Higher FHA loan limits reinstated for high-cost housing markets

Uncle Sam has thrown California and other high-priced housing markets a lifeline.

President Obama on Friday signed into law a bill that will reinstate higher limits for Federal Housing Administration-backed mortgages in high-cost areas. In expensive housing areas such as Los Angeles and Orange counties, the limit for these FHA-backed loans had dropped to $625,500 from $729,750 on Oct. 1. The change became effective Friday.

Similar ceilings applying to loans that can be backed by Fannie Mae and Freddie Mac will not increase. The California Assn. of Realtors and its larger national partner association had lobbied for all of the loan limits to be reinstated.

The group is “pleased the Senate and House were able to come to a reasonable compromise,” LeFrancis Arnold, president of the group, said in a statement Friday. “However, we are disappointed that the Senate and House could not agree on increasing the loan limits for Fannie Mae- and Freddie Mac-insured loans.”

A bipartisan group of California lawmakers had sought the increase of all of the old limits, but the House Appropriations Committee had raised concern that Fannie and Freddie, which have received more than $150 billion in financial rescue money from taxpayers, have received public scrutiny for “questionable business practices,” The Times previously reported.

The FHA has also come under increased scrutiny as that agency said in a report to Congress this week that it could be headed for its own taxpayer bailout.

Rep. Brad Sherman (D-Sherman Oaks), in a statement said the passage of the higher FHA loan limits would help “prevent a collapse of housing prices in high-cost areas like Los Angeles.”

Indeed, sales of properties in Orange and Los Angeles counties with loans between $625,500 from $729,750 fell sharply, to 102 last month, according to San Diego real estate firm DataQuick. That was a 71% decline from 350 in September and down 71.5% from 358 sales in October 2010.

But the Obama Administration warned this week that it is important for the federal government to get out of the mortgage business.

“We believe that lowering the limits is a step to ensuring that private capital will return to the market,” Carol Galante, the acting FHA commissioner, said during a congressional confirmation hearing Thursday. “We understand at the present time FHA is playing a somewhat outsized role in the market.”

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Photo: Simon Salloom, a Coldwell Banker real estate agent, walks through a condominium in Santa Monica. Credit: Mel Melcon/Los Angeles Times

Two O.C. loan officers indicted in Las Vegas foreclosures case

In what appear to be the first criminal charges to stem from the fracas over improper foreclosures last year, two Southern California title loan officers have been indicted by a Nevada grand jury for allegedly filing tens of thousands of improper documents related to Las Vegas-area foreclosures.

The Clark County grand jury charged Gary Trafford, 49, of Irvine and Geraldine Sheppard, 62, of Santa Ana on 606 counts, alleging that the two headed up a vast “robo-signing” operation that resulted in the filing of tens of thousands of fraudulent foreclosure documents.

The documents were filed with the Clark County recorder’s office between 2005 and 2008, according to the indictment. The two title loan officers worked for the firm Lender Processing Services, a foreclosure processing company based in Florida that has been used by most of the largest banks in the nation to process home repossessions.

"I am not allowed to speak with you. I have no comment at this time," Sheppard said when reached by phone. Trafford could not be reached for comment.

The two have not been arrested, a spokeswoman for Nevada Atty. Gen. Catherine Cortez Masto told The Associated Press. LPS said in a statement that it is working with the authorities.

The company, in its statement, acknowledged that some of its documents were flawed but said the documents did not result in wrongful foreclosures.

“I am deeply committed to ensuring that LPS meets rigorous standards of professional conduct and operating excellence,” LPS Chief Executive Hugh Harris said in the statement. “I have full confidence in the ability of our leadership team and over 8,000 dedicated employees to deliver on that commitment."

Trafford is charged with 102 counts of offering false instruments for recording, a felony; false certification on certain instrument, a felony; and notarization of the signature of a person not in the presence of a notary public, a misdemeanor.

Sheppard is charged with 100 counts of offering false instruments for recording, a felony; false certification on certain instruments, a felony; and notarization of the signature of a person not in the presence of a notary public, a misdemeanor.

The indictment says that two title loan officers directed the fraudulent notarization and filing of paperwork used to initiate foreclosure on homeowners in the Las Vegas area. Nevada alleges that the two directed their employees to forge foreclosure documents, notarize the signatures on the documents they had forged and then file the fraudulent paperwork with the Clark County recorder's office in order to begin foreclosures on homes throughout the county.

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Photo: A foreclosure sign in front of a bank-owned home for sale in Las Vegas. Credit: Robyn Beck / AFP/Getty Images

Construction of new homes increases, except in West

Construction of single-family U.S. homes appeared to pick up last month, but not in the West.

Single-family homes were started at a rate of 434,000, a 5.1% increase over the prior month.

The increase follows news of an increase builder sentiment. Economists called the jump in new single-family-home starts a positive sign, as the nation's beleaguered real estate market was at least showing life.

"This was a good report," Patrick Newport, U.S. economist with IHS Global Insight, wrote in a note Thursday. "It has supporting evidence that the single-family market is finally getting off the mat and that the multi-family segment is continuing to make small strides, and that we should expect good housing starts numbers the rest of this year."

Overall housing starts -- including the volatile apartment building sector -- fell in October 0.3% over the prior month, to a seasonally adjusted annual rate of 628,000. The decline was attributed to a drop in apartment building construction.

The West was the only region that did not see an increase, falling 16.5%. Starts were up 17.2% in the Northeast, 9.7% in the Midwest and 1.6% in the South.

Another measure of housing activity considered less volatile than starts, permits issued, also showed new building gaining ground last month. New permits in October were at a seasonally adjusted annual rate of 653,000, 10.9% above September and 17.7% above October 2010.

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Photo:  Suburban homes under construction in Rancho Cucamonga. Credit: Getty Images

 

Home prices fall in October as mortgage changes take hold

Uncle Sam’s steps to exit the mortgage market took a toll on Southern California’s housing market in October as fewer higher-cost homes sold.

The median price, the point at which half the properties sold for more and half for less, dropped because sales of more expensive homes took a dive with government-backed financing for those homes scaling back last month.

The region’s median sale price was $270,000 in October, according to real estate market tracker DataQuick. That was the lowest since January, a 3.6% decline from September and a 4.6% drop from October 2010.

“For a few months now, lower prices and amazingly low mortgage rates have kept resale activity slightly ahead of last year,” John Walsh, DataQuick president, said in a statement. “Of course, that’s not saying a lot when you consider sales were 25% to 30% below average.”

With 16,829 new and previously owned homes sold, October’s sales pace was 29.3% below the average for that month going back to 1988, when DataQuick records start. Sales were down 7.3% from September and up 0.5% from October 2010.

One big change to the market last month was the federal government's first step to reduce its role in the mortgage business by lowering the size of home loans it will guarantee.

The government currently supports about 90% of new mortgages — essentially propping up the home loan market after credit dried up and home sales plunged in the wake of the subprime mortgage crisis. The loan limit determines the maximum size of a mortgage that the Federal Housing Administration, Fannie Mae and Freddie Mac can buy or guarantee.

So-called nonconforming jumbo loans that are offered on the private mortgage market typically require bigger down payments and carry a higher interest rate, resulting in higher monthly payments for borrowers. In Los Angeles and Orange counties, the limit for FHA, Fannie and Freddie loans dropped from $729,750 to $625,500.

According to DataQuick, sales of properties in those two counties with loans between those limits fell 71% from the month before and 71.5% from a year earlier.

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Photo: A home for sale in Altadena. Credit: Associated Press

Falling prices mean rising affordability, California Realtors say

Call it the silver lining of falling home prices.

With low interest rates and cheaper housing throughout the Golden State, the percentage of homebuyers who could afford to purchase a home increased in the third quarter, a real estate group said Thursday.

The number of households who could afford a home priced at the statewide median of $292,120 rose in the third quarter, according to an index produced by the California Assn. of Realtors. Fifty-two percent of California households could afford that price, compared to 51% in the second quarter.

Now if these households would only buy.

Beth L. Peerce, president of the group, said in the news release that one problem potential homebuyers could face is tight credit. Many first-time buyers don’t qualify for a loan, she said. Indeed, some analysts have noted that banks have tightened their loan criteria since the housing crash. But it was those loose lending standards that caused the real estate bubble in the first place, so many other analysts also argue that more carefully scrutinizing borrowers is appropriate.

The federal government has been providing enormous support to the mortgage market through loans backed by the Federal Housing Administration, though it has recently taken steps to scale back that support.

In California, potential buyers needed to earn at least $61,530 a year per household to qualify for the median-priced home. The median is the point at which half the homes in the state sold for more and half for less.

The real estate group calculated the monthly payment for a mortgage on such a home to be $1,540, including taxes and insurance, and assuming a 20% down payment and a 4.63% effective composite interest rate.

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Photo: A home on the market in Altadena features a sign of the times. Credit: Associated Press

 

Dick Bove is sick of all the bad news

Richard X. Bove is sick of all the bad news.

The widely quoted Rochdale Securities analyst –- who makes frequent appearances on cable news shows -- is now taking aim at what he views as the media's doomsday-like interpretation of financial events.

In an analyst's research note (a medium best-known for its staid commentary on specific companies or economic events) Bove on Tuesday delivered a sarcastic missive titled "Is It Possible That the World Is Not Ending?"

"Like most people every morning I wake up, look at the news on TV and scan three newspapers," he wrote. "The message is always the same. It is time to slit my throat and leave this morass of misery."

From the European debt crisis to the U.S. housing market, Bove laments, the focus is overwhelmingly negative.

Bove is known for being unusually frank in his commentary.

His point is that perhaps things are not as bad as “the media” would make them seem.

"The GDP figures for the third quarter were up by 2.5%. Just about every banking company that reported earnings beat their estimates and some had record revenues. Approximately 73% of the S&P companies reporting beat earnings estimates at last count,” he continued. “In October, the S&P 500 rose 10.8%; bank stocks were up by 13.4%."

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Banks, regulators start massive review of foreclosures

Some people who lost their homes to a foreclosure system wrought with error and misconduct may now request their cases be independently reviewed and potentially may be compensated.

A large-scale review of foreclosures that occurred in 2009 and 2010 began on Tuesday with federal regulators requiring the nation’s largest mortgage servicers to start mailing letters to potential victims. Independent consultants that the banks were ordered to hire in April will conduct the assessments. More than 4 million borrowers could be eligible.

“The independent foreclosure review is a significant component of the mortgage servicers’ compliance with our enforcement actions,” said John Walsh, acting Comptroller of the Currency, who along with the Federal Reserve and Office of Thrift Supervision ordered the reviews. “These requirements help ensure that the servicers provide appropriate compensation to borrowers who suffered financial harm as a result of improper practices identified in our enforcement actions.”

The actions affect 14 large mortgage servicers that were required to correct the shortcomings and errors in their foreclosure processes. The outreach effort that began Tuesday is a first step.

Each mortgage servicer is required to mail one letter to each customer who is eligible for the review. An advertising campaign will also begin shortly to get the word out to people potentially harmed by the errors, federal officials and bank representatives said Tuesday.

A financial compensation schema for borrowers found to have been foreclosed on improperly has not been developed yet, and neither banking officials nor regulators gave an estimate for how much the actions would cost the banks.

The actions by the federal regulators come after it was revealed last year that banks employed so-called robo-signers, people who signed foreclosure documents en masse without properly reviewing them; took back their homes even though they were being reviewed for a loan modification; and made other errors in the foreclosure and servicing processes.

The enforcement orders are separate from work being done by a committee of attorneys general that also hope to reach a settlement with the nation’s largest banks over faulty foreclosure practices. Those negotiations remain ongoing, even though some states have voiced concern over the direction of the negotiations, and California has dropped out altogether.

A website for borrowers who want to learn more about the federal claims process has been created, IndependentForeclosureReview.com, as has a toll-free phone line, (888) 952-9105.

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Photo: A foreclosure notice hangs in the window of a home on Sand Pine Trail in the gated Willow Walk community in Hemet. Credit: Gina Ferazzi / Los Angeles Times

 

Home prices up slightly in August, according to index

A closely watched index of home prices in American cities rose slightly in August from the prior month.

Prices of previously owned single-family homes rose 0.2% in August over July and, according to the Standard & Poor's/Case-Shiller index of 20 metropolitan areas. The index dropped 3.8% from the same month a year prior.

“We see a modest glimmer of hope with these data,” David M. Blitzer, chairman of the index committee at S&P Indices, said in a statement.

Ten out of the 20 metro areas covered by the index saw home prices rise over the prior month.

California cities stumbled. Los Angeles fell 0.4% over the prior month, San Diego 0.2% and San Francisco 0.1%. Atlanta saw the biggest decline, down 2.4%. Las Vegas fell 0.3% and Phoenix was down 0.1%.

The Midwest has made gains in recent months and Chicago and Detroit were both up 1.4% over the prior month. Washington D.C. has also faired better than other regions and gained 1.6% over the prior month.

The monthly rise in the 20-city index made for the fifth consecutive month of gains. Earlier this year the index dropped below its previous bottom hit in April 2009, confirming a double-dip in prices but has come up above that since. Some economists predict a renewed decline in prices in fall and winter.

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Photo: A home for sale in Durham, N.C. Credit: Bloomberg

New home construction surges in September; recovery still elusive

New residential construction surged 15% in September, turning in its best performance in 17 months, though economists warned that a housing recovery has yet to take hold.

While new construction is key to getting the economy going, much of the new building came from the apartment sector, which can be very volatile. Many economists also noted that permits pulled for new construction, also an important measure of builders’ plans for the future, declined in September.

Nevertheless, the news of the increase cheered investors on Wall Street as well as several housing analysts who follow the numbers closely.

“A strong residential construction number is a welcome relief for an economy struggling to hang on to expansion and a hopeful harbinger of better days to come,” Celia Chen, a housing economist with Moody’s Analytics, wrote in a research note Wednesday morning. “Caution, however, needs to be taken in interpreting the surprisingly strong top-line housing starts for September.”

Builders started new residential units at a seasonally adjusted annual rate of 658,000 in September, a 15% increase over the prior month and up 10.2% from the same month the year before, according to the U.S. Commerce Department.

Single-family homes were built at a rate of 425,000 units, which is only 1.7% above a revised August estimate, meaning the bulk of the increase came from the building of structures with five or more units.

News of the increase in new home starts came one day after builder confidence in the market rose, according to a closely watched index that measures builder sentiment. The National Assn. of Home Builders/Wells Fargo Housing Market Index jumped by four points to 18 in what was the biggest one-month gain since April 2010, when a tax credit for buyers was fueling purchases. Sentiment remains pretty dismal, however, as a number above 50 indicates more builders view conditions as good than poor.

“A stagnant economy and labor market has meant that housing recovery over the past year has been painfully slow, but we do believe that housing is gradually healing and recovering,” Nishu Sood, a home-building analyst with Deutsche Bank, wrote in a research note Wednesday.

Despite that cautious optimism, economists also pointed to the housing permits number released Tuesday by the Commerce Department, which signaled a more mixed picture for housing. New residential building permits were issued at a seasonally adjusted annual rate of 594,000 units, which is 5.0% below the revised August rate, though still up 5.7% from September 2010.

“We would warn against getting too excited as the fundamental picture has not changed; household formation is still too low and the excess supply is still too high to warrant a major rise in home building,” read part of an analysis by Capital Economics.

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Photo: Homes under construction in Southern California. Credit: Getty Images

Number of Californians entering foreclosure jumps in third quarter

A big August surge in foreclosure actions by Bank of America and Bank of New York sent the number of California homeowners entering foreclosure to levels not seen in a year.

The third-quarter jump in notices of default, the first formal step in the foreclosure process, came after such filings had dropped to a three-year low earlier this year. Defaults were up 25.9% from the prior quarter, according to according to San Diego-based DataQuick, a real estate information service.

Banks have fired up the foreclosure-processing machinery in recent months after a long lull as they tried to negotiate settlements with regulators over faulty foreclosure practices. That slowdown created a backlog after a slew of investigations were launched following last year’s so-called robo-signing scandal, where banks used improper practices and documents to foreclose on troubled homeowners.

“Obviously, some lenders and loan servicers have begun to plow through their backlogs of delinquent loans more aggressively,” DataQuick president John Walsh said in a statement.

California properties received an estimated 71,275 notices of default during the three months ended Sept. 30, with some properties receiving multiple notices due to more than one loan. The majority of those loans were from the peak bubble years of 2005, 2006 and 2007, when lending practices were at their loosest, DataQuick said.

Separate third-quarter data released earlier this month by the Irvine-based firm RealtyTrac showed the number of homes entering foreclosure surged in states where repossessions take place largely outside of the courtroom. These nonjudicial states include California, Nevada, Arizona, Oregon and Washington.

Experts said that these Western states would experience any foreclosure surge first, as it is easier to get the process rolling again in these places.

While more California homes entered the foreclosure process in the third quarter, the number of homes taken back by banks continued to decline, according to DataQuick. The number of filed trustees deeds -- which are the papers that record the repossession of a home -- declined 8.4% from the prior quarter and dropped 14.3% from the third quarter of 2010. A total of 38,895 trustees deeds were filed in the third quarter.

Experts said that banks are probably waiting for some kind of settlement to be hammered out before really picking up the pace on foreclosures again. The increase in new California proceedings comes as talks over a broad foreclosure settlement by state attorneys general with the nation's five-largest mortgage servicers have experienced setbacks -- dragging on far longer than expected.

California recently stepped out of those discussions, declaring it would pursue its own path.

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Photo: A foreclosure notice hangs in the window of a home on Sand Pine Trail in the gated Willow Walk community in Hemet. Credit: Gina Ferazzi / The Los Angeles Times

Bay Area home sales pick up as prices fall

As prices fell, Bay Area home sales picked up in September from the same month a year prior.

Sales were up 6.6% from the same month a year ago. As is typical, sales fell from August to September, down 10.2%, to total 6,749 homes sold last month, according to real estate research firm DataQuick of San Diego.

The median price for the region fell 7.6% from the same month a year prior and was down 1.4% from August, hitting $365,000.The median is the point at which half the homes in the region sold for more and half for less.

Foreclosures and other so-called distressed properties remain a big part of the market. Foreclosures accounted for 25.6% of the resale market last month, down from a revised 25.7% in August and 27.5% in September 2010.

Short sales -– when the home is sold for less than the outstanding debt on the property -– made up 20.1% of the Bay Area market last month. That was up from 18.2% of August and 15.4% in September 2010.

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Photo: A San Francisco neighborhood. Credit: Getty Images

Southern California housing market stalls in September

Southern California’s housing market stalled in September as sales were essentially flat over the same month a year earlier and the region's median price fell.

Sales increased 0.3% from the same month a year earlier, when the market was reeling from the effect of an expired tax credit that had boosted sales for much of the year.

With 18,419 homes sold across the six-county region, September's tally was 24% below the average for that month going back to 1988, according to real estate research firm DataQuick of San Diego.

The median price for the region fell 5.2% from the same month a year earlier to $280,000. That was essentially flat from August, up 0.4%. It was the seventh month in a row that the region's median home price fell on a year-over-year basis.

Photo: The Antelope Valley has been especially hard hit by the foreclosure crisis. Credit: Michael Robinson Chavez / Los Angeles Times

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More borrowers gain permanent mortgage relief in August

The number of borrowers who received permanent aid through the Obama administration's signature foreclosure relief program ticked up slightly in August.

A total of 690,969 borrowers had received active permanent modifications through the Home Affordable Modification Program by the end of August, up 2.3% from July, the Treasury Department said Wednesday.

Also in August, the number of troubled homeowners eligible for the program fell to below 1 million. A total of 992,968 borrowers potentially qualified for HAMP, the Treasury Department said.

A total of 1,902,606 borrowers were in extended temporary, trial modifications.

Launched in 2009, the initiative was aimed at helping 3 million to 4 million homeowners avoid foreclosure through 2012. Critics charge that the program is on track to fall below those goals.

Loss of income remains the overwhelming reason that people seek mortgage relief through the program, cited by 61.5% of those receiving a permanent modification.

That compared with 11.2% who said excessive obligation was the main reason for seeking help and 2.9% who said they were prompted by illness of the principal borrower.

The government did not report reasons given for the remaining 24.4% of borrowers.

Last month, the Treasury Department said that Bank of America and JPMorgan Chase Bank were in "substantial" need of improvement in helping troubled borrowers modify their mortgages and that those two banks have been denied financial incentives for completing modifications until their performance in the program improves.

Wells Fargo and Ocwen Loan Servicing, after previously being on the list of banks that needed "substantial" improvement, were categorized in last month's Treasury report as needing only "moderate" improvement, as were American Home Mortgage Servicing, CitiMortgage and Select Portfolio Servicing.

The banks that were in need of minor improvement included GMAC Mortgage, Litton Loan Servicing and OneWest Bank, the government said last month.

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Photo: A San Antonio home facing foreclosure. Credit: Associated Press

Massachusetts prepares to sue banks over foreclosures

Massachusetts Atty. Gen. Martha Coakley said she is preparing to sue the nation's big banks for allegedly wrongfully foreclosing on borrowers after having "lost confidence" in settlement talks aimed at resolving the matter.

The banks -- Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- are in settlement discussions with state and federal officials and seeking releases that would protect them from future lawsuits.

California Atty. Gen. Kamala Harris bowed out of the negotiations last week, saying the banks were asking for too much and vowing that her office would launch a more rigorous investigation.

Coakley has said she won’t sign on to a deal that includes broad legal release. New York, Delaware, Nevada, Kentucky and Minnesota have also signaled that they are unhappy with the proposed deal being discussed because of legal release from liability being offered to the banks.

New York and Delaware have been cooperating in their own probes separate from the coalition.

Coakley has indicated she would not support an agreement that was too easy on the banks or potentially impeded further investigations.

Below is her full statement released Wednesday:

“I have lost confidence that the banks will bring to the table an agreement that properly holds them accountable for wrongful foreclosures. Because our office for some time has anticipated that result, we have begun preparing for litigation. Our office is aggressively proceeding with efforts to file lawsuits regarding creditor misconduct in connection with unlawful foreclosures, including the failure to establish the right to start a foreclosure as well as filing false or misleading documents with registries in the Commonwealth. We will, as we have in the past, use our resources to hold the big banks accountable to fully protect homeowners and restore a healthy economy.”

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Photo: Activists rally in San Jose earlier this year. Credit: Associated Press.

 

California breaks from 50-state probe into mortgage lenders [Updated]

 

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation's biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, Harris told The Times on Friday.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, Harris said.

“It has been  a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient," Harris told The Times in an interview.

Harris delivered the news in a letter sent Friday to Iowa Atty. Gen. Tom Miller, who has been leading the 50-state coalition.

[Updated 5:36 p.m.: Iowa Atty. Gen. Tom Miller, who has been leading the negotiations, vowed to press on.

“California has been an important part of our team and has made a significant contribution to this case,” Miller said in a statement. “However, the multistate effort is pressing forward and we fully expect to reach a settlement with the banks.”]

The removal of California from the discussions is a major blow to fraying efforts by the coalition, which has been trying to strike a settlement deal with the big banks for months. The move by Harris to reject the settlement talks is also a key departure from efforts by the Obama administration, which has been pushing for a fast resolution to the so-called robo-signing scandal that erupted last year.

“This whole concept of a settlement on foreclosure abuse is probably dead,” said Christopher Whalen, the founder of Institutional Risk Analytics. “Nobody in their right mind is going to opt into a settlement right now.”

For California homeowners, the move means the probable end of an opportunity for relatively quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed.

Harris has faced increasing pressure in recent weeks from inside and outside the state to reject any deal that was considered too weak, particularly as the foreclosure crisis in the Golden State appears to be worsening.

Among the states with the highest foreclosure rates, California led the pack in new foreclosure proceedings last month, with an increase of 55% over July, according to data from Irvine-based RealtyTrac. Metro areas in the inland parts of California posted big jumps in August, with Riverside and San Bernardino counties soaring 68%, Bakersfield 44% and Modesto 57%.

In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.

New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street's role in the mortgage meltdown -– focusing on the efforts to bundle low-quality mortgages into sophisticated bonds.

Schneiderman has been highly critical of the proposed 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide immunity from other efforts to bring them to account for misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.

A spokesman for Schneiderman, Danny Kanner, welcomed Harris's move.

“Attorney General Schneiderman looks forward to his continued work with Attorney General Harris and his other state and federal counterparts to ensure those responsible for the mortgage crisis are held accountable and homeowners who are suffering receive meaningful relief,” said Kanner.

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Photo: California Atty. Gen. Kamala Harris speaks at a news conference in May to announce the creation of the California Attorney General's Mortgage Fraud Strike Force. At left is Los Angeles Mayor Antonio Villaraigosa. Credit: Mel Melcon / Los Angeles Times

California breaks from 50-state probe into mortgage lenders

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation's biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Harris removed herself from talks by a coalition of state attorneys general and federal agencies investigating abusive foreclosure practices because the nation's five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered, a person familiar with the matter said.

The big banks were also demanding to be granted overly broad immunity from legal claims that could potentially derail further investigations into Wall Street's role in the mortgage meltdown, the person said.

The removal of California from the discussions is a major blow to fraying efforts by the 50-state coalition that has been trying to strike a settlement deal with the big banks for months. The move by Harris to reject the settlement talks is also a key departure from efforts by the Obama administration, which has been pushing for a fast resolution to the so-called robo-signing scandal that erupted last year.

For California homeowners, the move means that gone is the chance for quick relief stemming from revelations last year that banks improperly foreclosed on troubled borrowers. Key reforms to mortgage-servicing and foreclosure practices pushed by the attorneys general may also be delayed, affecting hundreds of thousands of Californians facing the loss of their homes.

But Harris has faced increasing pressure in recent weeks from inside and outside the state to reject any deal that was considered too weak, particularly as the foreclosure crisis in the Golden State appears to be worsening.

Among the states with the highest foreclosure rates, California led the pack in new foreclosure proceedings last month, with an increase of 55% over July, according to data from Irvine-based RealtyTrac. Metro areas in the inland parts of California posted big jumps in August, with Riverside and San Bernardino counties soaring 68%, Bakersfield 44% and Modesto 57%.

In rejecting the 50-state talks, California also widens the riff among law enforcement officials nationwide over the best approach to pursuing banks for mortgage misdeeds.

New York Atty. Gen. Eric Schneiderman, who was originally part of the 50-state negotiations, has launched a wide-ranging investigation into Wall Street's role in the mortgage meltdown -– focusing on the efforts to bundle low-quality mortgages into sophisticated bonds.

Schneiderman has been highly critical of the proposed 50-state settlement and expressed concern that his counterparts in other states may let the banks off too lightly and provide immunity from other efforts to bring them to account for misdeeds. Schneiderman has also won support from attorneys general in Delaware, Nevada, Massachusetts, Kentucky and Minnesota, some of whom have launched their own investigations.

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Photo: California Atty. Gen. Kamala Harris speaks at a news conference to announce the creation of the California Attorney General's Mortgage Fraud Strike Force. Credit: Mel Melcon / Los Angeles Times

Troubled homes hanging over U.S. housing market drop

Call it a sliver of a silver lining for America's beaten down housing market: The inventory of troubled U.S. homes not yet listed for sale is diminishing.

Homes in foreclosure -- or headed into foreclosure -- are being sold at a fast enough clip to chip away at the so called "shadow inventory" that hangs over the U.S. market, Santa Ana data provider CoreLogic reported Tuesday. Shadow inventory at the end of July was down to 1.6 million units, representing a five-month supply of homes.

That means that there are 1.6 million homes in the pipeline not listed for sale. This is down from 1.9 million units, a six-month supply, from about a year ago.

"The steady improvement in the shadow inventory is a positive development for the housing market," CoreLogic Chief Economist Mark Gleming said. "However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time."

The company derives the estimate for shadow supply, or pending supply, by taking the number of so-called distressed properties not listed on any real estate listing services. It considers distressed properties to be those that are either bank-owned or delinquent by three-plus months.

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Photo: Boulder County Sheriff's Deputy Patrick Gallagher checks the final paperwork during a home foreclosure last week in Longmont, Colo. Credit: John Moore / Getty Images

Case Shiller index shows home prices rising in American cities

An index of home prices in the nation's largest cities rose from June to July, though is still down from the same month a year earlier.

The Standard & Poor’s/Case-Shiller index of 20 American cities, a key measure that is closely watched by economists, was up 0.9% over June, but down 4.1% from July 2010. The month-over-month bump is most likely due to the seasonal boost the housing market gets over the summer and will most likely do little to cheer economists about the housing market's future.

"While we have now seen four consecutive months of generally increasing prices, we do know that we are still far from a sustained recovery," David Blitzer, chairman of the S&P index committee, said in a release announcing the new data Tuesday.

The rise in prices made for the fourth consecutive month of gains. Earlier this year the index pushed below its previous bottom hit in April 2009, confirming a much-feared double-dip, but has come back above that level since.

Some economists predict prices will drop again in fall and winter.

All of California cities in the index posted minor month-over-month gains. Los Angeles was up 0.2%, San Diego 0.1% and San Francisco 0.3%.

Home prices in the California cities are comparatively healthy despite the state's high unemployment rate, because the markets tracked by the index are close to key job centers such as Hollywood and Silicon Valley and are also near the ocean -- where overbuilding was relatively constrained. The index does not track prices in California's Central Valley or the Inland Empire, where housing is still weak.

The Case-Shiller index also includes data that are adjusted for seasonal variations, but the experts who publish these numbers have cautioned that the large number of foreclosures on the market have distorted the statistics. The adjusted data showed the index was flat from June to July.

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Photo: A home for sale in Tempe, Ariz. Credit: Bloomberg

New home sales stuck at the bottom in August

Sales of newly built homes in the U.S. appear to be stuck at the bottom.

The August read on new home sales showed properties selling at a seasonally adjusted rate of 295,000, down 2.3% from a revised July rate of 302,000 and just 6.1% above August 2010, according to the Commerce Department.

"With job growth at a standstill, the stock market swinging wildly, Congress wrangling over the debt ceiling and the euro zone’s problems sending consumer confidence down, sales of new homes are slipping from an already weak pace," Celia Chen, director of housing economics at Moody’s Analytics, wrote in a note Monday morning. "New-home sales fell below the 300,000 mark in August and are nearing the cyclical (and 48-year) low of 278,000 that sales hit in August 2010."

Patrick Newport, U.S. economist with IHS Global Insight, said that the trend for new home sales has been flat for the last 16 months.

"This year is shaping up to be the worst year on record for new home sales," Newport wrote in a note.

An estimated 162,000 newly built homes were on the market in August, representing a supply of a little more than six months and two weeks. A supply of about six months typically represents a healthy market, so if sales do pick up in a meaningful way then new construction is likely to feel a boost.

The median sales price of a new home, which is the point at which half the new homes sold for more and half for less, fell nearly 9% to $209,100 in August. That was the lowest price since October.

The steep drop in prices indicates that builders are struggling to attract buyers from even cheaper so-called distressed properties, homes that are foreclosures or have a borrower in default.

-- Alejandro Lazo

Twitter.com/AlejandroLazo

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Photo: A Meritage Homes Corp. for sale sign lies on the ground near a construction site recently in Gilbert, Ariz. Credit: Bloomberg

Foreclosure reforms could take a year or more

The chief federal regulator for many of the largest financial institutions said reforms to the nation's foreclosure system will take "a year and more" to complete.

Citing pervasive misconduct in the way banks repossessed homes from borrowers, federal regulators ordered the nation's biggest 14 banks to overhaul their procedures and compensate homeowners injured financially by wrongdoing or negligence.

In remarks to the Institute for International Finance in Washington on Friday, acting Comptroller of the Currency John Walsh said that because of the complexity of the reforms needed, the process would not be a fast one.

"I wish it could be completed more quickly, but it’s important that it be done correctly and in a way that assures fair treatment for homeowners who underwent foreclosure proceedings," he said. "That’s the only way to restore confidence in the system, and it is my hope that the assurance that both past errors and future practices are being corrected will restore confidence much sooner."

The details of the independent reviews of each mortgage servicer ordered to reform its practices by the various federal regulators who conducted the probes will be made public shortly, Walsh said. The amount of money that banks will pay to borrowers remains "open-ended and will only be known when the process ends."

Borrowers who were foreclosed on in 2009 and 2010 are allowed to request a review of their case if they feel they have been wronged by banks' practices. The orders signed by the banks in April required them to hire independent consultants to design a process to review each case.

The banks efforts will include a "massive campaign" to contact borrowers through mailing, tracing techniques used in class action filings and through an advertising campaign, Walsh said. His comments came on a day that a separate group of regulators -- a coalition of attorneys general and federal agencies -- held meetings with the nation's largest mortgage servicers in hopes of hammering out a settlement with them over faulty foreclosure practices.

"Any enforcement actions or settlement agreements they undertake will place additional requirements on the servicers, and it is essential that we harmonize the requirements of our orders with those of other regulators if and when they are reached," Walsh said. "It just doesn’t make any sense to have multiple sets of requirements and standards apply to the same servicers operating in the same markets."

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-- Alejandro Lazo

Twitter.com/AlejandroLazo

Photo: An eviction team removes clothing from a foreclosed home this week in Longmont, Colo.

Credit: John Moore/Getty Images