Billings, MT

Highlights from the Federal Housing Finance Agency information to ponder

Fannie Mae and Freddie Mac Implement HAMP During Second

Quarter; Trial Loan Mods Ramp Up

as

Completed Loan Mods Decline

October 2, 2009

The report shows that of the Enterprises' 30 million residential mortgages:

• Trial loan modifications under HAMP more than tripled from June to August, from

66,200 to 202,200.

• Completed actions to prevent foreclosure declined by 25 percent to approximately

58,200 during the second quarter as HAMP trial loan modifications replaced traditional

loan modifications and repayment plans in process. Completed loan modifications

decreased by 13 percent over the prior quarter to 32,300.

• Fifty-four percent of loan modifications completed in the second quarter resulted in

borrowers' payments decreasing by 20 percent or more, compared with only 8 percent

one year earlier.

• Short sales increased by 45 percent during the second quarter to 11,700 as the pipeline

of serious delinquent loans increased and Freddie Mac increased the delegated

authority of servicers to implement short sales.

• As short sales increased and loan modifications declined, completed home retention

actions - actions that result in a borrower keeping his or her home -accounted for 82

percent of all foreclosure prevention actions completed during the second quarter, down

from 90 percent in the first quarter.

• Mortgage delinquencies continued to increase during the quarter as higher levels of

unemployment contributed to new delinquencies. Foreclosure moratoria associated

with HAMP have also contributed to the increase in delinquencies as fewer seriously

delinquent loans are transitioning to foreclosure.

• Although the Enterprises' mortgage delinquencies continued to increase during the

second quarter of 2009, the rate of delinquency is consistently lower than the industry

average. As of June 30, 2009, the percentage of Enterprises' mortgage loans that were

at least two payments past due (60 plus days delinquent) was 3.5 percent, compared

with 4.7 percent for VA loans, 7.8 percent for FHA loans and 8.0 percent for the

industry average.

Top Five Reasons for Delinquency 1^st qt2009 2^nd qt 2009

Curtailment of Income 35% 40%

Excessive obligations 19% 18%

Unemployment 8% 9%

Illness of principal mortgagor or family member 6% 6%

Marital Difficulties 3% 3%

Mortgage Performance

 Loans that are only one month delinquent increased by 11 percent during the second

quarter to 682,000.

 Loans 60-plus-days delinquent increased by 21 percent during the second quarter to 1.3

million. Approximately 227,200 more loans became 60 days or more delinquent in the

second quarter of 2009.

Foreclosures

 Foreclosure starts increased in the second quarter by 23 percent over the prior quarter to

299,200, reflecting increases in the foreclosure pipeline as the number of 90-plus-days

delinquent loans increased. Although HAMP requires foreclosure activities to be

temporarily suspended during the trial period or while a borrower is considered for

alternative foreclosure prevention options, the foreclosure process is initiated for vacant

and non-owner occupied properties, and properties determined to be ineligible for HAMP.

 Completed foreclosure and third-party sales during the quarter increased by 38 percent to

57,800 generally driven by sales on non-occupied properties and owner-occupied properties already determined to be ineligible for HAMP.

If you wish to read the whole report here is the link

http://www.fhfa.gov/webfiles/15055/2Q09ForeclosurePrevention100209F.pdf

Interesting market thoughts to ponder. What happens when the first time buyer credit is gone?

Yellowstone County as of this A.M. has 210 active single family homes priced between 100k to 200k

There are 159 single family pending sales for 75.7% percentage which indicates strength in that price segment

There are 486 active single family and 255 single family pending total in Yellowstone County so the 100k to 200k comprises 62.3 % of the pending sales and only 42.2% of the active properties

A question I asked my self after looking at the price segment absorption rates(sent out early) was why such a jump (almost double in the first step above 100k to 200k absorption103 days and the 200k to250k absorption 204 days) where were the sellers from below going.

Well out of the 159 single family pending 92 or 57.9% of the sales the homes were not move up sales either vacant or estate or short sales that leaves only 67 possible move up buyers.

Above 200k there are 96 pending sales if 100% of the possible 67 are move up that leaves a possible 29 pending sales that are in migration sales. Roughly that would translate into population growth in Yellowstone county of about 1300 people this year or 9/10ths of one percent, believable and probable.

So back to my basic question what happens to the market sales when the $8,000 first time buyer credit disappears. I believe you get a radical drop in sales caused by the market drawing on future first times into the market now. If we lose half of those 67 first time buyer sales and retain the 29 move in buyers that would indicate we would have approximately 141 pending sales right now or a drop of 45% in pending sales.

Now Billings is fairly healthy so you extrapolate this math nation wide and then factor in unemployment and underwater loans in the major markets and you have some very interesting scenarios upon which to ponder.

HERE ARE THE MARKET PERFORMANCE NUMBERS THROUGH THE END OF SEPTEMBER. WE ARE NOW ON A "CASH FOR CLUNKER" RACE TO THE FINISH LINE WITH THE EXPIRATION OF THE FIRST TIME BUYER CREDIT SET TO EXPIRE ON NOVEMBER 30TH 2009. IT WILL BE REAL INTERESTING TO SEE HOW THE MARKET PERFORMS ONCE IT IS GONE.

Market update at glance	9/30/2009	Year	Percentage Increase
Yellowstone County		2008	2009	or -Decrease
Residential Closed Sales Units		1550	1390		-10%
Residential Pending Sales Units	203	330		63%
Residential Active Property Units For Sale	910	888		-2%
Average sales price Single family Home	$209,514	$201,200		-4%
Average Square feet Single family Home	2322	2275		-2%
Median sales price Single family Home	$185,985	$180,000		-3%
Median Square feet Single family Home	2207	2148		-3%
Average Days on Market Till Offer Received
Single Family Home			60	67		12%
Absorption rate -	TIME IN DAYS
Time it would take for all existing		180
properties to sell with no new inventory coming
into the market place - residential
SINGLE FAMILY PERMIT ISSUED MONTH	21	23		10%
SINGLE FAMILY PERMIT ISSUED YEAR	227	178		-22%
Average Number of Rentals Advertised Sundays	108	133		23%
Average Asking Price for a Rental Home	$1,114	$1,044		-6%
Average Asking Price for a Rental Apartment	$678	$679		0%

MARKET UP DATE AT GLANCE COMMENTARY THRU SEPTEMBER 30TH 2009

I'LL BEGIN THIS MONTH WITH THE COMMENT "cash for clunkers" and a race to the finish line THE BEST WAY TO DESCRIBE THE WAY THE REAL ESTATE MARKET IS BEHAVING this fall.

WHEN YOU LOOK AT THE NUMBERS THE THING that JUMPS OUT AT YOU IS A 63% INCREASE IN THE NUMBER OF PENDING SALES YEAR TO YEAR, WHICH IF YOU WANTED, YOU COULD SHOUT ABOUT THE INCREASE, YET WHEN YOU NOTE THAT LAST YEAR AT THIS TIME THE BUYERS WITHDREW FROM THE MARKET PLACE AND CAUSED A PLUNGE IN PENDING SALES, IT TEMPERS ENTHUSIASM. I BELIEVE we are in race with first time buyers trying to purchase before the tax credit goes away.

THIS BRINGS UP A GOOD POINT IN THE OVERALL NUMBERS WE WILL EXPERIENCE THIS FALL AND THE REST OF THE YEAR. THE MARKET FELL FROM THIS POINT FORWARD FOR THE REMAINDER OF 2008 THIS YEAR APPEARS TO HAVE STABILIZED WITH INVENTORY AND PENDING SALES REMAINING IN A SOLID RELATIONSHIP TO EACH OTHER. THAT FACT IS why IS MEASURED OPTIMISM.

the most active SEGMENT of the market HAS REMAINED between 160k to 180k(PRIME FIRST TIME BUYER PRICE RANGE), that price range share of the market 13% by unit volume in 2008, INCREASED TO 17% by unit VOLUME AT THE END TO september 2009. THE UPPER RANGE SEGMENTS 300K TO 500K HAS SEEN AN INCREASE IN inventory with not as much A MOVE UP traffic as i would expect based on the first time buyer MARKET TREND. it may just be a lag in timing, WE WILL WATCH CLOSELY AS THE PENDING SALES SHOW UP IN THE CLOSED SIDE OF THE EQUATION TO SEE HOW THE MOVE UP MARKET PLAYS OUT FOR THE REST OF THE YEAR.

the question ABOUT what happens to FIRST TIME BUYERS when we MOVE TO NOVEMBER 30^TH as THE FIRST TIME BUYER TAX CREDIT EXPIRES, HOW MANY FIRST TIME BUYERS WILL CONTINUE TO COME INTO THE MARKET AFTER the tax credit EXPIRES? IF thE CREDIT MARKETS AND INTERESTS RATES CONTINUE TO BE KIND TO FIRST TIME BUYERS, WE SHOULD CONTINUE TO SEE STABILIZATION IN THE MARKET, YET I SUSPECT WE WILL SOME SORT OF DECLINE IN SALES FOR A TIME MAYBE into the SECOND QUARTER OF THE 2010.

THE inventory levels have CONTINUED TO slight A DECREASE IN PROPERTIES FOR SALE OF 1% FROM a year ago, AS COMPARED TO 41% HIGHER IN JANUARY AND 9% HIGHER IN MARCH A YEAR AGO, THE decrease from a year ago is AFFECTED by the increase in pending SALES AND STABLE INVENTORY..

THE PENDING SALES LEVELS CONTINUE TO moVE HIGHER, AN INCREASE OF 63% FROM a year ago, AS COMPARED TO 37% LOWER IN JANUARY AND 12% LOWER IN MARCH. THE CONTINUED INcrease from a YEAR ago is AFFECTED by the increase in FIRST TIME HOME BUYERS AND slight MOVE UP TRAFFIC. THIS MONTH AS IN COMING TIME PERIODS WE WILL SEE INCREASES FROM A YEAR AGO, BECAUSE A YEAR AGO PENDING SALES LEVELS WENT DOWN SUBSTANTIALLY.

CONSTRUCTION numbers in september: single family permits, IN TOTAL still show A DECLINE FROM LAST year, 22% LOWER. to put it in PERSPECTIVE the first 9 months of the year are as follows 1. 2009 178 single family permits, 2. 2008 227 Single family permits, 3. 2007 361 Single family permits. WE CONTINUE A TREND IN new CONSTRUCTION market THAT PERMITS IN FOR THE MONTH ARE AT OR HIGHER THAN THE YEAR BEFORE AND september DID ADMIRABLY WELL AGAIN 23 PERMITS 2009 AND 21 IN 2008. AS WE MOVE FORWARD THE TREND WILL MOST PROBABLY CONTINUE DUE THE STEEP DECLINE IN PERMITS LAST YEAR, AGAIN THIS SHOWS A MARKET THAT IS STABILIZING AND FOUND ITS FLOOR of activity.

the home sales prices below SHOW a slight price decline year to year YELLOWSTONE county a 4% IN AVERAGE AND 3% IN MEDIAN SALES PRICE. I WOULD SAY WHEN THE SMALLER SIZE OF HOME SELLING IS FACTORED IN THE DECLINE YEAR TO YEAR WOULD BE ABOUT 3% WITH HOMES IN POOR CONDITION OR LOCATION EXPERIENCING GREATER THAN THAT.

THE POSITIVE forces in the MARKET REMAIN THE SAME, the STRENGTH of the below $200,000, no SIGNIFICANT FORECLOSURES of HOMES AND HISTORICALLY LOW INTEREST RATES 5% FOR A 30YEAR LOAN AND STRONG EMPLOYMENT NUMBERS. the importance of A LOW FORECLOSURE RATE CAN not be OVERSTATED. when you look at other market places AND THE case /shiller index declines, the driving force in downward price pressure is FORECLOSED properties sold by lenders.

unemployment in YELLOWSTONE COUNTY IN JUNE WAS 4.9%, NOT SEASONALLY ADJUSTED, COMPARED to the state average of 6.6% , GALLATIN VALLEY OF 5.5% MISSOULA OF 5.7%, THE FLAT HEAD OF 8.7 % and the NATIONAL of 9.8% giving people who want to own their home a job and A BELIEF that they will be employed, (A SIDE NOTE TO YELLOWSTONE COUNTY ACTUAL NUMBER OF WORKING PEOPLE IN JUNE WAS 80,100 PRELIMINARY) along WITH low INTEREST, approximately 5.% on a 30 year fixed rate, and you have a good case for buying a home if your intention is staying put three plus years.

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