TheMReport

On the Attack: The GSEs Under Siege

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link: http://digital.themreport.com/i/409279

Contents of this Issue

Navigation

Page 39 of 67

38 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING the latest report: Home Prices 3% Undervalued nationally Bubble fears are unfounded at this point. d espite inching closing to the tipping point, home prices still haven't reached a stage where fears of a bubble are justified, says Trulia. The company recently released its third-quarter Bubble Watch report, which measures whether home prices are over- or under- valued relative to their funda- mental value. Comparing current movements to long-term trends, the report suggests home prices nationally remain 3 percent undervalued, a step up from 5 percent in the second quarter. During the housing bubble of the last decade, house prices surged to 34 percent overvalu- ation at their peak (in Q1 2006) before diving to 13 percent undervaluation in their trough (Q1 2012). As of the third quarter, seven of the nation's top 100 markets were more than 10 percent over- valued, five of which are located in the inventory-starved state of California. The top overvalued market at the moment is Austin (19 percent overvalued), which— like most Texas metros—avoided the worst of the crash and has actually bounced back higher than it was in 2006. On the other hand, while a number of California's major markets—Los Angeles, Orange County, San Francisco, Riverside- San Bernardino, San Jose, and Oakland—are high on the list of overvalued metros, they're all still well short of the peaks they hit during the last bubble. What's more, a scatterplot measure of annual price changes (as of August) suggests little rela- tionship between the most over- valued markets and the markets where prices are rising fastest—a positive sign, says Trulia Chief Economist Jed Kolko. "Price gains in overvalued markets are a sign that we're headed for danger, while price gains in undervalued markets are probably just a sign of getting back toward normal," he said. He concluded: "All this means that bubbles should not be our top housing worry today. Our latest Housing Barometer shows that weak construction and subpar young-adult employment are the recovery's big red flags. By contrast, prices are slowing to a sustainable pace and stay- ing within striking distance of normal." chase claims $868m in consumer relief credit Credited relief must reach $4 billion by 2017. J PMorgan Chase reports it has completed nearly a quarter of its consumer relief obligations required under a landmark mortgage-backed securities (MBS) settlement last year. According to a report issued by the settlement's monitor, Joseph Smith Jr., the megabank expects to be credited for more than $862 million it provided through various borrower relief measures in the second quarter. Adding in an initial sampling of loans Chase submitted to review its credited relief calculations, the bank claims it has doled out more than $868 million in relief through various means. While the 100-loan sample was validated in July, the second- quarter addition has yet to be approved by Smith's team, the monitor said. "Chase will not receive credit under the settlement until I am satisfied it has met its obliga- tions," Smith said. "Therefore, it would be premature to apply the $862 million in new relief." Under the terms of last year's $13 billion settlement, Chase is required to provide $4 billion in credited relief through loan modifications, rate reductions, low- to moderate-income lending, and other programs by the end of 2017. The settlement stemmed from accusations that Bear Stearns and Washington Mutual, both of which were acquired by Chase in 2008, misled investors to sell faulty MBS before the financial crisis. Chase is one of a small number of banks that have struck multibillion-dollar agreements to resolve residential MBS claims, having been joined recently by Citi and Bank of America. Going by gross calculations, the bank's internal review group says it has aided more than 46,400 borrowers in initiatives totaling a principal amount of $7.6 billion. Just in the second quarter, that figure includes loan modifications granted to nearly 7,000 borrowers and 39,500 loans granted to low- and moderate- income consumers. Under the terms of the settle- ment, Chase receives credit in varying amounts based on how it focuses its consumer relief ef- forts. For example, for principal forgiveness granted on first- and second-lien loans, the bank re- ceives $1 of credit for each dollar forgiven on loans held for invest- ment. For each dollar forgiven on loans serviced for others, only 50 cents of credit is given. "Chase will not receive credit under the settlement until I am satisfied it has met its obligations." —Joseph Smith Jr.

Articles in this issue

Archives of this issue

view archives of TheMReport - On the Attack: The GSEs Under Siege