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» VISIT US ONLINE @ DSNEWS.COM GSES INCREASE SHORT SALE ACTIVITY, FORECLOSURE SALES DECLINE DEMAND FOR NONTRADITIONAL, SUBPRIME LOANS ON THE RISE In May, the GSEs' completed short sales climbed higher month-over-month, while the number of foreclosure sales declined, the Federal Housing Finance Agency (FHFA) revealed in a report last month. Together, Fannie Mae and Freddie Mac completed nearly 9,100 short sales in May, up 14 percent from April but down from 11,440 in May 2012. Completed foreclosures far outnumbered short sales in May, at about 17,800, but the figure represents a decrease from 19,735 foreclosures in April and 24,588 a year earlier. When combining all foreclosure prevention actions for May, FHFA found the GSEs provided nearly 39,300 borrowers with alternatives to foreclosure. Of that total, 19,800 were permanent loan modifications. From January to May of this year, the GSEs helped 210,805 homeowners with foreclosure prevention actions. Solutions that led to homeowners giving up their home (short sales and deeds-in-lieu) totaled 50,652, while home retention solutions (such as loan modifications) numbered 160,153. Since the start of the GSEs' 2008 conservatorship, Fannie Mae and Freddie Mac have completed 2.9 million foreclosure prevention solutions. About 1.4 million of those were loan modifications, 453,000 were short sales, and 716,100 were repayment plans. Adding to concerns of a new housing bubble, lenders reported an increase in demand for nontraditional and subprime mortgage loans and that they've responded to that demand by easing standards, the Federal Reserve reported in its quarterly Senior Loan Officer Opinion Survey. According to the survey, a net 3.1 percent of lenders responding said demand for nontraditional residential loans increased from the survey released three months ago, and a net 25 percent of respondents said demand for loans from subprime borrowers was higher than it was in May. Almost half (49.3 percent) of lenders surveyed said demand for loans from prime borrowers had increased, up from 39.1 percent in the second-quarter survey. At the same time, a net 6.3 percent of lenders said they had eased lending terms and standards for nontraditional mortgage loans, while a net 25 percent of survey respondents said they tightened standards for loans to subprime borrowers. The survey results are reported as a diffusion index—that is, the percentage of respondents saying they are easing lending standards somewhat or considerably is subtracted from those who report they are tightening standards for a range of different lending products. In the case of traditional mortgage loans, a net 7.5 percent of banks reported easing lending criteria. In the second-quarter survey, a net 7.8 percent reported easing. STAT INSIGHT 50% Estimated share of home purchases currently transacted on an all-cash or majority-cash basis—a trend that will likely reverse slowly over the next few years. Source: Goldman Sachs Group By Mark Lieberman, Chief Economist for the Five Star Institute The increase in demand for nontraditional— generally Alt-A—loans and from subprime borrowers comes as sales of both new and existing single-family homes are generally rising and as both prices and mortgage rates are increasing. Overall, the quarterly survey showed an increase in demand for most types of loans: commercial real estate loans, commercial and industrial loans from small and large firms (as determined by sales volume), consumer loans, credit card loans, and auto loans as compared to the second-quarter report, released in May. And banks, which have been criticized for creating hurdles for applicants, eased lending standards for all types of loans. According to the survey, a net 62.5 percent of lenders said they had narrowed spreads for commercial and industrial loans to large and middle-market firms after a net 63.2 percent of lenders reported making such loans less expensive in the second-quarter survey. Loans were less expensive for small firms as well, with 51.4 percent of lenders narrowing spreads over their own cost of funds after a net 57.8 percent of lenders narrowed spreads one quarter ago. While a net 27 percent of lenders reported stronger demand for auto loans, a net 14.1 percent said they had eased standards for such loans. In all, 13 percent of banks surveyed reported increased willingness to make consumer loans, down slightly from 22.2 percent three months ago. JUSTICE DEPARTMENT CORRECTS OVERSTATED NUMBERS FOR FRAUD INITIATIVE When the Justice Department announced triumphs of the Distressed Homeowner Initiative in October 2012, it turns out the numbers were largely overstated. The initiative was launched by the FBI and is the first nationwide effort focusing on fraud schemes targeting struggling homeowners. In an updated release to the press last month, the Justice Department disclosed that the initiative actually resulted in 107 criminal defendants charged in U.S. District Courts in fiscal year 2012 (October 1, 2011 to September 30, 2012), not the 530 initially reported. The cases involved about 17,185 homeowner victims instead of the 73,000 originally reported. Additionally, total losses suffered by the victims were revised down to more than $95 million as opposed to the $1 billion reported last year. The Justice Department explained the reason for the overstated figures, noting that originally, the numbers included defendants who were the "subject of other prosecutive actions," as well as defendants who were charged in mortgage fraud cases where the victims did not "fit the narrow definition of distressed homeowner that the initiative targeted." After the Department released the figures last year, reporters with Bloomberg found the total included cases that occurred before the initiative began, which prompted a closer look at the numbers. 31

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