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20 FREDDIE MAC: HOUSING MARKET INCHING CLOSER TO STABILITY Following a slower than expected summer, the U.S. housing market made up some ground in September 2014 as most major indicators inched closer to stability. Freddie Mac released its latest Multi- Indicator Market Index (MiMi), revealing a 0.5- percent uptick in September to a reading of 74.4 after months of slight declines. e most recent improvement puts the index a few points short of the lower threshold for a market considered to be in "stable" territory. According to Freddie Mac, three of the four major indicators tracked in the index saw improvements in September, led by a 1.2-percent gain in the gauge of labor health to 94. e com- ponents measuring payment-to-income ratios and the proportion of mortgage payments made on time also edged up, rising 0.8 percent to 72.7 and 0.5 percent to 66.6, respectively. Meanwhile, the already weak picture of home purchase applications deteriorated further, falling 0.8 percent to 64.1. As refinances have fallen off from their surge of the last few years, purchase applications have failed to close the gap, resulting in a more anemic mortgage market compared to the housing recovery's early years. As of September's index reading, 14 states and the District of Columbia were in a stable range, with North Dakota (96.5), Washington, D.C. (94.3), Wyoming (91.1), Montana (91.0), and Hawaii (89.3) leading the rest. at compares to 13 states in August's report. "Following a similar trend from last month more states and metros continued to show im- provement from the very slow summer months," said Len Kiefer, deputy chief economist at Fred- die Mac. As with the last few reports, only six of the nation's top 50 metro areas were in a stable range: San Antonio (91.3), Austin (87.6), Salt Lake City (84.4), Houston (84), Los Angeles (83.5), and New Orleans (82). Meanwhile, a handful of struggling states— including Nevada, which ranks lowest in stability with a MiMi value of 54.6—saw significant improvement over the month, with growth top- ping 1 percent and climbing as high as 2 percent in some places. Of note in the September release: California finally returned to its historical stable range of housing activity for the first time in six years. e long-struggling state still has its challenges, however. "[W]hile the state has made a strong come- back, we already see one of its four indicators elevated and showing that the typical family con- tinues to have to stretch to buy a median priced house, especially in the Los Angeles metro area," Kiefer said. "at said, far fewer homeowners are delinquent on their homes, the employment situation continues to improve, and even purchase applications are beginning to turn around." U.S. SUPREME COURT AGREES TO HEAR BANK'S APPEAL IN 'STRIPPING OFF' MORTGAGE CASES Bank of America's case against two underwater Florida homeowners who filed for Chapter 7 bankruptcy in order to eliminate the liability on their second mortgages—a practice known as "stripping off"—has made it to the highest court in the nation. e U.S. Supreme Court agreed that it would hear the cases of Bank of America v. Caulkett and Bank of America v. Toledo- Cardona following the bank's appeal in both cases, which were both decided in favor of the homeowners by the 11th Circuit U.S. Court of Appeals back in May. e Supreme Court said in granting the petition in late November 2014 that it would consolidate the two cases and allot one hour for oral arguments. In the cases of the Florida homeowners in Melbourne and Tampa, each had second mortgages on their homes originated by Bank of America. When the homeowners could no longer pay their debts following the housing market crash of 2008, they both filed for Chapter 7 bankruptcy and asked the bankruptcy judge to extinguish their second mortgages based on the fact that they were un- derwater—or in other words, they owed more than the properties were worth. e judge erased both of the Bank of America mort- gages, hence "stripping off" the mortgages, and the decision was upheld in the 11th Circuit Court of Appeals. e bank argued that the practice of strip- ping off mortgages should be banned, just as "stripping down" mortgages were outlawed in a case the Supreme Court decided in 1992. In that decision, the court made it illegal for un- derwater homeowners to escape a claim from a creditor on a mortgage by "stripping down" the mortgage to its current market value. Bank of America's representatives said in the court filing that this is a critical area of bankruptcy law that will affect many Chaper 7 bankruptcy filings. Approximately 8 percent of mortgages in the U.S. had negative equity in October 2014, representing about 4 million borrowers who were an average of about $39,000 underwater, according to Black Knight Financial Services. KNOW THIS

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