GSE's Pass FHFA Stress Tests with no Treasury Debits

This will be the first year that financial institutions will be required to submit to stress tests under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Previous stress tests, dating back to 2010, were required and conducted by the Treasury Department.  Like other financial companies with consolidated assets of more than $10 billion and which are regulated by a primary federal regulatory agency, Freddie Mac and Fannie Mae (the GSEs) will be required to take the tests to determine if they have the capital necessary to absorb losses as a result of adverse economic conditions.   

In addition to the Dodd-Frank requirements, the GSEs' regulator, the Federal Housing Finance Agency (FHFA) has continued its practice of working with the companies to develop forward-looking financial projections across three possible house price paths.  These are referred to as the FHFA scenarios and the GSEs, as in the past, have been required to conduct them in conjunction with the other stress tests.  This, however, will be the last year for this FHFA requirement.  

The projections from its recent stress test scenarios were published today by FHFA.  The agency said these are not expected outcomes but rather modeled projections in response to "what if" assumptions about GSE operations, loan performance, macroeconomic and financial market conditions, and house prices.  The key assumptions provided for the Dodd-Frank Act Stress Tests (DFAST) and the FHFA Scenarios are different and the GSEs used their respective internal models to project financial results based on the FHFA assumptions.  FHFA said that while the exercise achieves a degree of comparability between the GSEs it does not eliminate differences in their respective models, accounting differences, or management actions.

Results are all given relative to the eventual impact on the draws required by the GSEs against the outstanding balance of their Senior Preferred Stock Purchase Agreements (PSPAs) with the U.S. Treasury.  As of September 30, 2013 the GSEs have drawn a combined total of $187.5 billion from the Treasury and have a remaining commitment under the agreement of $258.1 billion.

These are the most severe DFAST scenarios and the three FHFA Scenarios.

House price paths influence projections of credit expenses through the mark-to-market loan-to-value (LTV) rations of guaranteed mortgages.  This impacts the probabilities of default, projections of loss through defaults and loss severities.  Assumptions about the prices of securities in retained portfolios affect mark-to-market losses and assumptions about the growth of the retained portfolios, and credit guarantee books influence projects of revenue.  The instantaneous default of the largest counterparty affects mark-to-market losses.

Under the most adverse DFAST test the GSEs would require increased draws from Treasury ranging between $84.3 billion and $190.0 billion depending on the treatment of deferred tax assets.  There would be  remaining funding available under the PSPAs of $173.7 billion without re-establishing valuation allowances of deferred tax assets or $68.0 billion assuming both GSEs reestablished valuation allowances.

Under all three FHFA Scenarios the cumulative Treasury draws remained unchanged at the current levels of $187.5 billion and available funds would remain at $258.1 billion.  Neither GSE would require any additional draws.  Under all three scenarios the GSEs would continue to pay senior preferred dividends to the U.S. Treasury which would range from $54.0 billion in Scenario 1 to $36.3 billion in Scenario 3.

Severe assumptions contribute to the higher losses under DFAST than under even the most stringent of the FHFA Scenarios (Scenario 3).  First there is a significantly more pessimistic house price path used by DFAST.  The decline in value of non-agency securities is also substantially higher and the DFAST scenario includes the default of a large counterparty not envisioned in the FHFA scenario.
House prices have been the major driver of GSE credit losses and while there are a wide range of future house price paths at the national and local levels, given the high levels of uncertainty about overall economic conditions in general and the U.S. housing markets in particular, FHFA directed the GSEs to project financial results using Moody's current baseline and Moody's "Second Recession" path as the downside alternative and Moody's "Stronger Near-term Rebound" as the upside alternative.  The DFAST scenario is significantly more pessimistic than any of the three FHFA alternatives.
Comparison of house price paths, page 9

FHFA says its annual projections of the GSE's performance under its scenarios has improved each year they have been published starting in October 2010 as exemplified by each year's projected cumulative Treasury draw.  In the first projection drawn from FHFA Scenario 3 in 2010 the starting draw was $148 billion and the incremental draw was anticipated at an additional $215 billion for a projected cumulative draw of $363 billion.  In 2011 the beginning and incremental figures were $169 billion and $142 billion for a projection of $311 billion and in 2012 the starting draw was $187 billion with only an additional increment of $22 billion expected.

The improvement has been driven by three factors.  First, the GSEs' exposure to single family credit has been reduced by improving credit quality.  Second, the house price paths have become increasingly less pessimistic, and third, in each year the actual price path has been much better than the most several path projected.

Going forward the FHFA Stress Tests will be replaced by the Dodd-Frank Stress Tests

Home Prices Continue Higher, Some States Above Pre-Crisis Peaks

Home prices nationwide have now recovered to within 13.5 percent of the peak they reached in June 2006.  The national Home Price Index (HPI) provided by Black Knight Financial Services' Data and Analytics Division is $233,000, inching closer to the $270,000 HPI that was the pre-crisis peak. This presents an increase of 7.6 percent from an HPI of $217,000 in March 2014 and a 0.7 percent increase from February. 

Some areas, notably the States of Texas and Colorado and some of the larger cities in Texas, surpassed their 2006 price levels last summer and the Texas locations have continued to post new peak HPI levels virtually every month since.  Texas established a new record level again in February at $188,000 and Colorado after dropping back for a few months also set a new high of $259,000.   Other locations lag far behind the national averages.   Florida, for example, is still more than 33 percent below its peak, Arizona is down over 31 percent and Illinois lags by a quarter and California by 23.4 percent.   

Ten states had increases in their HPI's greater than that 0.7 national monthly average.  Oregon and Washington posted monthly gains of 1.4 percent followed by California Nevada, and Hawaii at 1.3, 1.2, and 1.1 percent respectively.  Other states with larger averages were Colorado, Missouri, the District of Columbia, Texas, and Illinois.  The smallest improvements were in Ohio and Vermont which were unchanged from February, Arkansas, up 0.1 percent, and Connecticut, Maryland, Kentucky, New Jersey, and Massachusetts each of which had a 0.2 percent increase in their respective HPIs.

Eight of the ten most improved metropolitan areas were in California with San Jose and San Francisco leading at 2.6 percent and 2.2 percent gains respectively.  Other cities with improvements ranging from 1.4 to 1.8 percent were Santa Rosa, Vallejo, Modesto, Stockton, and San Louis Obispo and Oxnard.  Seattle and Portland, Oregon also broke through with monthly increases of 1.7 and 1.5 percent.  While Austin, Dallas, and Houston had smaller monthly gains than other cities (each increased by 0.9 percent) all three established new peak prices during the month.

The Black Knight HPI combines the company's property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

Increasingly Optimistic Attitudes on Housing Market

A new Gallup survey seems to indicate that Americans are falling in love with real estate again.  The poll, conducted among over a thousand respondents this month, shows that 56 percent of Americans think the average price of a home in their local area will increase compared to only one-third who thought so two years ago and 21 percent, a survey low, in January 2011.  Another 34 percent expect prices to remain at about the same level, leaving only 10 percent who believe prices will fall again. The current euphoria is not up to pre-crash standards, but is closing in on the peak 60 percent who expected appreciation in late 2006. 

The results were gathered by Gallup's annual Economy and Personal Finance poll, which has tracked Americans' perceptions of the housing market annually since 2005.  In the years following the housing crisis, 2008-2011, Gallup said Americans were more likely to look for declining home values in their local area than any appreciation.  That began to change by April 2012 when public optimism about home values outweighed pessimism by 33% to 23%. Now, more than five times as many Americans believe local home values will increase as believe they will decrease.

There is a strong regional bias in the survey with those living in the West most likely to think home values will increase, at 72%.  Prices have risen by double digits in several western states, especially California.  Conversely only 44 percent of residents in the East expect price increases.  Attitudes of those in the South and Midwest closely mirror national numbers at 54 percent and 53 percent respectively. 

Gallup said respondents' opinions may be influenced by their own experiences.  About 64 percent of Americans are homeowners and 74 percent of them say their home is worth more today than when they bought it.  Last year 63 percent said their homes had increased in value and 53 percent made this claim in 2012.  Even with the increase however, homeowners are nowhere near where they were in the 2006 and 2007 surveys when upwards of 90% of homeowners said their home value exceeded the purchase price.  Responses to this question may also mean that fewer homeowners are "underwater," owing more on their mortgage than their houses are worth. 

Seventy-four percent of Americans say it is a good time to buy a house, while 24% call it a bad time. That ranks among the most positive readings Gallup has received.  Responses to this question actually bottomed out at the height of the housing boom when prices peaked and only 52 percent considered it a good time to buy.  Even as home values plummeted over the next two years Americans continued to be pessimistic about buying a home.  In 2009 when depressed home values meant houses were a better buy the number grew to around 70 percent and has remained near there with what Gallup called "marginal increases" in each of the last three years.  Homeownership factors into this response; 81 percent of current owners consider it a good time to buy but only 60 percent of renters.

Gallup says that Americans' views of the housing market were clearly shaken during the downturn, but have mostly recovered today.  The nearly three in four who say it is a good time to buy a house could reflect the realization that the worst of the housing crisis is over, but that values have not yet risen to a level where homes are over-priced.  "These more positive views of the housing market may help foster a situation in which home buying activity increases and home values continue to rise over the next year," the Gallup report says.

Applications, Prices, and Condo Sales Get Second Look

Recent postings on CoreLogic's Insights Blog have a couple of different views of some of the housing numbers generally taken at face value by those of us who follow them.  Mortgage applications, cash sales, and home prices all got a second look and somewhat contrarian look. 

In a posting titled Cash is all the Rage Thomas Vitlo says that while CoreLogic has consistently highlighted the cash share of home sales it hasn't focused on the share of cash sales in the condo/coop subgroup.  What is striking about this data is the high numbers of condos being purchased for cash in select states.   Slightly more than 80 percent of condo sales in Nevada and Florida, more than 75 percent in New York and Alabama and nearly 68 percent in Arizona have been all-cash and these five states account for over half of such condo sales in the country. 

Looking at trends in the two highest cash-sale states Vitlo found there were three distinct time categories involved over the January 2000 to January 2013 period.  During the pre-recession period - 2000 to 2007, credit was readily available to purchase condos and Nevada and Florida had an average condo cash share of 22.9 percent and 35.4 percent respectively.  During the recession period, shares in the two states spiked and in the average post-recession shares have averaged close to their current level. 

Vitlo concludes that during the recession, credit standards tightened and the market contracted, making it more difficult to finance a condo.  Now post-recession, investors play an increasing role in condo sales and the market continues to shrink.  "The effect of the recession has pushed condo cash shares much higher than pre-recession levels over the past five years and it doesn't look like that is changing in the short term."

In a second entry, Sam Khater concludes New Home Prices are not Rising as Fast as You Think.  While the numbers show that new home prices increased 18 percent between 2010 and 2013 there is more than ordinary appreciation involved.  While the price increases reflect a very tight supply of new homes a second factor is the changing nature of the homes being built. 

Since 2010 the size of a typical new home has increased by 9 percent to 2,598 square feet.  In addition they now come with additional features such as more bedrooms, bathrooms, and fireplaces. 

Khater says that when adjustments are made to account for bigger and better, one sees a quite different picture.  The Census Bureau's constant-quality new home price index puts the 2010-2013 price appreciation at 9 percent, half of the raw number usually reported.  These differences are even greater in what he calls "smaller geographies" and he cites the Midwest where there was a 19 percentage point difference between the 7 percent appreciation on the constant-quality index and the appreciation on the non-constant quality index.   

Khater says that adjusting the price of new homes for quality reveals smaller increases but doesn't diminish the primary driver of appreciation, the lack of inventory, especially for new, affordable homes.  "We may be building higher quality housing for tomorrow," he says, "but it could be at the expense of access to homeownership."

Finally, CoreLogic chief economist Mark Fleming took a closer look at the Mortgage Bankers Association's Weekly Mortgage Applications Survey and its continuing tale of falling application volume.  During the week of which Fleming wrote total applications were down 56 percent on an annual basis.  But most of that decline was due to a 70 percent drop in refinancing activity.  At the same time he notes that the MBA's Purchase Index was also down 14 percent since the same period in 2013 equaling levels last seen in 2011. 

But Fleming quotes Bill McBride at Calculated Risk who says the Purchase Index may be understating the amount of actual activity.  McBride feels that small lenders are underrepresented in MBA's survey from which the indices are derived and "small lenders tend to focus on purchases."

In addition, Fleming says, CoreLogic data shows home sales increased by 8 percent year-over-year in February and by 5 and 7 percent in December and January respectively.  So while the purchase application index has been indicating declining activity actual sales have been consistently growing on an annual basis.  How, Fleming asks, can that be?  "One possible explanation is that increasing cash sales could reconcile rising sales with declining purchase applications, but the cash sale share is declining (down to 38 percent in December 2013 from 44 percent a year earlier)."

Still Fleming says that "declining purchase applications don't necessarily mean there are fewer originations in the current market. In fact, our data shows more homes are being sold and proportionally more sales are being financed. Though the volume of purchase loans being originated is low by historic standards, the hopeful news is that the volume is, in fact, growing."

Homes in Foreclosure Increasingly have Positive Equity

Homes with serious negative equity numbers have now declined to the lowest point in at least two years RealtyTrac said today.  The company, which began tracking so-called underwater properties in the first quarter of 2012, estimates that in the first quarter of 2014 9.1 million U.S. homes had loan balances at least 25 percent higher than the properties market value or a loan-to-value ratio (LTV) of 125 percent.  This is 17 percent of all U.S. properties with a mortgage.

In the fourth quarter of 2013 RealtyTrac said there were 9.3 million properties or 19 percent of mortgaged homes that were that seriously underwater and in the first quarter 2013 there were 10.9 million or 26 percent.  The recent peak in negative equity was the second quarter of 2012, when 12.8 million U.S. residential properties representing 29 percent of all properties with a mortgage were seriously underwater.

With the rapid growth of home values in 2013 another 8.5 million homes were close emerging into positive territory in the first quarter with between 90 percent and 110 percent loan-to-value ratios.  That near-equity group represented 16 percent of mortgaged homes and had grown from 8.3 million properties in the fourth quarter of 2013.

"U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation," said Daren Blomquist, vice president at RealtyTrac. "Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.

The percentage of properties in foreclosure that had negative value declined from 48 percent in the fourth quarter to 45 percent in the first while those with positive equity increased to 35 percent from 31 percent.

 "The relatively high percentage of foreclosures with equity is surprising to many because it would seem homeowners with equity could easily avoid foreclosure by leveraging that equity by refinancing or with an equity sale of the home," Blomquist noted. "But many distressed homeowners with equity may not realize they have equity and in some cases have vacated the property already, assuming that foreclosure is inevitable."

The states with the highest percentage of residential properties seriously underwater in the first quarter were Nevada (34 percent), Florida (31 percent), Illinois (30 percent), Michigan (29 percent), and Ohio (27 percent).  The metro areas with high levels of negative equity were Las Vegas (37 percent), Lakeland, Florida., (36 percent), Palm Bay-Melbourne-Titusville, Florida (35 percent), Cleveland (35 percent), Akron (34 percent), and Detroit (33 percent).

What the company refers to as "equity-rich properties," those with a least 50 percent equity, now total 9.9 million or 19 percent of mortgaged properties compared to 9.1 million or 18 percent in the fourth quarter of 2013.  The metro areas with the highest percentage of equity rich homes were San Jose, (39 percent), Honolulu (35 percent), San Francisco (35 percent), Poughkeepsie, (34 percent), and Los Angeles (32 percent).

No Spring Breakout as Builder Confidence Stalls

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose to 47 this month, indicating a slight improvement in the confidence of home builders in the market for new single family homes.  At the same time the March HMI was revised down to 46 from 47.    

NAHB constructs the HMI from results of a survey it conducts monthly among its homebuilder-members.  Respondents are asked to give their perceptions of current single-family home sales and expectations for those sales over the next six months as "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as "high to very high," "average" or "low to very low."   Each set of responses as well as the composite are used to calculate seasonally adjusted indices where any number over 50 indicates that more builders view conditions as good than poor. 

NAHB said a Reuters' poll of economists had predicted the HMI would rebound to 50 this month but it remains below that benchmark level through the third consecutive survey.  The HMI had recovered to a post-housing crisis high of 58 late last summer.

"Builder confidence has been in a holding pattern the past three months," said NAHB Chairman Kevin Kelly. "Looking ahead, as the spring home buying season gets into full swing and demand increases, builders are expecting sales prospects to improve in the months ahead."

The component measuring current single family sales was unchanged at 51 from the March number after it was revised down from 52.  Sales expectations over the next six months jumped to 57 from 52, reaching a three month high.  Prospective buyer traffic was unchanged at 32 after the previous figure was revised lower by one point.

"Headwinds that are holding up a more robust recovery include ongoing tight credit conditions for home buyers and the fact that builders in many markets are facing a limited availability of lots and labor," NAHB Chief Economist David Crowe said.

The three-month moving average for the HMI was down in all four regions from respective revised March numbers.  In the Northeast the composite fell from 35 to 33.  In the Midwest the number went from 53 to 49; the South dropped 2 points to 47 and the West went from 60 to 51.   

'Hope Now' Nears 7 Million Modifications

HOPE Now, founded in 2007 as an early response to the growing threat of foreclosures, continues to negotiate loan modifications in double-digit numbers for distressed homeowners.  The voluntary, private sector alliance made up of loan servicers, loan investors, mortgage insurers, and non-profit housing counselors arranged for 42,000 homeowners to receive permanent loan modifications in February vs. 44,000 in January.  That number includes 30,000 proprietary modifications and an additional 12,445 done through the Home Affordable Modification Program (HAMP).

While the program continues to respond to the need for foreclosure prevention, administrators note steady declines in both foreclosure starts, which fell to 69,000 during the month from 75,000 in January and foreclosure sales which numbered 36,000, down from 48,000 the previous month.  Both totals were the lowest since HOPE NOW began reporting seven years ago.

HOPE Now has completed approximately 6.93 million modifications over that period. About 5.6 million were proprietary modifications and 1.34 million were done through HAMP which started two years later.   

Serious delinquencies (60 days or more) were under two million for the second straight month - at approximately 1.98 million.  HOPE NOW said this number is yet another indicator of the progress made in stabilizing the housing market. For comparison purposes, there were 4.13 million homeowners who were 60 or more days delinquent in December of 2009 - more than twice the current number. 

The organization also facilitated 11,000 completed short sales during the month, a decrease of 8 percent from the 12,000 completed in January.  There were 2,300 borrowers who exited homeownership through a deed-in-lieu, down from 2,500 in January.

Eric Selk, Executive Director of HOPE Now said, "Mortgage solution data collection continues to be a focus for HOPE NOW. We are pleased by the efforts of our servicer members, non-profit partners and government partners on behalf of struggling homeowners. Even with serious delinquencies in decline, the industry continues to offer homeowners a multitude of sustainable and viable solutions that are alternatives to foreclosure.

Foreclosures have Doubled in Some States Despite Overall Decline

RealtyTrac reported today that an uptick in foreclosure starts last month drove an overall increase in the nation's foreclosure activity.  There was a 7 percent jump in the filings of initial public notice - Notice of Default (NOD) or Lis Pendens (LIS), part of a total of 117,485 foreclosure related filings during the month.  March filings, which also included Notice of Scheduled Auctions and Bank Repossessions (REO) were up 4 percent from February but were 23 percent lower than in March 2013.  Scheduled Auctions were also up, rising 6 percent from the previous month.  

There were 28,840 bank repossessions in March, down 5 percent from February and 34 percent from a year earlier.  It was the lowest number of repossessions since July 2007, an 80 month low.

RealtyTrac said that March was the 42^nd month in which foreclosure activity was lower than during the same period a year before and foreclosure activity in the first quarter was the lowest since the second quarter of 2007.  In the first quarter there were 341,670 properties nationwide that received some type of foreclosure notice, down 3 percent from the fourth quarter of 2013 and 23 percent below one year earlier.  Foreclosure notices were filed on one in every 385 U.S. housing units during the quarter.

Despite the continuous easing of the foreclosure crisis there were 29 states in which scheduled auctions were up on an annual basis.  Utah posted a 226 percent increase; Oregon 177 percent, and Connecticut 131 percent.  Several of the states with double-digit increases were those that have had perpetually elevated foreclosure activity such as New Jersey, New York, Nevada, and Florida.

Along with the national increase foreclosure starts were up 19 states.  New Jersey posted the largest change; starts there were up 83 percent, followed by Maryland, up 43 percent, Indiana, 38 percent, and Delaware 24 percent.  A 10 percent increase in California was the first annual increase since the second quarter of 2012, and the first double-digit percentage increase since the fourth quarter of 2009.

"Now that the foreclosure deluge has dried up, banks are turning their attention back to properties that have been sitting in foreclosure limbo for some time," said Daren Blomquist, vice president at RealtyTrac. "This is most evident in judicial foreclosure states that were more likely to have impediments in the foreclosure process, but there are also signs of this catch-up trend happening in some non-judicial states like California, where an increasing number of judicial foreclosure filings boosted foreclosure starts in the first quarter.

"Banks will also now be able to devote more resources to dealing with the lingering inventory of nearly half a million already-foreclosed homes that still need to be sold," Blomquist continued. "Our estimates indicate only 10 percent of these bank-owned properties are listed for sale and more than half are still occupied by the former homeowner or tenant."

RealtyTrac's March and First Quarter U.S. Foreclosure Market Report featured other data highlights:

• There were 259,783 bank-owned properties with owner-occupancy data available in the first quarter - out of a total of 483,224 bank-owned homes nationwide. RealtyTrac said that 51 percent were still occupied by the former homeowner or a tenant.

Average days to foreclose

• U.S. properties foreclosed in the first quarter of 2014 were in the foreclosure process an average of 572 days, up 1 percent from 564 days in the previous quarter and up 20 percent from 477 days in first quarter of 2013. New Jersey overtook New York with the longest average time to foreclose in the first quarter, 1,103 days. That was followed by New York (986 days), Florida (935 days), Hawaii (840 days), and Illinois (830 days). In contrast it took 151 days to foreclose in Alaska, 169 in Texas, and 177 days in Delaware. New Hampshire and Alabama also took an average of slightly less than 200 days.

• U.S. bank-owned properties sold in the first quarter had been bank-owned for an average of 226 days when they sold, up 34 percent from the average of 168 days in the first quarter of 2013.

• Properties in the foreclosure process that sold during the first quarter took an average of 509 days to sell after starting the foreclosure process, up 33 percent from an average of 382 days in the first quarter of 2013.

Even though its rate was down 1 percent from the previous quarter, has decreased annually for three consecutive quarters and is down 19 percent from a year ago, Florida had the highest level of foreclosure activity in the first quarter.  One in every 129 housing units in the state received a filing during the period.   

Florida was followed by Maryland with one in every 189 housing units receiving a foreclosure filing, a one percent decrease from the fourth quarter but 35 percent above the level a year earlier.  Nevada was third with its foreclosure rate, one in every 129 housing units.  Nevada's filings decreased 8 percent in the first quarter and was down 48 percent from the first quarter of 2013.  Illinois with one in 230 units involved had the fourth highest rate and New Jersey, one in 273, was fifth.

Spring homebuyers facing sticker shock

More potential buyers are out trolling the nation's neighborhoods for their dream homes. Unfortunately, they are finding little to look at and, even worse, they are finding higher prices than they expected.

"People quite frankly came out and got sticker shock because they're coming out to shop now, or they came out in January and February to shop, and they picked up the price sheet and saw, 'Wow that's way more than I thought' because home prices had gone up so much in 2013," said Brad Hunter, chief economist at Metrostudy.

Home prices are up 12.2 percent from a year ago, according to the latest February reading from CoreLogic. Meanwhile, wages are up just 2.1 percent from a year ago, according to Friday's report from the Bureau of Labor Statistics. Investors, laden with cash, are buying fewer homes this spring, which leaves regular, mortgage-dependent buyers to pick up the slack.

While home prices are still well off their peak of the housing boom in 2006, it still costs the average homebuyer considerably more to buy a home today than it did then.

That is because mortgage lenders require larger down payments and higher incomes to support the debt. Despite the fact that the rate on the 30-year fixed mortgage is slightly lower than it was in 2006, it is now a far more popular product in the market, because all those "creative" mortgage products of the past are either gone or illegal.

Just 65 percent of mortgage originations in 2006 were fixed rate, while more than 95 percent of them are today, according to Black Knight Financial Services. In 2006, a buyer could put no money down on a teaser-rate loan with a rate as low as 1 percent for the first year. No more.

Rising mortgage rates and costs, tighter credit conditions, higher home prices. Add it all up, and affordability shrinks.

In fact, more than half the homes currently on the market in seven major American metros are currently unaffordable for local residents, according to a Zillow analysis of incomes at the end of last year with respect to mortgage and home value data.*

Among the 35 largest metros nationwide, more than half of homes currently listed for sale in Miami (62.4 percent), Los Angeles (57.2 percent), San Diego (55.3 percent), San Francisco (55.2 percent), Denver (52.8 percent), San Jose, Calif. (50.9 percent) and Portland, Ore. (50.3 percent) are unaffordable by historical standards, according to Zillow.

"As affordability worsens, we're already beginning to see more of the kinds of worrisome trends we saw en masse during the years leading up to the housing crash. These include a greater reliance on non-traditional home financing, smaller down payments and a greater pressure to move further away from urban job centers in order to find affordable housing options," said Zillow's chief economist, Stan Humphries. "We're not in a bubble yet, but we're beginning to see the early signs of one in some areas."

Housing markets like Houston, Phoenix and Charlotte, N.C., are also showing affordability far weaker than the national average. Thirty-three percent of homes nationwide are considered unaffordable for the average local resident.

Home builders, who raised prices dramatically in the past year, are seeing the worst of it; they are reporting higher buyer traffic, but far less pull-through on sales than normal. Some are now offering incentives, like free upgrades in the home. It is tougher for them to lower prices now, because they are still faced with higher costs for land, labor and materials.

Despite weakening affordability, home price growth is still historically strong. That is because there is so little supply on the market for sale nationwide. Millions of homeowners are still underwater on their mortgages, and therefore unable to move. Other homeowners see prices rising and want to wait longer to see how high they go.

On top of that, home builders, while increasing housing starts, are still well below normal rates of construction. And then there is basic consumer confidence, which is not fully back to where it needs to be.

"I think buyers are extremely fickle, and what's weird about it is the market is in a funk on both sides, it's like trying to get pandas to mate at the zoo," said Glenn Kelman, CEO of Redfin, an online real estate brokerage. "Sellers feel like, 'I can rent it out. I've got a very low mortgage rate on this place, and when I sell the house I'm also giving up a 30-year mortgage on it at 3.5 percent.'"

* Zillow determined affordability by analyzing the current percentage of an area's median income needed to afford the monthly mortgage payment on a median-priced home, and comparing it to the share of income needed to afford a median-priced home in the pre-bubble years between 1985 and 2000. If the share of monthly income currently needed to afford the median-priced home is greater than it was during the pre-bubble years, that home is considered unaffordable for typical buyers.

-By CNBC's Diana Olick.

Whistleblower Claims Cordray Called to say "Back Down." FSC Not Amused

The Consumer Financial Protection Bureau (CFPB) was assailed by Republican members of the House Financial Services Committee (FSC) and by two witnesses for what was termed "a culture of racial and gender discrimination and retaliation against its employees" at a hearing on Wednesday.  The hearing, held by the Committee's Oversight and Investigations Subcommittee, heard testimony from a current CFPB Senior Enforcement Attorney employee and so-called "Whistleblower" Angela Martin and from Misty Raucci a former investigator, Defense Investigators Group.

The hearing follows an investigation of personnel practices stretching back almost two years and a March 6 article in American Banker called "CFPB Staff Evaluations Show Sharp Racial Disparities." The article said that overall, "whites were twice as likely in 2013 to receive the agency's top grade than were African-American or Hispanic employees."  

According to the memorandum issued by the FSC prior to the hearing, the American Banker article "exposed serious personnel problems at the Consumer Financial Protection Bureau including evidence that "the CFPB's own managers have shown distinctly different patterns in how they rate employees of different races."   

Martin presented lengthy testimony at the hearing about the discrimination she claims to have faced and the retaliation she says she continues to face at the CFPB for filing complaints.  A podcast of her testimony and that of Raucci's can be heard in full here.  The following is taken from their statements prepared in advance for the committee.

Martin, who is also a board member for the National Treasury Employees Union (NTEU) Chapter 335, which organizes CFPB employees, stressed she was not appearing as an NTEU representative nor had she discussed her testimony with her union.  Martin, an attorney, is a former civilian member of the Judge Advocate General (JAG) Corps at Fort Brag and later a military consumer attorney, had proposed to former Treasury Secretary Tim Geithner that CFPB have a separate office focusing solely on protecting military consumers.  That department was created as the Office of Servicemember Affairs.    

Martin said she joined the Bureau in June 2011 after dissolving her law practice to do so but that the she had been a victim of poor management and abuse of authority have precluded her from doing her part to carry out the Bureau's mission.  "Indeed, today marks the 400th day that I have been isolated and prevented from performing any meaningful work. I never received a fair shake at the Bureau, and I have not been assigned one case or enforcement matter during my entire tenure."  Martin said she first filed a discrimination and retaliation complaint in December 2012 and immediately suffered further retaliation for doing so. 'When my supervisor, the Assistant Director of Consumer Response, learned that I was asserting my rights via the Equal Employment Opportunity (EEO) process, he threatened to bring counterclaims if I were to further pursue my EEO claim.  Immediately, he took steps to isolate me, diminish my job duties and set me up to fail by holding me accountable for work while at the same time preventing me from being involved in the preparation of that work.'

Martin said the Bureau commissioned an outside agency to conduct an independent investigation of her claims last summer and that she believed they received a draft report in October 2013 and a final report in December but that she had been denied access to the information despite both Freedom of Information Act and Privacy Act requests. 

She said that two weeks ago she learned of another employee who was retaliated against within two days of filing a formal complaint and had heard stories from "many employees" who had come to here with stories of their own maltreatment and retaliation. 

Raucci in her testimony said that the Martin investigation also involved the role of at least two supervisors at CFPB. Scott Pluta and Dane D'Alessandro.  The investigation, she said, was supposed to "be only two to five statements," but took six months to complete as she became a veritable hotline for employees at CFPB who called to discuss their own alleged maltreatment, primarily at the hands of Pluta or D'Alessandro.

"The sum of my findings was that Scott Pluta retaliated against Angela Martin after she filed a formal complaint of discrimination and retaliation. In concert with at least three facilitators, Mr. Pluta effectively removed Ms. Martin from her position as Chief Counsel of Consumer Response, and saw her relegated to a lesser position in another office. Mr. Pluta attempted to justify Ms. Martin's removal by expressing doubt as to her ability to perform her duties as Chief Counsel; however, his criticisms largely occurred after she filed her complaint. This was a major indicator that Mr. Pluta's rationale for demoting Ms. Martin for what he perceived as shortcomings was masking his other motives."

She said Pluta's determination that Martin deserved a demotion was unilateral and did not utilize due process.  When complaints were lodged against Martin by two of her subordinates within two weeks after Martin filed her complaints, Pluta appeared to take those complaints far more seriously than Martin's and stated conclusively in his negative review of Ms. Martin that she had retaliated against the subordinates although their claims had yet to be investigated, much less substantiated.

Raucci said Martin was subjected to relentless hostility at the hands of Pluta and D'Alessandro and the former did little, if anything, to curtail the latter's "continued open bashing, bullying, and marginalization of Ms. Martin. Mr. D'Alessandro too, had something to gain by Ms. Martin's departure from Consumer Response; namely, control of Consumer Response, unfettered by adherence to policies and procedures set forth by the Bureau itself."

According to Raucci, the' Bureau's Human Capital Office is in receipt of extensive documentation that Defense Investigators Group gathered and attached as exhibits to its report. "The evidence of the documentation suggests a pervasive disregard for employee rights that is entrenched in the Office of Consumer Response. Those responsible for curtailing Mr. Pluta's activities were apparently compelled to ignore, cover, or downplay them instead of taking corrective action. The corrosive environment of the CFPB workplace was engendered by the bureau's perpetual failure to uphold its own EEO policies."

Beyond the testimony there were the politics.  Jeb Hensarling, (R-TX) Chairman of the House Financial Services Committee said that M. Stacey Bach, CFPB's Assistant Director of the office of Equal Opportunity Employment and Liza Strong, CFPB Director of Employee Relations and had been invited to submit testimony to the committee and had "refused."   Robert Cauldwell, President, National Treasury Employees Union, Chapter 335 was also on the agenda but did not present testimony.  The committee also released two press statements that were largely duplicative and perhaps best termed "unique" in their tone. In each Hensarling said that during the hearing he had asked Martin if CFPB Director Richard Cordray had ever attempted to contact her about her complaint.  According to the press release Martin said that Cordray had called her at night and "told me that I have to tell my attorneys to back down."

"I'm sorry, Ms. Martin, you are saying that Director Cordray personally reached out to you and asked or told you to have your attorneys back down?" Hensarling responded.

"Yes, sir," Martin answered. "August 7 at 8:54 in a two minute conversation he told me to tell my attorneys to back down" because Cordray said he was trying to secure her a position in a different division of the CFPB.

"But what I did not know was on August 7, after I thought it was settled, Director Cordray and somebody else gave that position to somebody else," Martin said.

Hensarling also said that "Democrats on the committee originally attempted to have the hearing cancelled to prevent the whistleblower and investigator from testifying about the workplace conditions at the CFPB."   Ranking committee member Maxine Waters (D-CA) had asked last week asked that today's hearing be canceled so that a more "careful and intentional" investigation could be conducted but Waters attended the hearing and ceded some of her allotted time to Martin.  At the end of the hearing she said she was glad it had been held.

Cordray did release a statement yesterday which said in part; "I take seriously the concerns raised at today's hearing and deeply apologize to any member of the CFPB staff who feels that they have not been heard or treated fairly. I welcome the opportunity to appear before Congress to discuss these issues fully."

Shadow Inventory Quickly Evaporating

There were a total of 43,000 completed foreclosure in February, CoreLogic said today.  This was 15 percent fewer than in February 2013 when foreclosures numbered 51,000.  It was also 7,000 fewer foreclosures than in January 2014, a decrease of 13.1 percent. The company said that since the financial crisis began in September 2008, there have been approximately 4.9 million completed foreclosures nationally.   

Nearly half of all completed foreclosures in the U.S. over the 12 month period that ended in February were in five states.  Florida reported 118,000 foreclosures, Michigan 50,000, Texas 39,000, California 37,000, and Georgia 34,000. 

While completed foreclosures, the foreclosure inventory, and seriously delinquencies all showed notable improvements, the big news in CoreLogic's February 2014 National Foreclosure report was from its quarterly supplement on shadow inventory data.   Shadow inventory or the "pending supply" is calculated from the number of properties that are seriously delinquent, in foreclosure, or held as owned real estate (REO) by lenders but not currently listed for sale through Multiple Listing Services.  Throughout the housing crisis the shadow inventory has been viewed at the "next shoe" that could drop and impede recovery.   That threat seems to be rapidly disappearing.  CoreLogic estimates that the national residential shadow inventory stood at 1.7 million homes in January, down 23 percent from the estimated inventory of 2.2 million in January 2013.

The dollar value of the shadow inventory in January was $254 billion compared to $324 billion in January 2013 and $289 billion in July 2013.  CoreLogic said that from January 2013 to January 2014 the inventory had been decreasing at an average monthly rate of 41,000 units.

"Although there is good news that completed foreclosures are trending lower, the bigger news is the impressive decline in the foreclosure and shadow inventories," said Dr. Mark Fleming, chief economist for CoreLogic. "Every state has had double-digit, year-over-year declines in foreclosure inventory, which is reflected in the $70 billion decline in the shadow inventory."

CoreLogic said that there were 752,000 homes in some stage of foreclosure in in February.  This foreclosure inventory has declined from 1.2 million in February 2013, a year-over-year decrease of 35 percent.  The inventory was down 3.3 percent from January to February.  The foreclosure inventory in February represented 1.9 percent of all mortgaged homes in the U.S.  One year earlier the inventory represented 2.9 percent of mortgaged homes.   

The five states with the highest foreclosure inventory as a percentage of all mortgaged homes as of February 2014 were New Jersey (6.2 percent), Florida (6.0 percent), New York (4.7 percent), Maine (3.4 percent) and Connecticut (3.2 percent).

At the end of February 2014, there were 1.9 million mortgages, or 4.9 percent, in serious delinquency, defined as 90 days or more past due, including those loans in foreclosure or real estate owned (REO).  In the 12 months ended in January every state saw a double digit decrease in the number of seriously delinquent loans.  Twenty-four states had decrease of at least 20 percent.

"The stock of seriously delinquent homes and the foreclosure rate are back to levels last seen in the final quarter of 2008," said Anand Nallathambi, president and CEO of CoreLogic. "The shadow inventory has also declined year over year for the past 3 years as the housing market continues to heal, including double-digit declines for the past 16 consecutive months."