The difference this quarter is that the dividend is huge. Thanks to the company’s new profitability, Fannie Mae is able to take a tax credit from years ago worth over $50 billion, according to its earnings release:

As a result of actions to strengthen its financial performance and continued improvement in the housing market, Fannie Mae’s financial results have improved significantly over the past five quarters. Based on analysis of all relevant factors, Fannie Mae determined that the release of the valuation allowance on its deferred tax assets was appropriate.

Therefore, Fannie Mae will pay the Treasury $59 billion by the end of this quarter, bringing its total tally of dividend payments to $95 billion—close to the $117 billion it originally drew. Again, the money does not go to pay back that draw. So where does it go?

(Read More: Fannie Mae Should Be Abolished, Says Barney Frank)

“It’s up to the Treasury to decide what to do with it,” said Fannie Mae CEO Timothy Mayopoulos in a conference call with reporters.

With Fannie Mae and its smaller cohort, Freddie Mac, turning so much profit, the push to dismantle them becomes far more complicated. Unlike several years ago, they are now making the government money at the same time that the feds should be winding them down.

“There is a risk that policy makers will look at our profitability and conclude that they don’t need to take action to reform the housing finance system,” said Mayopoulos. “That would be a mistake.”

As of now, Fannie Mae, Freddie Mac and the Federal Housing Agency—all government sponsored entities (GSEs)—provide the bulk of the nation’s housing finance. The private market has yet to dive back in with both feet. Fannie and Freddie are still crucial to the housing recovery, but should the government reap all the rewards rather than mortgage holders or investors?

“It seems strange that everyone else who borrowed from U.S. Treasury in the crisis is allowed to pay back, but the GSEs are neither allowed to rebuild capital nor repay. Shouldn’t we get to reform rather than use them as a budget tool?” asks Joshua Rosner, an analyst at Graham Fisher.

Lawmakers are busy debating how to create a private housing finance system with at least a modest government back-stop. Simultaneously, Washington is fighting a wider budget battle, owing to an enormous federal deficit. The two are now intimately connected, and Fannie’s new profitability is the link.

“If Fannie and Freddie this year effectively ‘pay back’ all the bailout money they received since late 2008, I think we need to think long and hard about the need to continue collecting money from the firms. Is it punishment for past sins? Or is it because the government needs cash cows?” asks Guy Cecala of Inside Mortgage Finance.

“And while it may sound like crazy talk, we probably also need to at least discuss whether Fannie and Freddie should be taken out of conservatorship once they pay back the money Treasury advanced them and they are in fact solvent,” he added. “Unfortunately, the current Treasury agreement treats them as wards of the state regardless of how much money they return to the government or how much money they earn.”

The housing crash was a game-changer for housing finance in the United States. That said, the recovery of both the overall housing market and the companies that fund it will necessitate new thinking as well.

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100724407

(Read More: US Pending Home Sales Tick Upward in March)

“In terms of our mix, less is going to Arizona and California today,” said Justin Chang a principal at Colony. “Our mix is increasing on east coast, Georgia, Florida, we’re active in Texas. I think over time some of the early markets will become a smaller part of our overall portfolio.”

Some investors are also starting to look at new construction, as home builders start to ramp up production again. The key is to find new product that is cheaper than replacement costs, which still is not that easy. So far investment has mostly gone only as far as distressed new homes, but as prices rise, that may change.

“On home building, there’s a lot of chatter about that. We are in some conversations with builders,” explained Chang, who admits the economics have not been compelling yet. “Over time you’ll see more and more of these transactions, and we may do one as well.”

Another potential strategy going forward is a consolidation, as investors turn away from distressed properties and focus on so-called “Mom and Pop” landlords, who may buy just one or two properties. There are an estimated 14 million single family rental homes owned by this cohort.

“If you think about all of the major institutions maybe owning 70,000 total homes compared to the market size of 14 million homes, the long term potential is enormous. Institutions are literally a fly on an elephant,” said Aaron Edelheit, CEO of The American Home, an Atlanta-based company that owns and manages about 2,500 homes. “We may look back and realize that the REO [real estate owned] to rental space was only the foundation for an exponentially larger industry with institutions owning hundreds of thousands, if not millions, of homes.”

(Read More: Next Boom? ‘Spec’ Homes Are Back)

There are 7.2 million more renters today than there were in 2004, and just 400,000 more homeowners, according to the U.S. Census.

Despite the recovery in home sales, the homeownership rate continues to fall, from an all-time high of 69.2 percent to 65 percent in the first quarter of 2013. As home prices rise and the employment picture improves, more people will come back to home ownership, and some of the new rental homes will inevitably be sold, but certainly not all of them.

“If you buy homes in areas with below-median income, I think the mortgage market is going to have harder time providing credit to these people, and it’s going to take longer for that to recover,” said Bloemker. “We think that these homes are more likely to be long term rentals, and those are likely to end up in the hands of institutional investors.”

—By CNBC’s Diana Olick; Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC
—CNBC’s Stephanie Dhue contributed to this story

Questions? Comments? RealtyCheck@cnbc.com

Article source: http://www.cnbc.com/id/100700113

Renter household formation remains at the strongest level in decades. Roughly 1.32 million new renter households were formed in the past year (including owner conversions), while the number of owner-occupied households declined by 175,000. Resident turnover and move-outs to homeownership remain near historic lows for most operators. Incoming leasing traffic is more than offsetting move-outs while paying higher rates.

The home ownership rate declined yet again in the fourth quarter of 2012, according to a new report from the U.S. Census today. It now stands at 65.4 percent, down from 66 percent a year ago and from a high of 69.2 percent in 2004. If you include the 5.3 million borrowers who are delinquent on their mortgages or in the foreclosure process, per Lender Processing Services, the real home ownership rate is even lower.

“The fact that the housing recovery is being driven principally by investor demand means that the slight decline in the homeownership rate in the fourth quarter is unlikely to be the last,” notes Paul Diggle of Capital Economics.

(Read More: World’s Most Expensive City to Rent Is…)

There is also a tremendous amount of pent-up demand for the rental market, as nearly 23 million young adults, male and female, under age 35 (31 percent of the cohort) are currently classified as ‘living at home’ with parents, according to Raymond James’ analysis. As job growth improves, they will move to rental apartments; the homeownership rate for this group is only 34 percent.

(Read More: Rentals Chip Away at Home Builder Gains)

Investors are also concerned about a 49 percent jump in multi-family construction permits from a year ago, but those permits are still running well below normal levels, and every year about 150,000 units are removed from housing stock for various reasons, like age and damage.

Suffice it to say that the apartment sector and the multi-family REITs will likely see a surprise to the upside in 2013. Rents will still rise, despite housing affordability and growth in the single family market.

(Read More: Real-Estate Tips from a Mega-Broker to the Stars)

Article source: http://www.cnbc.com/id/100416547

Renter household formation remains at the strongest level in decades. Roughly 1.32 million new renter households were formed in the past year (including owner conversions), while the number of owner-occupied households declined by 175,000. Resident turnover and move-outs to homeownership remain near historic lows for most operators. Incoming leasing traffic is more than offsetting move-outs while paying higher rates.

The home ownership rate declined yet again in the fourth quarter of 2012, according to a new report from the U.S. Census today. It now stands at 65.4 percent, down from 66 percent a year ago and from a high of 69.2 percent in 2004. If you include the 5.3 million borrowers who are delinquent on their mortgages or in the foreclosure process, per Lender Processing Services, the real home ownership rate is even lower.

“The fact that the housing recovery is being driven principally by investor demand means that the slight decline in the homeownership rate in the fourth quarter is unlikely to be the last,” notes Paul Diggle of Capital Economics.

(Read More: World’s Most Expensive City to Rent Is…)

There is also a tremendous amount of pent-up demand for the rental market, as nearly 23 million young adults, male and female, under age 35 (31 percent of the cohort) are currently classified as ‘living at home’ with parents, according to Raymond James’ analysis. As job growth improves, they will move to rental apartments; the homeownership rate for this group is only 34 percent.

(Read More: Rentals Chip Away at Home Builder Gains)

Investors are also concerned about a 49 percent jump in multi-family construction permits from a year ago, but those permits are still running well below normal levels, and every year about 150,000 units are removed from housing stock for various reasons, like age and damage.

Suffice it to say that the apartment sector and the multi-family REITs will likely see a surprise to the upside in 2013. Rents will still rise, despite housing affordability and growth in the single family market.

(Read More: Real-Estate Tips from a Mega-Broker to the Stars)

Article source: http://www.cnbc.com/id/100416547

“As a result, refinance applications dropped sharply to the lowest level in over a month.”

Applications to buy a home also dropped 5 percent week-to-week, indicating a still weak and rate-sensitive purchase market. One third of buyers in today’s housing market use all-cash. Many in the housing industry complain that it is not the rates but the availability of potential borrowers to obtain financing that is holding the market back from a more robust recovery.

The chairman of the National Association of Home builders says that while his cohort is feeling more confident about their business, “overly stringent lending standards” are holding back a more robust recovery.

(Read More: Housing Starts Fall as Sandy Slows Northeast)

Mortgage rates have been below 4 percent since May of 2012 and refinance volume has surged accordingly. Those refinances, many of them under the government’s Home Affordable Refinance Program (HARP) for underwater borrowers, have helped to fuel consumer spending and have likely kept many borrowers from defaulting on their loans.

The big drop in refinances after such a small move up in rates indicates that the slightest move, up or down, can really change activity. The hope, of course, had been for rates to continue moving down.

“A lot of money has been spent between OT [Operation Twist] and QE3 for very little incremental reward,” notes Peter Boockvar of Miller Tabak. “The true cost, yet to be determined, will of course occur when the likely market forced exit begins.”

If mortgage rates rise markedly in 2013, the housing recovery will undoubtedly take a hit. The recovery in housing began with all-cash investors, but owner-occupants are quickly moving in.

“Fannie Mae, Freddie Mac and the FHA financed a record $31.2 billion in so-called conforming jumbo mortgages during the third quarter of 2012,” according to a new Inside Mortgage Finance ranking and analysis. “Business in conforming jumbo loans – defined as mortgages on one-unit properties that exceed $417,000 – rose 29.6 percent from the second quarter and represented the highest quarterly volume for the agencies since emergency loan limits went into effect back in 2008.”

Unfortunately many buyers are either too young or too forgetful to realize that mortgage rates are incredibly, historically low, despite slight moves up week-to-week. The good news is in the near term is that when some buyers see rates tick up, they jump into purchase more quickly, for fear the rates will keep going up.

Article source: http://www.cnbc.com/id/100327898