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IS THE HOUSING RECOVERY 'ARTIFICIAL'? DOES IT MATTER? It's no secret investor demand is playing a large part in the current housing recovery with cash buyers contributing nearly one-third of all home sales. The questions on the minds of many are whether this means the market is experiencing an "artificial" recovery and how long it will last. The investment banking firm Keefe, Bruyette & Woods (KBW) suggests the question of artificiality is mute because the current recovery will, in fact, last. "Sure, it may be artificial and in large part driven by high investor purchases and artificially suppressed mortgage rates," the firm said in a recent report. "But as we see incremental headlines, economists, and analysts starting to factor improving job growth, recovering housing wealth, and . . . a self-reinforcing housing . . . [cycle] into their expectations we just get downright giddy," the firm stated. This "giddiness" stems from the firm's consensus that these trends will not be short-lived. The S&P Case-Shiller Home Price Indices recently reported annual increases of 7.3 percent for its 10-city composite and 8.1 percent for its 20-city composite. On a more micro level, certain hard-hit markets are leading the price increases, while a few Northeast markets are barely contributing. KBW labels Atlanta, Las Vegas, and Phoenix as the "hottest markets." Home prices in Atlanta have risen 13.3 percent during the past three months and 30 percent over the past year. Las Vegas home prices rose 8.7 percent in the last three months and 27 percent over the year, and Phoenix experienced an 8.2 percent price gain during the past three months and a 41 percent rise over the past year. Despite these encouraging gains, KBW points out lower-tier prices remain 50 percent below their peaks prior to the housing crisis. In the Northeast, home prices are moving sluggishly. New York home prices have risen 0.7 percent year-over-year, and in Boston, prices have risen 4 percent. KBW finds Denver somewhat of an anomaly as its home prices are just 2 percent from their peak reached in 2006. "It's an outlier amongst the sampled cities in this regard, having shown one of the shallowest dips yet in one of the stronger recent rebounds," KBW said. FITCH WARNS HIGH RATE OF UNSUCCESSFUL MODS THREATENS ASSET QUALITY Servicers continue to make strides in home retention efforts, completing more than 360,000 retention actions in the fourth quarter of 2012, according to a report from Office of the Comptroller of the Currency (OCC). However, Fitch Ratings detects continued "weak asset quality trends," especially among loans modified from 2008 through 2010. In fact, Fitch's findings led the agency to fortify its belief that troubled debt restructurings (TDRs) should be counted as nonperforming assets. "[W]e regard the high delinquency and foreclosure rates for recently modified mortgages as reflective of still elevated residential mortgage asset quality problems," the agency said in a commentary note. Fitch admitted modification performance is showing improvement, but said "opaque and inconsistent disclosure practices" prevent the agency from obtaining a clear picture of the number of successful loan modifications. The OCC revealed in its Mortgage Metrics Report for the fourth quarter of last year that a little less than half—47.7 percent—of the nearly 30 2.9 million loans modified since the start of 2008 are current or paid in full. About 7.1 percent are less than 60 days delinquent; 14.2 percent are 60 or more days delinquent; 7.7 percent are in the foreclosure process; and 7.3 percent have already been foreclosed. The OCC reports higher success rates among particular types of modifications. For example, the regulator says modifications that result in at least a 10 percent reduction in monthly payments for borrowers perform better than those with payment reductions below the 10 percent mark. As of the fourth quarter of last year, 54.8 percent of modifications with at least 10 percent payment reductions were current or paid in full, while just 36.5 percent of those with smaller reductions were performing or paid. Fitch concedes there has been "incremental progress" in modification performance but maintains "the overall picture points to a continuation of broadly weak asset performance in mortgage portfolios," which makes it necessary to include TDRs in the nonperforming asset category as they are "still weighing heavily" on nonperforming asset ratios for large financial institutions, the agency explained. CFPB GOES LIVE WITH EXPANDED CONSUMER COMPLAINT DATABASE The Consumer Financial Protection Bureau (CFPB) went live on March 28 with the nation's largest public database of consumer complaints related to financial products and services. With the launch, the bureau expanded the database of information from its previous 19,000 credit card complaints to more than 90,000 complaints regarding mortgages, student loans, bank accounts and services, and other consumer loans. The database also includes specialized subcategories—for instance, under mortgages viewers can drill down to reverse mortgages, conventional fixed mortgages, conventional adjustable mortgages, and home equity loans or lines of credit. "By sharing these complaints with the public, we are creating greater transparency in consumer financial products and services," said Richard Cordray, CFPB director. "The database is good for consumers and it is also good for honest businesses. We believe the marketplace of ideas can do great things with this data." The newly launched database allows users to easily track, sort, search, and download information on consumer complaints and company responses. Data is also available via application programming interface (API), allowing developers to build applications, conduct analyses, and perform research, and it can be embedded on other websites and shared through social media. The live database updates daily, meaning more complaints will be added as CFPB handles them. In addition, when the bureau accepts consumer complaints about other financial products and services not currently included , they will be added as well. Since December 1, 2011, the CFPB has handled more than 63,700 mortgage complaints. Most were a result of issues borrowers faced when they were not able to make their mortgage payments. Overall, 61 percent of the mortgage complaints dealt with issues related to loan modifications, collections, or foreclosures. The second most common mortgage complaint fell into the "making payments" category, which covers issues with loan servicing, payments, or escrow accounts. Problems with an application, originator, or mortgage broker when applying for a loan accounted for 7 percent of the complaints, making it the third most common hurdle for consumers. The CFPB has sent about 89 percent of the mortgage complaints to the companies named so they can review the issue and respond. So far, mortgage companies have responded to about 95 percent of the complaints sent to them. Of the responses from companies, consumers disputed about 23 percent, or 10,500. The bureau also noted another 7 percent of the complaints were referred to other regulatory agencies, while 1 percent of the complaints were found to be incomplete.

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