented to give a more complete understanding of the real estate market in Monroe County. Historical trends, total sale transactions, the breakdown of primary residential sales by price, new foreclosures started and recorded Sheriff’s deeds are included.

The data comes from our proprietary in-house property records data base. This data base is an index to every real estate related document recorded in the Monroe County Recorder’s office and the Clerk of Courts’ office. The data base is updated daily as documents are placed of record in the county offices. The primary use of the data base is to enhance the speed and accuracy of the title work that we perform for our clients. The statistical information is a useful by-product. The sale data is supplemented by Indiana Sales Disclosure information maintained by the State Department of Local Government Finance.

One of my resolutions for 2012 is to improve the timeliness of the report by a week to ten days. Wish me luck!

~John Bethell

“Mommy! Make Them Stop!”

Many things to be keeping an eye on these days . . .

The new Consumer Finance Protection Bureau (CFPB) is testing forms. We’ve seen a number of versions of a combined Good Faith Estimate and Truth in Lending disclosure. In November, we saw a combined Settlement Statement (f/k/a HUD-1) and Truth in Lending disclosure. In the name of simplification this new form if adopted will have morphed into six pages. Six pages are simpler than two. Seriously? What’s most disturbing is that the CFPB is promulgating the forms before they’ve promulgated the rules that the forms are supposed to implement. And they’re hoping for a July 1 2012 effective date. Oh joy.

The National Association of Insurance Commissioners (NAIC) is developing a statistical reporting system for title agents. The NAIC hopes that by gathering specifics about the transactions title agents insure, they can develop a better understanding of the title industry and how best to regulate it. It’s unclear at this stage what increased administrative burden will be created by this initiative.

Beginning January 1, 2012, the RREAL Licensing Data base that closing agents report to will be expanded to include all residential transactions. Not just transactions involving a first mortgage. Based upon our own book of business this requirement will result in our having to report about twenty five percent more transactions.

On a more positive note, Fannie and Freddie have revised their standards for the Home Affordable Refinance Program (HARP). Estimates are that between one and two million additional borrowers may qualify under this revamped program. I’m hoping that it’s all of that and more. The new standards ease appraisal rules for borrowers with negative loan to value ratios. This change makes it easier for responsible homeowners to qualify for a refinance as long as they are current with the payments on their existing loan. In my opinion, this reform is a long overdue.

Our company goal at the beginning of this year was just to try and get better at what we do and minimize change. As the year progressed we were able to take advantage of several unexpected opportunities to grow significantly and improve our company. We couldn’t have done this without our client’s support and encouragement. For this we are truly thankful. Have a great holiday season. You deserve it!

~John Bethell

It’s like Déjà Vu all over again!

~ Yogi Berra

I certainly didn’t see this coming. A couple of months ago I wrote here that I was optimistic that we’d get a modest increase in refinances to help soften the effect of the expiration of the homebuyer tax credits. Well it turns out that new orders for refinances are at levels not seen since the glory days of refinancing in 2002-2003. Not that I’m complaining.

For almost a year now, the mortgage market has been slogging along at ten year lows. Check out the charts for mortgage originations in 2004. We’re probably headed towards those numbers in the next few months. And unlike prior periods of “interest rates will never be this low again”, our clients tell us that most refinances are being locked at application. Few are floating the rate hoping for that extra one eighth of a percent.

The purchase market is a different story. The three quarter streak of positive comparisons year over year will in all likelihood come to an end. (sale transaction chart, page 14) I’m fairly certain that the homebuyer tax credits for the most part only accelerated transactions into the second quarter (primary residence sales chart, page 15) and did little to bring new buyers into the market.

The tsunami of refinancing is happening all over the country. In the past these extraordinary periods usually last from six to twelve weeks. So I expect the remainder of the year to be filled with activity. After the applications slow, closing the deals will consume our time. Hopefully enough people will save enough money to help the consumer side of the national economy.

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Finally, excuse a bit of shameless self promotion. Our in-house property records data base, from which most of the attached data is gleaned, allows us to complete the title insurance commitment for most refinances without having to spend much time at the court house. Even though we’re extremely busy our dedicated title group is meeting a very respectable three to four days turnaround time. Only when a title issue that needs more research is discovered do things take a bit longer. Our expanded closing facilities at the World Headquarters and our crack team of closing professionals will effectively deal with the inevitable rescheduling and closing delays that are now unfortunately too much a part of getting deals done.

We take pride in providing a consistent level of excellent service in all types of market environments. Thank you for your continued support. We truly appreciate it!

~John Bethell

The definition of insanity is doing the same thing over and over and expecting different results. ~ Benjamin Franklin

Monroe County mortgage originations in May continued at ten year low levels. The national media reports that despite a few signs of improvement, foreclosures continue to be a problem and the housing market is in danger of slipping back into a downturn. Credit is hard to come by unless you don’t need any. Mortgage fraud continues to make headlines. After several years of living through the mortgage crisis, what’s really different?

Well, for starters, there’s a lot more regulatory overhead. I don’t need to tell you that. But for all the new rules and procedures, there’s one characteristic of the mid‐2000’s mortgage boom that hasn’t changed. That would be absentee lending―loans both originated and funded by persons and entities with no physical presence in the community. In fact, the increasing use of the Internet is probably accelerating the growth of this mortgage distribution channel.

Is anyone surprised that many problem and fraudulent loans were originated and processed by community outsiders without local concern or knowledge of the viability of the transaction or the parties involved? Think about it. The originator is in a call center cube farm in California. The appraiser is from Muncie and her name is drawn from a hat by a vendor manager in Pennsylvania. The lender is in North Carolina and the investor is on Wall Street. The title and closing agent is in Florida and the notary signing agent drove one hundred miles to meet the borrower at the north side McDonald’s. Is it any wonder then that no one can smell out an otherwise fishy deal? Fortunately, the incident of fraud in Bloomington is minimal. But up the road in Indianapolis, it’s all too prevalent.

Maybe the mortgage business futurists are correct. Someday all mortgages will be originated without a local connection. I just don’t see it happening; especially with pending regulations requiring the originator to retain some of the lender’s risk. The long terms costs (both actual and lost opportunity) of managing risk coupled with defaults and fraud will, in my opinion, exceed any short term benefit of economies of scale this form of distribution brings to the originating process. Some absentee lenders and their service providers will continue tweaking this business model in hopes of achieving a different result.

That’s insanity!

~John Bethell

“We demand rigidly defined areas of doubt and uncertainty!”

~ Doug Adams

Trying to figure out what’s in store the next few months for the local mortgage finance industry? Good luck with that! The only certainty is conflicting influences. The spring home purchase market is stronger but will it be offset by expiring federal homebuyer tax credits? A return to fifty-year low mortgage interest rates in the face of the Federal Reserve discontinuing its purchasing of mortgage backed securities? How does that happen? And let’s not forget that many mortgage borrowers who could benefit from refinancing no longer qualify for new loans due to more restrictive underwriting guidelines.

The purchase market through April (as measured by recorded deeds) improved by about thirty-three percent over the same four months of 2009―508 versus 382 last year. But that is well short of the 672 deeds in 2008. And we thought 2008 was weak! The federal homebuyer tax credits certainly accelerated home buying. There’s little evidence though that the credits actually increased the number of buyers in the market. The Mortgage Bankers Association reported that new purchase applications fell to their lowest weekly level in thirteen years just two weeks following the tax credit April 30th deadline. In our own shop, we have very few purchase orders in the pipeline with post June 30th closing dates. Let’s hope that all we experience is a mere slowdown and not a grinding halt.

Mortgage interest rates for 30-year fixed rate loans are returning yet again to sub-five percent levels. This contradicts all the conventional wisdom earlier this year. Most experts thought that rates would increase once the Federal Reserve got out of investing in mortgage backed securities. I’m guessing we can thank the European debt crisis for them actually declining. Somehow though, the phrase “flight to quality” doesn’t have the same ring to it as in years past, does it?

According to the Wall Street Journal® this week, larger markets are already seeing an increase in refinancing. Maybe we will too? Unfortunately there are still many borrowers diligently making their monthly payments on their mortgages at higher interest rates. These borrowers are not able to benefit from refinancing because they no longer qualify for the mortgage they have. Their equity is not enough, their credit score is no longer satisfactory, or their property will no longer appraise. This reality is clearly evidenced in the ten year low of local mortgage originations so far this year. There appears no solution. Fear of making a bad loan is stronger today than the benefits of making a good loan.

The market could turn in a lot of ways. I won’t be surprised to see purchase activity slow down significantly until people realize that even without a tax credit, low rates make it a great time to buy. I’m optimistic that refinancing will increase some.

The only thing that I’m sure of though is that I’m not sure of anything.

.

Never mistake activity for achievement.” ~ John Wooden
In  the  real  estate  finance  business  there’s  still  a  disproportionate  amount  of  energy  being  expended relative to the number of loans being made. Of that I’m certain after looking at the first quarter numbers. Our historical barometer, mortgages with a stated amount between $50K  and $500K, was only marginally better than 2008’s dreary fourth quarter. In fact the totals are  the  smallest  first  quarter  in  the  last  ten  years.  Yet  due  to  new  compliance  and  regulatory  overhead, we all feel like we’re treading water.

As far as the federal homebuyer tax credits are concerned, there’s no evidence yet that they’re  actually bringing more buyers into our market. A closer look at the sales disclosures filed with  the  State  of  Indiana  Department  of  Local  Government  Finance  in  the  first  quarter  of  2010  is  enlightening. Surprisingly to me, the number of disclosures that designated the property as the buyer’s new residence is almost identical to the number filed as such in the first quarter of 2009.
(see chart)

Encouraging  though  is  that  the  trend  of  new  foreclosures  being  started  in  Monroe  County continues  to  decline.  Eventually  that  will  be  reflected  in  a  smaller  number  of  homes  lost  at sheriff’s sale. As the overall real estate market improves, more foreclosure victims will be able to sell out of their troubles.

The biggest drag on the market seems to be in the higher price ranges. I included a chart this month  of  mortgages  with  a  stated  amount  between  $417,001  (the  confirming  loan  limit)  and $1,500,000. Several years ago these “jumbo” loans were the darling of mortgage investors. Post financial crisis though, there’s been very little money available in this market segment. Although
not great in Monroe County’s overall numbers, this lack of availability is sitting like an anvil on the entire top half of the market. It prevents move up buyers from financing purchases and is significantly responsible for the current over abundance of home choices in upper price ranges.

The  homebuyer  tax  credits  are  expiring  and  the  Fed  is  no  longer  purchasing  mortgage  backed securities.  The  second  quarter  will  be  very  telling.  I’ll  be  watching  closely  to  see  the  effects
locally  on  the  number  of  transactions.  Hopefully  recent  optimism  will  be  fulfilled  and  the problem areas of the market may ease.

~John Bethell

“Bureaucracy defends the status quo long past the time when the quo has lost its status.”
~ Laurence J. Peter

Thank you regulators! This month’s commentary is dedicated to all the fine state and federal regulatory agencies whose actions kept me from worrying about a decline in the mortgage market the first two months of this year.

Comparing the first two months of 2010 to the same period of 2009 is surprising. Dollar volume of mortgages with a stated loan amount between $50,000 and $500,000 (mortgages that typically represent first mortgages) declined a whopping 46 percent from $123 million to $66 million. That’s significant. In fact,it’s the slowest first two months since the year 2000 when only $50 million in mortgages were originated.
(see charts)

Yes, the bureaucrats made sure that I was busy, even if the market was off.  If the mental energy expended on compliance issues could be harnessed, the U.S. Defense Advanced Research Projects Agency would not
need a LOTS of Energy program.

Had it not been for the regulators, I’d be sweating bullets worrying about silly little inconveniences like payroll and rent. So instead of begging my employees to bring back office supplies from home, I’m trying to
understand and explain new RESPA rules and learn the new software acquired to comply with them. Closing statements are being done twice—one way for RESPA and then another way for Truth‐In‐Lending.

The Title Insurance Division (that’s the TIEFF fee funded regulator) of the Indiana Department of Insurance is weighing in on a myriad of customary title industry practices. Clair Voyant, our vice‐president of things we don’t know, is busily staring into her crystal balls trying to predict what’s coming from that direction.

The names and license numbers of all the professionals that do work on each residential file that we close must now be entered into a temperamental online state licensing data base (INREAL). It’s supposed to
eliminate mortgage fraud. We’ll see.

Who’d have thought that I should be worried about the market! So here’s a big shout out to the regulators. Thanks so much for the distractions!

~John Bethell

“Any change, even a change for the better, is always accompanied by drawbacks and discomforts.” ~ Arnold Bennett

Many of us are directing an enormous amount of energy towards understanding and complying with the new RESPA rule changes. The new rule is over 100 pages long. The Department of Housing and Urban Development, the RESPA regulator, has issued about 60 additional pages of questions and answers in an attempt to help us. We understand the new rule better than we did six months ago. Even so a lot of uncertainty exists. Further clarification by HUD is needed.

I’ve followed RESPA implementation through on line resources and by attending seminars with a regional or national make up. I’ve talked with colleagues from around the country. The clamor from both sides of the closing table that the sky is falling is loud and often repeated in many markets. I guess when you do something one way since 1974 this reaction to change is not surprising.

In Bloomington, the lenders we deal with have taken a contrary and refreshing approach to RESPA. They’re not worrying about what they don’t like about the changes. They are successfully focused on serving their clients while balancing the competing interests of RESPA and Truth in Lending. My personal observation of the process with our closings is that lenders are striking a good balance. So congratulations to all our lender clients! Finding ways to work with the new rules will win you business and set you apart. We appreciate the opportunity to work closely with you to help develop procedures that allow us to meet the needs of parties in the transaction.

~ John Bethell