Sue Kirchhoff and Noelle Knox
USA Today

WASHINGTON — The Federal Reserve, criticized for standing aside as risky subprime mortgage lending soared then crashed, did an about-face Tuesday by proposing sweeping new consumer protections.

The Fed proposals would cover tens of thousands of banks and non-bank lenders, mortgage brokers and mortgage-servicing companies. They would rein in the dicey policies of some lenders, such as approving “no-document” loans based on stated income and penalizing borrowers who repay loans early.

Such loose standards led to surging foreclosures, forced scores of subprime lenders out of business, threw the housing market into recession and sparked a credit crunch as financial firms that bought bonds backed by the loans were stuck with sour investments.

But the proposals go well beyond the 20% of the mortgage market that is subprime, loosely defined as higher-cost loans to borrowers with poor credit. The Fed would tighten rules covering advertising, servicing and appraisals for conventional mortgages, too, affecting all home buyers.

“I can’t think of a time when the Fed took sweeping action like this in the consumer-protection area without some specific mandate from Congress,” said Robert Lawless, a law professor at the University of Illinois who specializes in bankruptcy and consumer credit.

Consumer groups, which have pushed the Fed and other regulators for years to take a tougher line, generally said the rules fell short and expressed concern that business groups would embrace the Fed plan as a way to head off tougher proposals by Democrats.

“I don’t think (this) gets anybody off the hook from having to pass stronger legislation,” said Janis Bowdler, senior housing analyst for the National Council of La Raza, a Hispanic advocacy group.

Still, the mortgage industry wasn’t happy, either.

“We are concerned … that some of the restrictions in the proposals may unnecessarily limit the credit options available to borrowers,” said Kieran Quinn, chairman of the Mortgage Bankers Association.

The Fed rules are notable for both what they do and don’t do. They won’t help people now stuck in mortgages they can’t afford. They don’t untangle a confusing web of state and federal regulations. Enforcement would be run by an alphabet soup of agencies.

The Fed said it lacked authority to address such issues as the licensing of mortgage brokers or whether Wall Street firms that repackage mortgages into securities should be held liable for fraudulent loans.

But the rules would provide national consumer protections. And they’d ensure minimum standards if Congress failed to pass more comprehensive rules.

The move could also make the conservative Fed more receptive to broader regulation in the future. Fed Governor Randall Kroszner, who took the lead in drafting the rules, said he hoped the rules would preserve credit for lower-income borrowers.

The action underscores that the Fed, though slow to perceive the threat to subprime loans, has become one of the only federal entities able and willing to act.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, who criticized the Fed for limiting but not ending prepayment penalties and doing too little to stop brokers from steering people to high-cost loans, has moved a raft of housing bills.

But the measures have stalled in the Senate. Congress has yet to clear a bill to help borrowers refinance into Federal Housing Administration loans, despite months of effort. So unsettled is the political atmosphere that former Fed chairman Alan Greenspan has gone further than many Democrats by suggesting that Congress provide direct financial aid to homeowners. Greenspan, lionized while at the Fed, has been forced to defend himself in TV and print interviews for not having done more to regulate mortgage lending.

 

Jeannine Aversa
USA Today

WASHINGTON — The Federal Reserve endorsed new rules Tuesday that would give people taking out home mortgages new protections against shady lending practices.

The proposed rules, approved in a 5-0 vote by the board, are expected to apply to new loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.

To protect subprime borrowers, those with higher-priced loans because of riskier credit histories, the Fed proposes:

• Creditors would be prohibited from engaging in a pattern or practice of extending credit without considering borrowers’ ability to repay the loan.

• Creditors would be required to verify the income and assets they rely upon in making a loan.

• Prepayment penalties would only be permitted if certain conditions are met, including the condition that no penalty will apply for at least 60 days before any possible payment increase.

• Creditors would have to establish escrow accounts for taxes and insurance.

Other proposed rules would apply to all loans:

• Lenders would be prohibited from compensating mortgage brokers by making payments known as “yield-spread premiums” unless the broker previously entered into a written agreement with the consumer disclosing the broker’s total compensation and other facts. A yield spread premium is a fee paid by a lender to a broker for higher-rate loans. The consumer’s written agreement with the broker must occur before the consumer applies for the loan or pays any fees.

• Creditors and mortgage brokers would be prohibited from coercing a real estate appraiser to misstate a home’s value.

• Companies that service mortgage loans would be prohibited from engaging in certain practices. For example, servicers would be required to credit consumers’ loan payments as of the date of receipt and would have to provide a schedule of fees to a consumer upon request.

“Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole,” said Fed Chairman Ben Bernanke in prepared remarks. “They have no place in our mortgage system.”

Fed policymakers also are considering requiring financial disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees — except for a fee to obtain a credit report — until after the consumer receives the disclosures.

The Fed also will consider prohibiting certain types of misleading or deceptive advertising for certain loans; It also would require that all applicable rates or payments be disclosed in ads with equal prominence as advertised introductory, or “teaser” rates.

Before taking effect, the rules must be voted on again following a period of public comment and possible revisions.

The Fed’s response has taken on heightened importance given the meltdown in the housing and credit markets that has led to record numbers of home foreclosures. The crisis has raised the odds that the economy might fall into a recession and roiled Wall Street.

The plan, if ultimately adopted, offers Bernanke, who took the helm at the Fed in February 2006, an important opportunity to put his imprint on the Fed’s regulatory powers. Some critics have complained that Bernanke’s predecessor — Alan Greenspan, who ran the Fed for 18½ years — failed to act as a forceful regulator especially during the 2001-2005 housing boom, where easy credit spurred lots of subprime home loans and many exotic types of mortgages.

Now that the housing market has gone bust, the carnage has been worst in subprime loans.

Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association from July through September, a record 4.72% entered the foreclosure process during those months. At the same time, a record 18.81% of the subprime adjustable-rate loans were past due.

When home values weakened, borrowers were left with loans balances that eclipsed the value of their homes. They also were clobbered when their loans reset with much higher interest rates.

Derrick Penner
Sun

A significant November rebound in Metro Vancouver housing re-sales helped push overall activity above 2006 levels, the Canadian Real Estate Association reported.

The association registered 2,952 sales through the Multiple Listing Service, a 22 per cent increase from the same month a year ago.

As of the end of November, Metro Vancouver saw 37,021 units change hands, which is 6.6 per cent more than the number of units that were sold up to the same point in 2006.

The average unit price topped $577,000 in November, up 11.2 per cent from the same month a year ago.

Nationally, 345,577 sales were cleared through MLS by the end of November smashing 2005’s record of 336,646 real estate sales.

However, while a tax change in Toronto can help explain a late 2007 surge in sales, the factors pushing up Vancouver are less clear, according to Douglas Porter, deputy chief economist for BMO Capital Markets.

“Vancouver has been average or below average for sales growth [in 2007] to date,” Porter said. “I’m not aware of any particular special factors that would have hit Vancouver in November.”

Porter added that sales that are growing faster than new listings being added to market inventories suggest that markets are not becoming unbalanced.

Nationally, however, “I would say it is surprising, given all the gloomy headlines we’ve been inundated with about bad news from the U.S. housing market and the U.S. economy in general.”

However, Porter said Alberta‘s formerly “scorching hot” markets of Edmonton and Calgary have retreated steeply from 2006 sales figures, and new listings in both cities are headed toward double-digit increases.

“That’s not a friendly combo for prices looking ahead,” Porter wrote in a research note.

Looking at the national picture, however, Gregory Klump, chief economist for the Canadian Real Estate Association, in an interview, said even Edmonton and Calgary saw somewhat of a November rebound in sales.

“Demand remains strong due to continuing job and income growth and upbeat consumer confidence,” Gregory Klump, association chief economist said.

© The Vancouver Sun 2007

National realtor’s forecast is lowest of several notable projections

Derrick Penner
Sun

National realtor Royal LePage has posted the lowest of four forecasts for Metro Vancouver real estate prices in 2008, predicting price increases of four per cent.

Royal LePage released its forecast Monday, which included an estimate that some 37,000 homes — representing a 4.5 per cent dip in sales — will trade hands and the average value will top $587,000.

“I think most forecasters are expecting the market to moderate in 2008,” Cameron Muir, chief economist for the B.C. Real Estate Association said in an interview.

“Obviously Royal LePage is seeing a little bit more moderation than [the B.C. Real Estate Association] in terms of price increase.”

Muir’s forecast on behalf of the B.C. association is an eight-per-cent increase in home prices to to $620,000 and an overall four-per-cent decline in sales.

“We, to this date, haven’t seen [sales and prices] leveling out quite that much,” he added. Muir said, especially since the short-term trend reflects rising sales and prices.

Canada Mortgage and Housing Corp. analyst Robyn Adamache, in November, released the highest forecast for Metro Vancouver price growth estimating prices will climb nine per cent in 2008.

The Re/Max 2008 housing outlook suggested Metro Vancouver’s 2008 average home price to rise seven per cent.

Credit Union Central of B.C. chief economist Helmut Pastrick had the next lowest 2008 forecast calling for prices to rise 5.1 per cent over the year.

Muir said sales across B.C. will top 101,000 transactions in 2007, the strongest year on record after 2005 when the province saw 106,000 sales cleared through the Multiple Listing Service.

He also expects to continue seeing high levels of activity driven by baby boomers cashing in and reinvesting the equity they’ve earned in their homes over recent years.

Bill Binnie, president of Royal LePage Northshore, North Vancouver, said a combination of moderate interest rates and strong job and income growth are expected to prevail in 2008, which should help support the market.

“Vancouver is a favoured place to move to right now and that will keep house prices rising, a trend expected only to intensify as we inch closer to the Olympics,” Binnie added.

The Royal LePage report said that the company expects first-time buyers to be “the most active purchaser group” in 2008, with the regional trend toward condominium construction.

Muir said that “there is no question first-time buyers are being squeezed” by Vancouver‘s extremely high prices, but the region’s condominium craze still gives many of them something to buy.

© The Vancouver Sun 2007

Province

The buzz leading up to the 2010 Winter Olympics will continue to drive up housing prices in Vancouver next year, Royal LePage said yesterday in a new market survey.

The average price for a city home next year will hit $587,500 — up four per cent from $565,000 in 2007, says the company’s 2008 market-survey forecast.

But the number of units sold in 2008 will fall 4.5 per cent to 37,000 units, it says.

“The combination of moderate interest rates and the strength of the western Canadian economy has Vancouver‘s real-estate market poised for a golden year ahead,” said Bill Binnie, president, Royal LePage Northshore in North Vancouver.

“Vancouver is a favoured place to move to right now and that will keep house prices rising — a trend expected only to intensify as we inch closer to the Olympics.” The survey predicts that first-time buyers will be the most-active group of purchasers, with professional single women being a particularly active subset within that group.

Overall, the region will continue to be a seller’s market, with “high buyer demand across all housing types . . . Interest in the nearby suburbs that have good transportation will continue to prosper next year,” said Binnie,

“The vastly improved highway to Squamish and the new rapid transit into Richmond are prime examples. The further away you go from the city centre, the more affordable prices become.”

Canadawide, the pace of residential real-estate market growth will slow next year. Royal LePage predicts the average sale price of a home in Canada will rise 3.5 per cent to $317,288 next year from $306,500.

© The Vancouver Province 2007

Sun

Fifteen construction cranes now tower over the seven-block section of southeast False Creek that will be home for 3,000 athletes and officials during the 2010 Games, and then become a fully contained residential neighbourhood afterwards called Millennium Water.

Excavation of the site has now been completed with foundation work underway on all 16 of the project’s residential buildings. Some 300 construction workers have started on six buildings with two more set to begin construction this month.

Millennium Water is being designed by renowned Canadian architect Arthur Erickson in collaboration with Nick Milkovich Architects, Gomberoff Bell Lyon Architects, Lawrence Doyle Young & Wright Architects, Merrick Architecture and Walter Francl Architect Inc.

At its peak, the Millennium Water project will employ 1,500 people. Work started in this spring and is on schedule to be complete by the fall of 2009.

 

© The Vancouver Sun 2007

 

At 1%, apartment vacancy rate is Canada’s lowest

Linda Nguyen
Sun

Finding an apartment in B.C. has just become tougher as rental vacancy rates declined for the fourth consecutive year, statistics released Thursday by the Canada Mortgage and Housing Corporation say.

The rental survey saw a decline of apartment rental rates in B.C. drop to one per cent, the lowest rate in Canada.

“Increased job opportunities, the rising cost of homeownership, immigration and longer completion times on new multiple-unit projects intended for homeownership were responsible for boosting rental demand in British Columbia,” CMHC economist Carol Frketich said Thursday. “The West has definitely seen more migration from other parts of the country.”

Frketich noted the strong labour market in B.C. has lured many Canadians to make the move to the west coast. And the lack of new rental projects built in B.C. last year has forced renters to look at investor-owned condominiums instead.

The situation is even worse in attractive retirement areas such as Kelowna, B.C., where vacancy rates in 2007 have declined to zero per cent.

“We’re seeing changes in Canada‘s demographic makeup. With this new aging market, it’s made for very strong population growth in places like Kelowna and Nanaimo,” she said. Although new construction is still booming in these areas due to high demand, many of the new housing and condo projects are being marketed towards buyers instead of renters.

“Kelowna‘s housing market is going through lots of changes over the past few years,” she said. “The number of houses have doubled … many of them being investor properties.”

A similar phenomenon has also affected large cities such as Vancouver and Victoria where vacancy rates remain stagnant from October 2006, at 0.5 per cent and 0.7 per cent. The lack of rental units has increased rents across the province by 5.5 per cent. In Vancouver, it now costs an average of $1,084 a month for a two-bedroom apartment, Frketich said.

© The Vancouver Sun 2007