What Is Unfolding South of the Border February by jennyyingdi


									What Is Unfolding
South of the
February 2012

           Toronto, Ontario
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Some Clarity on What Happens When a
Person Is Foreclosed
Overdue Mortgages Number 6,082,000

New data from Lender Processing Services (LPS) shows that as of the end of January, there were 6,082,000
mortgages in the U.S. going unpaid. That tally includes loans that are 30 or more days delinquent and loans in

LPS’ mortgage performance statistics are derived from its loan-level database of nearly 40 million mortgage loans.
The national mortgage delinquency rate as of January month-end was 7.97 percent. LPS determines the delinquency
rate as a measurement of all loans behind by at least one payment, excluding those already in the process of

The delinquency rate registered a decline, both for the month and the year, with January’s rate down 2.2 percent
from December 2011 and down 10.5 percent from January 2011.

The total foreclosure inventory rate hit 4.15 percent last month – up 1.1 percent compared to December 2011, but
down a slight 0.1 percent when comparing year-over-year numbers.

According to LPS’ report, there were 2,084,000 properties that were counted as part of the foreclosure inventory last

The number of properties with mortgages 30 or more days past due but not yet referred to a foreclosure attorney
tallied 3,998,000. Of these, 1,772,000 had been delinquent for 90 days or longer.

LPS says Florida had the highest percentage of non-current mortgages last month, followed by Mississippi, Nevada,
New Jersey, and Illinois.

Non-current totals combine foreclosures and delinquencies as a percent of all active loans in that state.

States with the lowest percentage of non-current loans in January included Montana, Alaska, Wyoming, South
Dakota, and North Dakota.

What Happens When You Walk Away From Your Home?

By Chris Taylor | Reuters – Mon, Jan 30, 2012 4:43 PM EST

It was just last summer that Charlotte Perkins made the hardest decision of her life as she and her husband Jim were
caught in the vise of the housing bust.

Wanting to downsize their lives as they headed toward retirement, they bought a new house in Mesa, Arizona,
before they sold the old one, also in Mesa. Their previous home had been appraised at nearly $400,000 at the height
of the market, but as the housing crisis ravaged Arizona, they were told they'd be lucky to get $200,000 for it.
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They were carrying a loan of $260,000 on their original home alone, meaning they were well 'underwater,' owing
much more than it was worth. Combined with the mortgage on the new house, their housing payments had become
an "anchor around our necks," she says, threatening to gobble up all their retirement savings and leave them with

The couple made a difficult call: They would do a 'strategic default,' and simply stop paying the old mortgage. "We
really had to wrestle with it," said Perkins, 60. "We had worked all of our lives to build good strong credit, and we're
proud people. But it came down to, 'Can we keep doing this?' We had to say 'No.'"

As the housing bust drags on, many homeowners are thinking like Perkins. Almost 11 million homes are now
underwater, says financial information provider CoreLogic. Around 3.5 million homeowners are behind in their
payments and another 1.5 million homes are already in the foreclosure process, according to online marketplace

As banks start to work through their backlog of distressed properties, the New York Federal Reserve estimates that
3.6 million foreclosures will take place during the next couple of years.

 So, the question is: Does it make sense to keep paying a massive mortgage, knowing that it might be decades before
a home regains its prior value? Or is that akin to - as columnist James Surowiecki recently wrote in the New Yorker
- "setting a pile of money on fire every month"?

"I constantly get the saddest e-mails from people saying, 'I've exhausted all my life savings, my retirement is gone,
and now I have to default,'" said Jon Maddux, CEO of YouWalkAway.com.a foreclosure agency that helps clients
with strategic default (and charges a fee for it). "But if they had seen the writing on the wall a couple of years
earlier, stopped paying the mortgage and stayed in the home throughout the whole process, they would be in a much
better financial position."

Moral Quandary

There's a moral component to that decision, of course. People naturally feel embarrassed about breaking a contract
and not paying their bills; no one wants to be branded a deadbeat. But remember that companies default on their
obligations when it makes financial sense for them to do so, via the bankruptcy process. Even the Mortgage Bankers
Association itself, in a flourish of irony, arranged for a short sale of its Washington headquarters.

It's not personal; it's business. So think of strategic default as a business decision, and do a cold-eyed cost-benefit
analysis of whether it makes sense for you, advises Carl Archer, an attorney with Maselli Warren in Princeton, New

"People think it reflects on their integrity, and say 'I wasn't raised this way,'" said Archer. "But the more businesslike
attitude is to say that there's a contract, there are penalties for violating that contract, and sometimes it just makes
financial sense to break it."

The penalties largely revolve around your credit record, which admittedly gets blown up in the near-term. For a few
years you can likely forget about qualifying for a mortgage or a car loan. When lenders are ready to take a chance on
you again, you'll have to pay for the privilege, with stiff interest rates due to your default history.

What Happens to Scores

Charlotte Perkins watched her credit score go from a pristine 800 to 685, dropping every time she missed a payment.
Credit-scoring firm FICO estimates that someone with a 680 score would see that number sink between 85-100
points after a strategic default, and someone with 780 could crater 140-160 points.
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Not desirable, of course, but not the end of the world either. For Perkins, for instance, she already had a loan on her
Ford Escape, and the mortgage on her new house, before she even started the default process. She hasn't seen any
changes on her credit cards since, in terms of limits or interest rates.

Now that the previous home was auctioned off in December, she can start slowly rebuilding her credit, a process that
should take about seven years.

Strategic default isn't a decision to be taken lightly, of course. If everyone did it, the housing market -- and the banks
-- would be in much worse shape than they already are.

The following are some of the issues to keep in mind:

1. Look to it as a last resort, not a first option. Your financial troubles could be alleviated with a simple
refinancing, especially since 30-year mortgage rates are near record lows of below 4 percent. If the banks are
hesitant to rework your loan, look into the number of government programs designed to keep you in your home,
which can be researched at MakingHomeAffordable.gov.

2. Location, location, location. Each state has its own rules and regulations regarding foreclosures, which affect
both the length of the process and what you could be liable for in the end. In so-called 'non-recourse' states like
Arizona, California and Texas, a lender cannot come after you for any deficiency (for instance, if your mortgage was
$300,000 and they're only able to sell the property for $200,000). In other states they can pursue the difference, in
theory - which is why some homeowners opt to file for bankruptcy, to free themselves from those potential
obligations as well.

3. Use the interim to save like a demon. If you're in a state like New York or Florida, which require a judicial
review of every foreclosure, it might be a couple of years before you actually have to pack up. In the meantime, be
extremely disciplined about stockpiling cash. That will help you with a down payment for a rental, to pay for a car in
cash if you need to, or to clear up other debts you might have. "Save money as if you were still paying the
mortgage," says Archer. "If you don't, then you'll run out of both time and money, and then you'll be in a real tough

4. Know the tax implications. Historically, if you have a debt that's forgiven, the canceled amount is considered
taxable by the IRS. In the wake of the housing bust, though, the Mortgage Forgiveness Debt Relief Act was drafted
to spare you those taxes. That legislation expires at the end of 2012, though - so if it's not extended, you could
potentially face a tax bill for the difference.

5. Talk to a professional. A bankruptcy or real-estate attorney can help you through a very tricky process. The
National Association of Consumer Bankruptcy Attorneys, for instance, has a searchable database of lawyers at

"Strategic default is not an easy decision, and there's a cost either way," said Gerri Detweiler, director of consumer
education for Credit.com. "Would you rather be $200,000 underwater, or would you rather have seven years of
damage to your credit report? It depends whether you're finally at the point where enough is enough."
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Taking a Trip? Try a place that was
visited 85 million times!
Florida tourism numbers up for 2011

Associated Press – Thu, Feb 16, 2012

TALLAHASSEE, Fla. (AP) — Florida's tourism agency says a record 85.9 million people visited the state last year.
Visit Florida said Thursday that the estimated total was a 4.4 percent increase over 2010 and the highest number
since 2007.
The number shows Florida tourism — the state's leading industry — has rebounded from a crippling recession
and 2010 oil spill that kept visitors away from its beaches and attractions. The increases in Florida outpace the rest
of the country.
Officials said the rebound was helped by large increases in visitors from Brazil and a dramatic turnaround by the
Panhandle beaches in the first full year after the oil spill.
Visit Florida said estimates show a 3-percent increase in domestic visitors, a 5.7-percent increase in Canadian
visitors and a 16-percent increase in overseas visitors.

Of Banks and Inventory
Mortgage rates tumble to record low

Average on the 30-year home loan slides to 3.87 percent from 3.98 percent

The average rate on the 30-year fixed mortgage dropped to the lowest since records have been kept, creating a
tempting target for people to refinance their homes.

Freddie Mac said Thursday the average rate on the 30-year fixed mortgage hit 3.87 percent, down from 3.98 percent
the prior week. That's below the previous record of 3.88 hit two weeks ago.

The average on the 15-year fixed mortgage fell to 3.14 percent, also a record low. Records for mortgage rates date
back to the 1950s.

Mortgage rates tend to track the yield on the 10-year Treasury note, which fell below 1.9 percent this week.

Mortgage rates have hovered near 4 percent for the past three months, and have perhaps contributed to a slight
improvement in the housing market. But many homeowners remain underwater and the pipeline of foreclosures
continues to be huge, putting heavy pressure on housing prices.
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High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many don't
want to sink money into a home that they fear could lose value over the next few years.

Sales of previously occupied homes were dismal last year. New-home sales in 2011 were the worst on records going
back half a century.

Builders are hopeful that the low rates could boost sales next year. But so far, they have had a minimal impact.

Mortgage applications have risen slightly over the past four weeks, according to the Mortgage Bankers Association.
But they are coming off extremely low levels.

To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each

The average rates don't include extra fees, known as points, which most borrowers must pay to get the lowest rates.
One point equals 1 percent of the loan amount.

The average fee for the 30-year loan rose to 0.8 from 0.7; the average on the 15-year fixed mortgage was unchanged
at 0.8.

For the five-year adjustable loan, the average rate fell to 2.80 percent from 2.85 percent. The average on the one-
year adjustable loan rose to 2.76 percent from 2.74 percent.

The average fee on the five-year adjustable loan rose was unchanged at 0.7; the average on the one-year adjustable.

Housing Crisis to End in 2012 as Banks Loosen Credit Standards

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the
reasons: loosening credit.

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than
scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with
the past three quarters.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening
of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2
times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an
improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit
requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the
result of a potential buyer not qualifying for a loan.
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Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to
generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit

Home resales at 1-1/2 year-high, supply falls

By Lucia Mutikani

WASHINGTON | Wed Feb 22, 2012 1:36pm EST
 (Reuters) - U.S. home resales rose to a 1-1/2 year high in January, pushing the supply of properties on the market to
the lowest level in almost seven years in a hopeful sign for the housing sector.

The National Association of Realtors said on Wednesday existing home sales increased 4.3 percent to an annual rate
of 4.57 million units last month, the fastest pace since May 2010.

It was the latest sign the housing market may be coming off the floor. While economists attributed some of the rise
to unseasonably warm winter weather, they also said it signaled genuine improvement.

Sales were up across all four regions of the country, with the West recording the biggest gain -- an 8.8 percent

"At least some of the improvement in the last few months could have reflected milder winter weather, but for the
most part, it seems that the housing sector may have turned the corner," said Guy Berger, an economist at RBS in
Stamford, Connecticut.

The tenor of the report was weakened somewhat by a sharp downward revision to December's sales data to show
only a 4.38 million unit sales rate rather than the previously reported 4.61 million unit pace.

A brightening economic outlook, marked by a strengthening labor market and buoyant factories, is giving the
housing market some lift. Confidence among homebuilders is near five-year highs and they are breaking more
ground on new housing projects.

Residential construction is expected to contribute to growth this year for the first time since 2005.

Robert Toll, executive chairman of luxury homebuilder Toll Brothers, welcomed that progress even as his company
announced a surprise quarterly loss on Wednesday.

"Since the new home industry is coming off several years of historic low levels of production, we are encouraged by
the recent improvement," he said in a statement.

The data did little to lift sentiment in U.S. stock markets, which were down in early afternoon as investors fretted
about a likely euro zone recession. Prices for U.S. government debt rose on concerns Greece might not be able to
avert a messy default even with a fresh bailout.


The U.S. housing market had been held back by an overhang of unsold homes, but steady sales gains are helping to
whittle down supply.
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The inventory of unsold homes on the market fell 0.4 percent to 2.31 million last month, the lowest since March
2005. That represented a 6.1 months' supply at January's sales pace, the lowest since April 2006 and down from 6.4
months in December.

However, inventories tend to fall in winter and the decline last month could also be reflecting delays in the process
of bringing foreclosed properties to the market.

A supply of six months generally is considered ideal.

"We think the foreclosure process will accelerate, which will speed up the flow of distressed inventory. We expect
supply to edge back to eight months this year," said Michelle Meyer, a senior economist at Bank of America Merrill
Lynch in New York.

That would increase the downward pressure on prices. The median home sales price fell 2 percent to $154,700 in
January from a year ago.

Other data on Wednesday showed demand for home purchase loans fell last week, despite mortgage rates holding
near historic lows.

The Federal Reserve, which has suggested a number of ways other policymakers could step in to help the beaten-up
market, is considering purchasing more mortgage-backed securities to drive mortgages rates even lower.

But some economists are skeptical that would do much good.

"I don't think the problem in the mortgage market is high interest rates or availability of liquidity. The problem is
lack of jobs and very strict lending standards," said Sung Won Sohn, an economics professor at California State
University Channel Islands.

Distressed properties, foreclosures and short sales, which typically occur at deep discounts, accounted for 35 percent
of overall sales last month, up from 32 percent in December.

A third of pending existing home sales contracts were canceled, the NAR said.

January Pending Home Sales Rise, Market on Uptrend
Washington, DC, February 27, 2012


Pending home sales are on an upward trend, which has been uneven but meaningful since reaching a cyclical low
last April, and are well above a year ago, according to the National Association of Realtors®.

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 2.0 percent to 97.0
in January from a downwardly revised 95.1 in December and is 8.0 percent higher than January 2011 when it was
89.8. The data reflects contracts but not closings.

The January index is the highest since April 2010 when it reached 111.3 as buyers were rushing to take advantage of
the home buyer tax credit.

Lawrence Yun, NAR chief economist, said this is a hopeful indicator going into the spring home-buying season.
“Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more
meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad
price stabilization or even modest national price growth, of course with local variations.”
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The PHSI in the Northeast rose 7.6 percent to 78.2 in January and is 9.8 percent above a year ago. In the Midwest
the index declined 3.8 percent to 88.1 but is 10.8 percent higher than January 2011. Pending home sales in the South
increased 7.7 percent to an index of 109.1 in January and are 10.5 percent above a year ago. In the West the index
fell 4.4 percent in January to 101.9 but is 0.7 percent above January 2011.

“Movements in the index have been uneven, reflecting the headwinds of tight credit, but job gains, high affordability
and rising rents are hopefully pushing the market into what appears to be a sustained housing recovery,” Yun said.
“If and when credit availability conditions return to normal, home sales will likely get a 15 percent boost, speed up
the home-price recovery, and thereby significantly reduce the number of homeowners who are underwater.”

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association,
representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Existing-Home Sales Rise Again in January, Inventory Down

Washington, DC, February 22, 2012

Existing-home sales rose in January, marking three gains in the past four months, while inventories
continued to improve, according to the National Association of Realtors®.

Total existing-home sales1, which are completed transactions that include single-family homes, townhomes,
condominiums and co-ops, increased 4.3 percent to a seasonally adjusted annual rate of 4.57 million in
January from a downwardly revised 4.38 million-unit pace in December and are 0.7 percent above a spike to
4.54 million in January 2011.

Lawrence Yun, NAR chief economist, said strong gains in contract activity in recent months show buyers are
responding to very favorable market conditions. “The uptrend in home sales is in line with all of the underlying
fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job
creation and rising rents.”

Total housing inventory at the end of January fell 0.4 percent to 2.31 million existing homes available for sale,
which represents a 6.1-month supply2 at the current sales pace, down from a 6.4-month supply in December.
“The broad inventory condition can be described as moving into a rough balance, not favoring buyers or sellers,”
Yun said. “Foreclosure sales are moving swiftly with ready home buyers and investors competing in nearly all
markets. A government proposal to turn bank-owned properties into rentals on a large scale does not appear to be
needed at this time.”

Total unsold listed inventory has trended down from a record 4.04 million in July 2007, and is 20.6 percent
below a year ago.
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said buying power is enticing
more potential home buyers. “Word has been spreading about the record high housing affordability conditions and
our members are reporting an increase in foot traffic compared with a year ago,” he said. “With other favorable
market factors, these are hopeful indicators leading into the spring home-buying season. We’re cautiously optimistic
that an uptrend will continue this year.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage
was a record low 3.92 percent in January, down from 3.96 percent in December; the rate was 4.76 percent in January
2011; recordkeeping began in 1971.

The national median existing-home price3 for all housing types was $154,700 in January, down 2.0 percent from
January 2011. Distressed homes4 – foreclosures and short sales which sell at deep discounts – accounted for 35
percent of January sales (22 percent were foreclosures and 13 percent were short sales), up from 32 percent in
December; they were 37 percent in January 2011.
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“Home buyers over the past three years have had some of the lowest default rates in history,” Yun said.
“Entering the market at a low point and buying at discounted prices have greatly helped in that success.”

All-cash sales were unchanged at 31 percent in January; they were 32 percent in January 2011. Investors
account for the bulk of cash transactions.

Investors purchased 23 percent of homes in January, up from 21 percent in December; they were 23 percent in
January 2011. First-time buyers rose to 33 percent of transactions in January from 31 percent in December; they
were 29 percent in January 2011.

Forty-seven percent of NAR members report that contracts settled on time in January; 21 percent had delays and 33
percent experienced contract failures. Contract cancellations are unchanged from December but were only 9 percent
in January 2011; they are caused largely by declined mortgage applications and failures in loan underwriting from
appraisals coming in below the negotiated price.

Single-family home sales rose 3.8 percent to a seasonally adjusted annual rate of 4.05 million in January from
3.90 million in December, and are 2.3 percent above the 3.96 million-unit pace a year ago. The median existing
single-family home price was $154,400 in January, down 2.6 percent from January 2011.

Existing condominium and co-op sales increased 8.3 percent to a seasonally adjusted annual rate of 520,000 in
January from 480,000 in December but are 10.3 percent lower than the 580,000-unit level in January 2011. The
median existing condo price was $156,600 in January, up 2.0 percent from a year ago.

Regionally, existing-home sales in the Northeast rose 3.4 percent to an annual pace of 600,000 in January and are
7.1 percent above a year ago. The median price in the Northeast was $225,700, which is 4.2 percent below January

Existing-home sales in the Midwest increased 1.0 percent in January to a level of 980,000 and are 3.2 percent higher
than January 2011. The median price in the Midwest was $122,000, down 3.9 percent from a year ago.

In the South, existing-home sales rose 3.5 percent to an annual level of 1.76 million in January but are unchanged
from a year ago. The median price in the South was $134,800, which is 0.3 percent below January 2011.

Existing-home sales in the West jumped 8.8 percent to an annual pace of 1.23 million in January but are 3.1 percent
below a spike in January 2011. The median price in the West was $187,100, down 1.8 percent from a year ago.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association,
representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Let the Institutionalizing Begin
Foreclosures Draw Private Equity as U.S. Sells Homes

Jan. 31 (Bloomberg) -- Karl Case, co-creator of the S&P/Case-Shiller Index of property values, talks about U.S.
home prices and outlook for the housing market. The S&P/Case-Shiller index of property values in 20 cities
declined 3.7 percent from November 2010 after decreasing 3.4 percent in the year ended in October. Case speaks
with Tom Keene and Ken Prewitt on Bloomberg Radio's "Surveillance." Bloomberg Television's Betty Liu also
speaks. (Source: Bloomberg)
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About 7.5 million homes with a current market value of $1 trillion will be liquidated through foreclosures or other
distressed sales by 2016, according to an Oct. 27 report by Chang.

Private equity firms are jumping into distressed housing as the U.S. government plans to market 200,000 foreclosed
homes as rentals to speed up the economic recovery.

GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals, Thomas Shapiro,
the fund’s founder said. That followed announcements this month that GI Partners, a Menlo Park private equity
fund, expects to invest $1 billion, and Los Angeles-based Oaktree Capital Management LP will spend $450 million
on similar housing.

“It’s a massive market,” Shapiro said in a telephone interview from New York. “We’re starting to see this as a
billion dollar opportunity to buy rental housing.”

Creating more single-family rental properties is one of a series of programs introduced by President Barack
Obama’s administration aimed at reviving the housing market. An S&P/Case-Shiller index (SPX) of property values
in 20 cities has dropped 33 percent from its peak in July 2006 and 12 percent of homeowners with a mortgage are
either delinquent or in foreclosure. Last week, the administration revised its Home Affordable Modification
Program, offering government incentives for mortgage investors Fannie Mae and Freddie Mac (FMCC) when they
forgive debt on homes that lost value as a way of preventing delinquent borrowers from losing their houses.

Increasing Rentals

Increasing rentals may reduce lenders’ losses on foreclosed and surrendered properties and curb declines in home
prices, according to a Federal Reserve study Chairman Ben S. Bernanke sent to Congress on Jan. 4. Private equity
funds began focusing on these investments in September, after the administration asked for proposals to sell the
government’s inventory of foreclosed homes -- about half of all houses seized from delinquent borrowers.

The S&P/Case-Shiller index of property values in 20 cities declined 3.7 percent from November 2010 after falling
3.4 percent in the year ended in October, according to data released today. Economists projected a 3.3 percent drop,
according to the median estimate in a Bloomberg News survey.

Even as prices dropped, the “seeds to a recovery are being planted,” Karl Case, co-creator of the measure, said today
in an interview on Bloomberg Radio’s “Bloomberg Surveillance,”with Ken Prewitt and Tom Keene. “Efforts are
underway to deal with a backlog of foreclosed properties,” he said.

The Federal Housing Finance Agency, which oversees Fannie Mae (FNMA) and Freddie Mac, plans to complete
initial transactions in the first quarter of this year, offering some of the 180,000 foreclosed homes in their inventory
to private operators as rental properties, Corinne Russell, a spokeswoman, said in a telephone interview.

Public-Private Partnerships

The Federal Housing Administration, which also will participate in the rental program, had 32,170 real-estate owned
homes seized from borrowers, also known as REOs, as of Dec. 31, according to spokesman Lemar Wooley.
Possible aspects of the program include public-private partnerships to share the risk and profits, “seller financing”
guaranteed by the government and rent-to-own opportunities for tenants, according to a November memo.

“It marks the first time that institutional investors are really getting involved, and in the process providing a higher
quality product to a tightening rental market,” Oliver Chang, a Morgan Stanley analyst based in San Francisco, said
in an e-mail last week.

$1 Trillion Liquidations

About 7.5 million homes with a current market value of $1 trillion will be liquidated through foreclosures or other
distressed sales by 2016, according to an Oct. 27 report by Chang. That will add to the estimated 20 million single-
                                                                                                         P a g e | 12

family homes already operated as rentals, which have yielded annual returns averaging 8.1 percent since 1990,
Chang’s report said.

Rentals can produce cash flows, known as a capitalization rate or cap rate, that reduce losses more than reselling
foreclosed homes at a time of weak demand, the Federal Reserve report said.

“Preliminary estimates suggest that about two-fifths ofFannie Mae’s REO inventory would have a cap rate above 8
percent-- sufficiently high to indicate renting the property might deliver a better loss recovery than selling the
property,” the Fed paper said.

While there may be opportunities, investors should be cautious about borrowing to invest in markets such as Las
Vegas (SPCSLV), where a transient population and economy dependent on a single industry like gaming, make it
hard to see an exit strategy, Kenneth Hackel, managing director heading securitized products strategy for CRT
Capital LLC, said in a telephone interview from Stamford, Connecticut yesterday.

Track Record

“For the kind of properties I looked at, and in most cases, capital markets aren’t excited to finance the REO-to-
Rental marketplace at this stage,” said Hackel, who toured Las Vegas (SPCSLV) homes on the market this month.
“Once you establish a track record and have some positive cash flow in place, then perhaps you can get some
interest in having leverage. But I think as a first step, investors are best served by looking at this on an unlevered

The U.S. homeownership rate fell to 66 percent for the quarter ending Dec. 31, as low as 1998 levels and down from
a peak of 69.2 percent in December 2004, according to a U.S. Census Bureau report comes out today.

“New households have a much higher propensity to be renters,” Thomas Lawler, a former economist with Fannie
Mae who’s now an independent housing consultant in Leesburg, Virginia. “And a lot of folks who are losing their
homes to foreclosure are now renters.”

Rental Demand

Demand for rental housing helped boost shares of the 12-member Bloomberg Apartment Real Estate Investment
Trust index 13 percent over the past 12 months compared with a 2.1 percent gain for the S&P 500 Index. It’s also
attracting private equity funds to single-family homes, which historically have been an investment for small

Cerberus Capital Management LP, Deutsche Bank AG, Fortress Investment Group LLC (FIG), Starwood Capital
Group LLC, TCW Group Inc. and UBS AG are among the financial firms that submitted responses to the federal
request for information in September, according to a list obtained by Bloomberg through a Freedom of Information
Act filing.

“We believe we’ll easily be able to raise $1 billion this year in total,” said Rick Sharga, executive vice president of
Carrington Mortgage Holdings LLC in Santa Ana, California, which will manage the homes bought with Oaktree
Capital’s money. “The ultimate fund could be several times that.” Carrington Manages
Carrington currently manages more than 3,000 rental homes for Fannie Mae, mostly in California, Arizona, Nevada
and Florida, Sharga said.

Single-family home rentals can yield cash flows that are 300 basis points, or 3 percentage points, higher than
apartments, said Gregor Watson, principal of McKinley Capital Partners LLC of Oakland, California, which has
invested $100 million in the past two years, buying more than 400 foreclosed homes in the San Francisco Bay Area
and other western U.S. cities. McKinley’s largest financial backer is Och-Ziff Capital (OZM)Management Group, a
New York-based investment fund with $28.9 billion under management as of Nov. 1, Watson said. Jonathan
Gasthalter, an outside spokesman for Och-Ziff declined to comment.

“This will be a new institutional asset class in the next 24 months,” Watson said.
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Forming a REIT

GTIS, which has $2 billion of assets, expects to hold its homes about five years, waiting for housing prices to
recover before selling, Shapiro said. If housing prices don’t rebound, GTIS can exit by forming a real estate
investment trust with shares sold to investors attracted by the rental income, similar to REITS for multifamily,
industrial or office properties, he said.

“Single family dwarfs any of those asset classes,”Shapiro said. “When you think about the number of homes that are
going to be rented and institutionally owned, they’re going to become its own asset class.”

GTIS, which has invested $225 million in partnerships with homebuilders such as Hovnanian Enterprises Inc.
(HOV) since 2010, will hire in-house staff to manage the rental properties in each area, Shapiro said. He declined to
disclose his expectations for returns on investment.

“We think the important thing is on the operations and management side as opposed to playing a numbers game, like
I’m buying for 30 cents on the dollar to a 12 percent yield,” he said.

Buying in Bulk

GTIS expects to buy homes in bulk from banks, Fannie Mae and Freddie Mac, Shapiro said. Properties will also be
bought individually at courthouse auctions and through short sales, when lenders agree to sell for less than the
balance of the mortgage, he said.

GTIS will start buying in cities in Nevada, Arizona and California -- the states with the three highest foreclosure
rates, according to RealtyTrac Inc. -- and Florida, which RealtyTrac ranked seventh in December, Shapiro said.

“The key is being able to efficiently manage these homes,” he said. “That’s why we’re targeting select markets. Our
intention is to rent them, to hold them for long term.”

FHFA Solicits Investors for REO-to-Rental Sales

The Federal Housing Finance Agency (FHFA) on Wednesday issued a notice to investors interested in buying
government-owned REOs in bulk for use as rental properties, encouraging them to register with Fannie Mae in order
to pre-qualify as an eligible bidder.

FHFA says the first pilot transaction will be announced in the “near-term.” During the pilot phase, Fannie Mae will
sell off pools of various types of assets, including rental properties, vacant properties, and nonperforming loans, with
a focus on the hardest-hit areas.

These pilot sales represent the initial stage of the government’s Real-Estate Owned (REO) Initiative announced in
August 2011, when FHFA issued a Request for Information (RFI) seeking input on options for selling single-family
REO properties held by Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA). The agency
received more than 4,000 responses from industry stakeholders.

The REO Initiative will allow qualified investors to purchase pools of foreclosed properties from government
housing agencies with the requirement that the properties be rented out for a specified number of years.

“This is an important step toward increasing private investment in foreclosed properties to maximize value and
stabilize communities,” said Edward DeMarco, acting director of FHFA. “I am grateful for the collaborative effort
by the many stakeholders including investors, nonprofit organizations, and state and local government officials, who
have worked together on this Initiative.”
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FHFA says pre-qualification of participating investors ensures they have the financial capacity and operational
expertise to manage properties so that their efforts support the stabilization of communities that have been hit hard
by the housing downturn.

The pre-qualification process requires those interested in receiving information regarding specific pilot transactions
to meet certain minimum criteria. Beyond providing proof that they have the financial means to acquire the assets
and the experience and knowledge to assume the risks associated with such an investment, FHFA says prospective
investors must agree to keep certain information about the REO and related matters confidential.

The purpose of the REO Initiative pilot is to examine investor interest in various types of assets, including the
location, size, and composition of pools of assets, as well as the ways in which investors maximize the participation
of experienced local firms and organizations to provide the services and support needed to ensure community
stabilization. The agency is also looking at which types of transactional structures and financing improve both
sellers’ returns and home values in the impacted markets.

Interested investors can register to pre-qualify at FHFA’s REO Initiative page on the agency’s website.

FHFA says it is also looking at ways to improve REO sales to homeowners and small investors by enhancing the
GSEs’ existing retail sales strategies. Both Fannie Mae and Freddie Mac sell the majority of their REO properties to
owner-occupants at close to market value.

As of the end of the third quarter of 2011, Fannie Mae had 122,616 single-family REO properties on its books and
Freddie Mac held 59,596.

Is 2012 the Year of the Housing
2012: The year of a housing turnaround?

Improved employment figures and record home affordability levels could spawn a minor housing recovery this year,
analyst Mark Fleming said Wednesday in the CoreLogic (CLGX: 14.5083 +0.54%) MarketPulse report.

Fleming says economic concerns peaked in the summer of 2011 when politicians were stuck wrangling over the
nation's debt ceiling and the economy seemed poised for stagnation.

Fast-forward a few months, and Fleming says conditions are better, making way for a possible recovery in 2012.
Fleming's more optimistic outlook is mirrored in the Freddie Mac U.S. Economic and Housing Market Outlook
survey for the month of January.

The Freddie report says economic growth will strengthen by 2.1% in the first quarter of 2012, while mortgage rates
will remain low at least through the beginning of the year. In addition, the Freddie Mac survey predicts home sales
will grow another 2% to 5% from 2011.

Fleming with CoreLogic says several other developments could spur along housing demand. One of those being the
number of households paying off debts — a factor that creates more liquidity and access to credit. Furthermore,
                                                                                                         P a g e | 15

households started adding home equity lines of credit in the third quarter of 2011, bringing in more access to cash
flow and suggesting borrowers and lenders are more confident.

He believes 2012 is the right time for a housing price rebound with affordability levels putting a floor on the market,
barring further price declines.

With this in mind, Fleming said analysts will be watching the market closely in search of positive signs during the
spring and summer selling seasons.

His report noted that "most housing statistics basically moved sideways in the latter part of 2011. Builder sentiment
is improving ever so slowly, but remains at very low levels. Housing starts are also increasing, driven mostly by
multifamily starts."

Fleming points out that single-family housing starts and permits increased at an annual pace of 15% at the end of
2011. Meanwhile existing home sales trended upward, rising 12% when comparing November 2011 to January.

As prices fall, signs of a U.S. housing recovery

U.S. housing prices sank to new lows in December, but positive signs are emerging for both the sector and battered
shares of home-building companies.

Nineteen of the 20 major cities surveyed by the S&P/Case-Shiller index of home prices saw values decline last year,
led by Atlanta where prices tumbled another 13 per cent. The latest data mean that at the end of 2011, average home
prices across the United States were back at the levels they were in 2002, down about 34 per cent from their peak in
early 2006.

The latest report makes it clear that the slide in U.S. home prices may not be over. However, other signals suggest
that building and buying activity is beginning to pick up.

Some home builders have recently reported that orders are rising. Last month, for example, Lennar Corp. (LEN-
N23.260.753.33%) said orders jumped 20 per cent from a year earlier in the three months ended Nov. 30. Investors
have reacted by pouring billions of dollars into shares of the country’s largest home builders, hoping to catch the
first leg of a recovery.

The Standard & Poor’s 1500 Homebuilding index is up 14 per cent this year, led by KB Home (KBH-
N11.490.272.41%), up 66 per cent, MDC Holdings Inc. (MDC-N23.950.220.93%) up 34 per cent, and PulteGroup
Inc., PHM-N up 32 per cent.

The number of housing starts continues to languish below 700,000 a year, the lowest point in more than six decades.
“This is a catastrophic level to the building industry,” Karl Case, professor of economics emeritus at Wellesley
College and co-author of the index, said on a media teleconference Tuesday. But he added that there were some
upbeat signs. “Household formation is beginning to come back,” he said.

Between March, 2010, and March, 2011, the number of new households created in the United States turned negative
for the first time, as hundreds of thousands of people were forced out of homes they couldn’t afford to live with
family or friends. Last spring, the trend reversed, and by the end of the year annualized household growth had
bounced back to one million, which compares with an average of about 1.5 million before the housing collapse, Dr.
Case said.

Meanwhile, the National Association of Realtors said sales of existing homes in January rose 4.3 per cent from
December, to 4.6 million. It was the third monthly increase in four months, but is still far short of the six million
sales a month that economists say is healthy for the market.
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Two key factors continue to hurt the U.S. housing market: the volume of foreclosed properties still on the market;
and tight lending policies by banks, which are demanding that home buyers have pristine credit ratings. More than
one-third of existing-home sales last month involved foreclosed properties. Lenders have foreclosed on about five
million houses since 2006 and more than one million more could come to market this year, according to RealtyTrac

At the same time, applications for mortgages declined by 10 per cent this month from a year earlier, according to the
Mortgage Bankers Association, representing one of the lowest readings since the housing crisis began.

Fannie Mae sees 2012 home sales up 3.5% to 4.74 million

The housing sector will likely take incremental steps forward in 2012, though total originations will fall on fewer
refinances, according to economists at Fannie Mae.

The second half of the year should outpace the first six months in terms of growth, though fiscal policy and political
uncertainty in Washington will likely drive consumer and business activity, the mortgage giant said.

Chief Economist Doug Duncan said positive consumer activity and challenges in housing and the global economy
will equate to moderate growth for the year.

"We're entering 2012 with decent momentum, especially on the employment side, which is fostering positive
household and consumer behavior," Duncan said in a release. "Unfortunately, we expect this momentum to slow as
we move through the first half of the year."

The report released Friday forecast total home sales to increase 3.5% to about 4.74 million in 2012 from 2011 with
another 5% gain in 2013 to nearly 5 million. New home sales could jump 10.4% for 2012.

The Federal Housing Finance Agency home sales price index, excluding refinances, could dip 1.1% for 2012 from
a year before, according to the forecast. Economists predicted the 2011 index would finish 4.6% lower than 2010.

Mortgage originations as dollar volume could see a decline as well in 2012, largely on a steep drop in refinances.
The Fannie report said total originations will fall to $1.01 trillion in 2012 from a predicted final 2011 tally of $1.36
trillion. Economists expected refinancing to plummet to $540 billion from $894 billion.

Purchase mortgages, however, will rise to $471 billion in 2012 from a estimated 2011 total of $464, according to the

Total single-family outstanding mortgage debt will likely drop 1.3% to $10.14 trillion in 2012.

For the U.S. economy as a whole, Fannie researchers predicted real GDP would increase 3.3% in the fourth quarter
to finish the year at 1.7% growth. Economists forecast 2.3% GDP growth for 2012 and 2013.

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