Contracts on homes signed in August rose 5.2 percent over July instead of falling 1 percent, as forecast by 37 economists in a Bloomberg News survey. 

Pending sales are still 19.1 percent below July 2009 when the index was 98.1. The national index had fallen 29.9 percent in May and another 2.8 percent in June.  The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

“Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery,” said NAR’s Lawrence Yun. “But the recovery looks to be a long process. Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers. For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”

HUD Secretary Shaun Donovan created turmoil in the real estate industry when he said on CNN Sunday that a restoration of the homebuyer tax credit is “not off the table” and that it is “too soon to say” whether the administration’s credit tax credit, which expired April 30, will be revived.

Donovan’s remarks set off a fierce debate within the real estate industry. Despite the record-setting 27 percent fall in July home sales, the idea of bringing back the credit is surprisingly controversial among real estate professionals.  Opinion clearly has changed from the near-unanimous support the credit enjoyed when it was renewed and expanded in February.

Two Florida candidates for the Senate, appearing on the same show, immediately voiced their support for a new credit.

Donovan’s remarks set off a fierce debate within the real estate industry. Despite the record-setting 27 percent fall in July home sales, the idea of bringing back the credit is surprisingly controversial among real estate professionals.  Opinion clearly has changed from the near-unanimous support the credit enjoyed when it was renewed and expanded in February.

 ”I think this will create a Civil War,” said Realtor Dan Spera of York, Penn.  “They would almost have to make this retroactive to those that missed it over the past few months or it is going to be nasty out there.”

 ”I’ll go out on a limb and say there are many agents salivating at the thought of a revived tax credit, and I’d be shocked if the National Association of Realtors didn’t lobby, hard, for it,” said Jay Thonpson, author of the influential Phoenix Real Estate Guy blog. “Personally, I have yet to be convinced the home buyer tax credit did much to truly help a housing recovery. And I am completely convinced that buying a home just to score an $8,000 tax credit is a bad idea. A really bad idea.”

Ilyce Glink, author of the nationally syndicated Think Glink column, echoed the despair many real estate professionals feel as sales enter free fall.

“What does the U.S. housing market look like without all the life support provided by the federal government?” she wrote in a recent CBS Moneywatch column, A New Home Buyer Tax Credit? HUD Not Ruling It Out .  “A little too much like a corpse.”

Talk of another credit is causing sales to contract even more.

“In meetings and discussions op sales professionals and brokerage leadership over the past two weeks I have heard more than once that there is a sense that some of the decline in sales is due to buyers waiting to see whether there will be additional tax credits or stimulus coming from the Federal government.  And, as of this writing, while there is no evidence that such financial stimulus measures are in the offing, it is also likely that at least some buyers may be waiting for just that,” wrote Steve Murray in his influential Real Trends newsletter.
 

“It may be time for policy makers to declare whether any new tax credits or other targeted housing stimulus is in the offing and if not declare that as well.  Further while no one wants rates to increase in the near term it could well be that the threat of increasing rates in the future may stimulate some housing sales,” Murray said.

 Meanwhile HUD tried to limit the boss’s damage. “No news here,” a HUD spokesperson told CNBC yesterday.  “There are no discussions underway to revive the credit.”

But if August pending sales, which are due out Thursday, look anything like July’s disastrous existing home sales, the grass roots pressure for a political solution will surely escalate.  With just two months to go before a midterm congressional election, the future of the homebuyer tax credit may be decided in campaign speeches and voting booths, not the concrete-walled hallways of HUD.

Sales of existing homes in July dropped 27.2 percent in July to the lowest rate in 15 years.  U.S. new homes dropped in July to the lowest level on record, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating. Purchases fell 12 percent from June to an annual pace of 276,000, the weakest since the data began in 1963. 

Donovan said on CNN’s State of the Union show yesterday that it is “too soon to say” whether the administration’s $8,000 first-time homebuyer credit tax credit, which expired April 30, will be revived.

“All I can tell you is that we are watching very carefully,” Donovan said. “We’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”

After Donovan’s remarks, two out of the three Florida candidates for the Senate announced their support for reviving the tax credit.  On the same CNN show that Donovan appeared on, Republican-turned-independent Florida Gov. Charlie Crist said reviving the tax credit “would be a great lift” that “would stimulate the economy, it would increase home sales in Florida.”

“I think any time you can reduce taxation in order to spur the economy forward, that’s a good thing to do and that would be great to do. I would absolutely encourage the president to support that because it would certainly help my fellow Floridians,” Crist added.

One of Crist’s opponents, Democratic Rep. Kendrick Meek, agreed and said he “absolutely” wants to see the credit extended.

Many housing economists attribute the fact that consumers moved up their home purchases so that they could take advantage of the credit, leaving a dearth of buyers which contributed to unexpectedly low sales in subsequent months.

First-time homebuyers accounted for only 39.1 percent of the home purchase market last month, down from a peak of 48.2 percent as recently as March, according to the Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions.

In 2009, first-time buyers comprised an unprecedented 47 percent of the market, most likely due to the federal tax credit and historic affordability, according to the National Association of Realtors®’ 2009 Profile of Home Buyers and Sellers. In 2008, first-timers account for 41 percent of transactions. The previous high was 44 percent in 1991.

“The end of the tax credit has clearly had an effect,” stated Thomas Popik, research director for Campbell Surveys. “First-time homebuyer participation is continuing to drop. We expect a further decline in first-time homebuyer activity, perhaps reaching as low as 30-35 percent of the market by the fall months.”

With homeowners continuing to fall behind on their mortgages, and more distressed properties coming on the market, first-time homebuyers serve the function of soaking up this excess inventory. In contrast, purchases by current homeowners have little positive effect of the housing inventory, because they usually sell a house at the same time they are buying another.

Fewer first-time homebuyers in the housing market will likely put downward pressure on home prices in the late summer and fall. However, in the near-term, real estate agents reported stable prices overall for the month of July and rising prices for non-distressed properties.

“Once the ‘free’ money (from the federal tax credit) was over, the market began to die. The sales that would have normally taken place over the summer took place in March and April to get the money.  The residential market is dying-prices are gradually falling,” reported a real estate agent in Iowa.

“Non-distressed property pricing is rising too quickly. Anticipated REOs (foreclosed properties) coming on the market will impact this pricing by the end of September,” predicted another agent in Florida.

 Short sales remain one of the few bright spots in the residential housing market. Time on market for short sales continued to decline, from an average of 20.5 weeks in February to 15.8 weeks in July. Significantly, first-time homebuyers made up a healthy 46.4 percentof short sale purchasers last month.

The Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions surveys more than 3,000 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.

 The asterisk corrected the last scorecard on HAMP, which hugely misstated the rate that borrowers whose loans have been modified re-default on their loans when Treasury issued its June HAMP report on July 19.   Within a few days, Treasury officials acknowledged some errors were made. .  (See UPDATE: Treasury Backtracks on HAMP Re-defaults).  HAMP’s re-default rate is critically important because, in the final analysis, the program must keep the vast majority of its graduates from re-defaulting for at least 90 days after they receive a permanent modification program if it is to have any impact on foreclosure rates.

The new number for re-defaults of HAMP permanent modifications in place six months that are 60 days delinquent or more, is about 10 percent.  The default rate for over 90 days delinquent is about 6 percent.  The numbers released last month were 2 percent for loans six months old and 90 days or more delinquent and fewer than 3 percent of homeowners in permanent modifications in default. at nine months.

“There is no other way to say this: we’re being lied to. Willfully,” wrote Paul Jackson in Housing Wire.  “The only way to come up with a 1.7% re-default rate is to change how re-defaults are calculated. And that, dear readers, is precisely what our government did.”

Though twice as large as the original numbers, the new ones are still low and the differences may not seem critical but for two factors.  First, influential financial services analysts including Fitch Ratings predicted before the first numbers were released that re-defaults will be much, much higher?over 65 percent of HAMP borrowers.   Several, including Barclays Capital, challenged the first set of re-default numbers, setting off the controversy. Treasury’s backpedaling is cost it credibility and giving its critics ammunition.

 Equally unsettling were comments made by MITRE Corporation, the consultant hired by Treasury to clean up the mess, in its final report.

 ”Fannie Mae’s initial development of the Re-Default Table generation software may not have had the level of detail and clarity necessary to assure accurate coding. This needs to be verified in a formal cause analysis, said MTRE’s report.   ”The fact that errors were introduced into the original June 2010 Re-Default Table, and the highly visible nature of the information, it is clear that a more rigorous test/validation process for Re-Default Table generation should be implemented by Fannie Mae going forward.”

HAMP’s predecessor, Hope for Homeowners, and private sector modifications through the Hope Now program suffered large scale defaults that limited their effectiveness.  HAMP was designed to learn from their mistakes.   Monthly payments were reduced to 31 percent of household gross annual income.  Counseling was required for borrowers carrying too much consumer debt.  Secondary loans as well as primary mortgages were modified.  A three to five month trial period gave borrowers time to get accustomed to making their new mortgage payments on time.

Eighteen months and billions of dollars later, we won’t have long to wait to see if it worked.

In California, where both federal and state tax credits are available to some homebuyers, more than a quarter (27.8 percent) of markets tracked by Zillow saw increases in home values in the past year. Home values in five California markets have increased for the past five quarters, and four of those have increased by more than 5 percent since the second quarter of 2009.  Meanwhile, home values in Florida and Arizona continued to show dramatic declines, with home values in the Miami-Fort Lauderdale MSA falling 15.2 percent year-over-year and home values in the Phoenix MSA falling 11.8 percent.

“The double tax credits for some California homebuyers have certainly stimulated housing demand there and are partly responsible for the rapid - and likely unsustainable - rates of appreciation in many markets across the state. While there is some uncertainty about how home values will respond in those markets once all incentives are removed, it’s certain they can’t continue at their current rates of appreciation, but is unlikely they will re-test the low points reached in 2009,” said Zillow Chief Economist Dr. Stan Humphries.

“Nationally, home values are moving in the right direction as rates of decline continue to slow. There is a large unknown on the horizon, however, as these second quarter numbers are still heavily influenced by the federal homebuyer tax credits, which were available for homes under contract by the end of April. Home sales are declining significantly in the post-tax credits environment, but the impact of falling home sales on already-declining home values is yet to be seen. Recent trends in home values suggest the nation could reach a bottom in the latter half of 2010, but we continue to be cautious about the impact of declining home sales,” said Humphries.

Year-over-year price gains for the quarter were 8.1 percent, down from 8.8 percent reported last month, according to a report from Clear Capital, a provider of data and solutions for real estate asset valuation.

The percentage of bank-owned properties continued to drop nationally, falling to 22.7 percent-19.8 percentage points less than its peak in the first quarter of 2009. Amidst regional volatility, the West continues to see relatively stable quarterly price changes (2.7 percent through July) have ranged from -1.6 to 2.7 percent since the start of 2010.

Stability in the housing market has been elusive across the nation over the past few years, but amid this volatility the West has emerged with relatively stable home prices compared to the other three regions. The West’s quarterly appreciation has ranged from -1.6 to 2.7 percent since the start of 2010. In contrast, appreciation ranges in the Midwest (-9.4 percent to 14.7 percent) and South (-4.2 percent to 7.0 percent) regions represent more dramatic price swings during the same period, while the Northeast (-4.4 percent to 6.9 percent) still trails the West, but is becoming more stable.

Home prices in the Los Angeles MSA rebounded 13.2 percent from its market bottom one year ago. While this surpassed the 8.8 percent gains seen nationally for the same period, conditions varied widely across this large and diverse market.

“Home prices continue to show positive growth from the first quarter of the year,” said Dr. Alex Villacorta, Senior Statistician, Clear Capital. “This trend indicates that the initial upward momentum created by the tax credit expiration is being sustained.”

“While quarterly gains are showing strong momentum across the country, these recent price advancements are just the latest turn in a volatile housing market that has seen “W” shaped price trends over the last two years. An interesting exception to this pattern is the West region, which has seen a stable and sustained growth since the trough of the downturn in the first quarter of 2009,” added Villacorta. “Despite the up and down behavior of prices since the worst of the housing downturn, national prices are still up 13.6 percent, providing a cushion against potential future declines and the start of a double-dip.”

Clear Capital data is built on the most recent data available from recorder/assessor offices, and then further enhanced by adding the company’s proprietary market data for the most comprehensive geographic coverage available.

Another 25 percent preferred the idea of bulldozing a surplus number of mostly old and vacant homes to help markets recover from their record downturn. Sort of like plowing under the pigs, 21^st Century style.  Seventeen percent supported dropping interest rates further and eight percent would like to see the President appoint a “housing czar.”

In July the site called the Housing Predictor reported that more that about half of those who participated in its poll would like states to offer a $10,000 state tax credit to home buyers to make a purchase like California is doing to help overcome the downturn in its markets. But almost an identical number said that maybe tax credits weren’t such a great idea for states saddled with economic hard times amid dropping tax revenue collections.

In a poll earlier this year, 78 percent said the government should stay out of the foreclosure crisis.  By a 63-33 margin, voters in a current poll on the site say borrowers who walk away from a mortgage should be held responsible for their debts.

The U.S. Treasury and the Department of Housing and Urban Development Wednesday announced the launch of a nationwide public advertising campaign to increase awareness about the government’s Making Home Affordable Program.

“We want to do all we can to help make sure that struggling homeowners know about these free resources for help,” U.S. Treasury Secretary Timothy Geithner said in a statement accompanying the announcement.

The HAMP ad campaign was first announced in February by Phyllis R. Caldwell, Chief of the Treasury Homeownership Preservation Office.  The campaign is the product of the Ad Council, a not-for-profit coalition of advertising agencies better known for its efforts to promote health, public safety and communities.  The Council’s member agencies volunteer their creative time and efforts on behalf of public service clients. 

HAMP’s agency is the Kaplan Thaler Group, best known for creating the Aflac duck, Herbal Essences Totally Organic Experience,  Continental Airlines “Work Hard. Fly Right,” and Swiffer Sweeper campaigns. Its clients include U.S. Bank, one of the larger lenders participating in the HAMP program.

The campaign will feature PSAs on television, radio, outdoor signage, and the Internet, as well as flyers and other print promotional materials. The PSAs will feature real homeowners who have benefitted from the program, and they encourage homeowners that are struggling with their mortgage payments to visit www.MakingHomeAffordable.gov or call 1-888-995-HOPE (4673) to learn about their options, according to the Ad Council Web site.

The Ad Council will distribute the new PSAs to more than 33,000 media outlets nationwide, who will provide advertising space to the government program for free. The campaign includes television, radio, print, out of home and web advertising.

Fewer than 400,000 ongoing permanent modifications are now in place, some 17 months after the program was launched.  In his most recent quarterly report to Congress Neil Barofsky, the Special Treasury Department Inspector General to oversee the Troubled Assets Relief Program, said the Home Affordable Modification Program “continues to struggle to achieve its stated original objective.”

However, the first homeowners to complete the modification process successfully, are re-defaulting at much lower levels than predicted.  See Success of HAMP Loan Modifications Stuns Experts.

Word has reached us that the Treasury Department is reviewin the re-default numbers on modified mortgages it released last week after several observers questioned their accuracy.   

Shahien Nasiripour at the Huffington Post writes: 

The Obama administration has revised its latest monthly report on its signature foreclosure-prevention plan, deleting a heavily-criticized performance metric used to measure whether assisted homeowners are re-defaulting on their taxpayer-financed mortgages.
…
“Subsequent to releasing the report, Treasury received inquiries regarding the calculation methodology used in this table,” spokesman Mark Paustenbach said Tuesday. “These inquiries were related to the treatment of modifications that are cancelled from HAMP and ultimately become ineligible for TARP incentives after 90 days delinquency.

“In an effort to review and better explain the methodology, we learned from our program administrator, Fannie Mae, that not all cancelled loans were included in the underlying information provided to Treasury,” Paustenbach continued. “The error caused inconsistent reporting of permanent modifications during the snapshots reported. These omissions have impacted our previous analysis… with respect to the performance of HAMP permanent modifications.”
…
In place of the now-deleted table, in a revised report posted Monday to their FinancialStability.gov Web site, Treasury said:

“Since the Making Home Affordable report was posted on July 20th, Fannie Mae, which administers the program, has reported to Treasury an issue in its implementation of the delinquency statistic methodology used to report performance of permanent modifications. Fannie Mae is now revising the data, and Treasury has retained a third-party consultant to provide additional review and validation. Upon completion of that independent review, a revised table will be provided.”.

Below is our original story.  We’ll post a new one whem the new data is available.

Despite the difficult economy and high unemployment rates, the vast majority of homeowners who modified their mortgages under the Administration’s Housing Affordable Modification Program (HAMP) are staying current on their payments, surprising experts and far exceeding previous modification efforts.

According to the Treasury Department, nearly three million borrowers have received restructured mortgages since April 2009, outpacing the 1.24 million foreclosure completions for the same period. Through June, 389,198 borrowers have received permanent modifications of their mortgages, which reduce monthly payments for a five year period to a level easier for borrowers to afford.

For borrowers who have had their mortgages modified 90 days months or longer, the percentage unable to make their payments is extraordinarily low. For permanent modifications, the redefault rate for loans 90 or more days delinquent is fewer than 2 percent at the time they are six months old.  Fewer than 3 percent of homeowners in permanent modifications at nine months have defaulted on their HAMP-modified loans.

Redefault results on the HAMP program are still preliminary.  Fewer than 5000 borrowers have been paying their permanently modified mortgages for more than 90 days, but results to date far exceed

By contrast, the Office of the Comptroller of the Currency (OCC) estimates the redefault rate of mortgages modified by the nation’s 11 largest servicers - incorporating proprietary mod programs - at 57 percent.

Within six months of the launch of the Bush era program, at a time when the economy was in much better shape, Hope for Homeowners over half of all modified loans were 30 days or more delinquent and over a third were 60 days or more delinquent

Last month a Fitch Ratings report predicted that most borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months.  Between 65 percent and 75 percent of loans that are modified through the Home Affordable Modification Program but not backed by the federal government are likely to go bad, according to the report.

“Many of these borrowers still have very heavy levels of other debt,” said Diane Pendley, a Fitch managing director at the time.  “Auto loans, credit cards and other expenses. The HAMP modifications reduce housing expenses down to 31 percent of income but do not touch these other obligations.”

Unlike many previous efforts, HAMP modifications reduced principal as well as interests.  HAMP also included a three month trial period where borrowers must make modified payments on time.  To date, more borrowers have dropped out of the program during the trial period than have gone on to have their mortgages permanently modified.