Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage Update September 25, 2009***

Interest Rates

Mortgage rates remained essentially flat this week at near historical lows. The Fed has purchased about 70% of the $1.25 TRILLION in MBS it has committed to. On Wednesday the Fed announced it would slow its purchases to last thru the end of March 2010. As the Fed stays on course with the purchases expect rates to rise gradually as the buying slows then eventually stops. The range of increases in rates is estimated to be between .35% and .75% but no one really knows for certain.

 

When	Rate
This Week	5.04
1 Month Ago	5.14
1 Year Ago	6.09
2 Years Ago	6.42

 

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.

Source: Federal Reserve Statistical H.15.

 

Mortgage Industry Update

·         Another one of our investors announced this week they are increasing their minimum FHA score to 650.

·         FHA loans were 46% of all purchase applications last week the highest number since November 1990.

·         We hear a lot about how home affordability is better now than in many years. However, according to USA Today and the Census Bureau in 2008 40 million people spent more than 30% of their income on housing (data included mortgages, rents & homes without mortgages) which is 600,000 more than in 2007.

·         The FHA Reverse Mortgage program is facing an $800 Million shortfall and Congress is not inclined to cover it.

 

Good News

·         Conference Board said leading economic indicators rose .6% in August to the highest level in 18 months AND increased for the fifth straight month.

·         Federal Housing Finance Agency (FHFA) said its housing index was down 4.2% for the past year BUT the index increased .3% from June to July.

·         The House approved a bill this week extending unemployment benefits another 13 weeks for the 27 states with an unemployment rate greater than 8.5%.

·         Inventory of existing homes fell in August to 8.5 months from July’s 9.3 months.

·         University of Michigan Consumer Sentiment Index increased to 73.5 in September from 70.2 in August.

·         New home sales were up .7% in August which was the fifth consecutive monthly increase. Also, new home inventory for August was 7.3 months.

 

Statistics of Interest/Concern

·         Mortgage delinquency (30 days or more late) on all loans increased to a record 7.58% in August up from 7.32% in July. This was the fourth consecutive monthly increase.

·         Credit card charge offs rose to a record high of 11.49% in August according to Moody’s.

·         Bankruptcy filings increased 32% from last August 2008 to August 2009 which is a slight decline from July’s year over year increase.

·         The projected number of bankruptcy’s in 2009 is 1.45 million filings a 35% increase from 2008 according to the American Bankruptcy Institute.

·         Existing home sales fell 2.7% in August. The first monthly decline in 4 months. Note that distressed sales were 31% of total sales.

·         Durable goods orders fell 2.4% in August after increase of 4.9% in July.

 

Foreclosure Headlines

·         The number of properties in some stage of foreclosure was 240,000 in August 2007, 304,000 in August 2008 and 358,000 in August 2009 says RealtyTrac.

·         A study by Amherst Securities Group suggests that not only will the housing market get worse due to the “shadow” inventory of foreclosures but the President’s loan modification program will have “no lasting effect on keeping loans current”. The group estimates there are 7 million units in the so called shadow inventory and points out that negative equity is “the single most important determinant of default”. See below for more on something called strategic default.

 

Job Market Headlines

·         Initial weekly jobless claims fell 21,000 to 530,000 compared to forecast of 550,000.

·         Continuing jobless claims were down slightly to 6.14 million forecast was 6.18 million.

·         The number of firms laying off 50 or more employees at one time spiked in August after a sharp decline in July according to the Bureau of Labor statistics.

 

Commentary/Observations

 Borrowers have become much more comfortable walking away from mortgage payment obligations on their homes and letting their lenders suffer property-value losses, a recent study suggests.  The practice of walking away from a negative equity position has been dubbed “strategic default.”  Such defaults account for an estimated one-quarter of all defaults. “Given that homes in numerous parts of the country have lost more than 30 to 40 percent of their value, many homeowners say they would simply walk away from their loans — without fear of repercussion,” according to the report, Moral and Social Restraints to Strategic Default on Mortgages, jointly announced last month by the Kellogg School of Management and The University of Chicago Booth School of Business.

 

The research found that once negative equity reached 15 percent, “homeowners start to default at an increasing pace, and walk away massively,” the authors wrote.  The report indicated that an estimated 17 percent of all borrowers would walk away if their negative equity reached 50 percent.  The chances of a strategic default increased 82 percent if the borrower knew someone else who did it. Another factor present with higher rates of borrowers who would walk away was a high level of foreclosures in the same zip code. “Housing policy under the current administration has focused on reducing households’ cash-flow problems in response to the housing crisis [loan modifications], but no one has addressed the negative equity issue as part of public policy regarding housing,” Kellogg School’s Paola Sapienza — who lead the research — said in a statement. The negative equity issue was addressed in the Hope for Homeowners program from last summer (which was a failure) where balance reduction was “voluntary” and the Cram Down revision to the bankruptcy law but the law became so watered down it lost support. Could it be that those in D.C. missed the target in trying to fix the housing crisis?

 

Iran nuclear update: On September 25^th President Obama said Iran is “breaking rules” by secretly building a nuclear fuel plant that is “inconsistent with a peaceful nuclear program”. The President, the French President and the British Prime Minister demanded Iran submit to international demands that it halt uranium enrichment. British PM Gordon Brown said “the level of deception…and the scale of what we believe is the breach of international commitment will shock and anger the entire international community [my emphasis]”.

 If you have any mortgage or related questions please contact me at (602) 803-9660 or by e-mail at burt@gosfm.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage Update September 18, 2009***

First time home buyer tax credit update: There are at least six bills currently in Congress to extend and/or expand the credit. See below for some more detail. According to the IRS 1.4 million taxpayers have claimed the credit so far.

 

Interest Rates

Mortgage rates ended the week about where they started right at 5.00%. We continue to be blessed with excellent rates. How long will this last? In a Reuter’s story this week a statement was made that “market strategists widely expect the Fed to extend the time for these purchases (Fed has been buying Mortgage Backed Securities) into 2010 to ease the markets into an absence of a major buyer”. If true this is good news bad news stuff. The good news is that if this happens mortgage rates will stay artificially lower a little longer. The bad news is the shift from a supported mortgage market to a normal market will be postponed. The question then is are we better off with artificially lower rates today or would we be better off taking our medicine now and returning to the more normal market pricing sooner rather than later?

 

When	Rate
This Week	5.04
1 Month Ago	5.12
1 Year Ago	5.78
2 Years Ago	6.34

 

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.

Source: Federal Reserve Statistical H.15.

 

Mortgage Industry Update

·         The dialogue on extending the First Time Homebuyer Tax Credit of $8,000 or do something bigger is heating up in D.C. The $8,000 program may cost $15 Billion when it expires but the NAR and others (home builders in particular) want to keep the current credit or, better yet, expand it to $15,000 at an estimated cost of $50-100 Billion. The number of homes purchased under the existing credit is somewhere between 350,000 and 400,000.

·         FHA cash reserves have fallen to below mandated minimum levels and this is causing the agency to make some policy changes. Among the changes will be an increase of credit scores and the likely lowering of acceptable debt to income (DTI) ratios. These and other steps are being taken to minimize defaults in the future.

 

 

Good News

·         Retail sales in August were up 2.7% double forecast and excluding autos (Cash for Clunkers) were still up 1.1%.

·         New York state manufacturing index for September was 18.8 up from 12.8 in August and the highest since late 2007.

·         Business inventories declined 1.0% in July according to the Commerce Department.

·         Professional Global Confidence Index was 58.54 in august anything above 50 indicates a positive outlook for the economy.

·         Housing starts were up 1.5% in August which was in line with forecast and biggest increase since November 2008.

·         Building permits were also up in August by 2.7%.

·         Starts of single family homes were down 3% in August the first decline in six months. Also, the inventory of homes under construction fell to a record low.

 

Statistics of Interest/Concern

·         Producer Price Index (PPI) in August was up 1.7% or double forecast with much of the increase due to increased gas prices according to the Labor Department.

·         Consumer Price Index (CPI) rose .4% in August with a year over year decline of 1.5% the Labor Department said.

·         August credit card defaults rose led by Bank of America with charge offs rate of 14.54% followed by Citi Group at 12.14%, chase at 8.73% and American Express at 8.5%. Charge offs are for a loan where the lender does not expect repayment.

·         Current national debt ceiling limit is $12.1 TRILLION but is expected to be increased in October.

·         Industrial production rose .8% in August which was just above forecast of .6% according to the Federal Reserve. Also, the July number was revised upward to 1.0%.

 

Foreclosure Headlines

·         Some interesting information on the Phoenix condo market as of September 11, 2009.

Active listings 5775 REO/pre foreclosure 1997 (35%)

Under contract 1993 REO/pre foreclosure 1520 (75%)

Sold within 30 days 860 REO/pre foreclosure 528 (67%)

Median price of condo/townhouse July 2005 $170,000

Median price of condo/townhouse July 2009 $96,000

Source: ARMLS

·         We have previously pointed the impending problem for Option Arm loans. This week a group of states attorney generals met with Treasury Department officials to discuss the situation. According to Terry Goddard Arizona Attorney General 128,000 Option Arms are starting to reset this month and he expects many of them to wind up as foreclosures.

 

Job Market Headlines

·         For August 5 states had unemployment rate over 10% led by Michigan with 15.2%. Nevada was second with 13.2%, Rhode Island was next at 12.8% and California was at 12.2% tied with Oregon for fourth place.

·         Initial weekly jobless claims were down slightly to 545,000.

·         Continuing jobless claims were up 129,000 to 6.23 million which was above forecast of 6.1 million.

·         At the end of August there were 14.9 million unemployed Americans plus another 9.1 million working part time jobs because they could not find full time work.

·         The Paris based Organization for Economic Cooperation and Development said this week in its annual report that between end of 2007 and July 2009 15 million jobs were lost. The group said they expect another 10 million lost jobs by end of 2010. Most industrialized countries were included except for China and India.

 

Commentary/Observations

U.S. household net worth increased in the second quarter of 2009 by $2 TRILLION to $53.1 TRILLION according to the Federal Reserve. It was the first increase since the recession began in 2007 when the household net worth was $63.9 TRILLION.

 

The Federal Reserve is reviewing commercial real estate exposure at the nation’s largest regional banks.

 

Wells Fargo fired the employee who was using the Malibu beach mansion for personal use.

If you have any mortgage or related questions please contact me at (602) 803-9660 or by e-mail at burt@gosfm.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

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Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage Update September 11, 2009***

A Day to Remember: September 11, 2001 is without question a day to remember. It does not matter what your politics are as long as you view yourself as an American we must remember this day. To not remember allows those evil persons responsible for the event to win and we cannot allow that! God bless America!

 

Interest Rates

Another great week for mortgage rates as 30 year fixed rates were stuck in a narrow range of just below 5% to 5%. One reason may be that yields on mortgage bonds dropped to a 3 month low which could also suggest slightly lower rates in the near term. However, unless the Fed decides to continue its support of lower rates look for rates to increase later this year.

 

When	Rate
This Week	5.07
1 Month Ago	5.29
1 Year Ago	5.93
2 Years Ago	6.31

 

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.

Source: Federal Reserve Statistical H.15.

 

Mortgage Industry Update

·         The Treasury Department issued its August report on loan modifications and only 12% of those eligible have been modified. The report went on to say that “millions more foreclosures are coming”. Department analysts estimated that six million homeowners will lose their homes to foreclosure in the next three years. See below for the performance of selected lenders.

Saxon 39%

GMAC 26%

Chase 25%

Citi 23%

Aurora 22%

Wells Fargo 11%

Bank of America 7%

National City 3%

 

Good News

·         The markets finished Thursday up for the year. The Dow was up 9.7%, S & P up 15.6% and NASDAQ up 32.15%. The markets backed up a little on Friday as the Dow was off 22, S & P slipped 1.4 and the NASDAQ was down 3. Still, the year to date number’s are impressive.

·         Reuters/University of Michigan consumer sentiment index for September was 70.2 up from August 65.0 and exceed expectations.

·         Wholesale inventories declined for the 11^th straight month.

 

Statistics of Interest/Concern

·         Mandatory spending for Social Security, Medicare and Medicaid will be 37% of the FY 2009 budget. By 2012 they will be 47% according to the Office of Management and Budget (OMB).

·         The OMB said this week that the FY 2009 budget deficit is estimated to be $1.58 TRILLION. From 1789-1985 (197 years) the TOTAL combined deficit was $1.5 TRILLION.

·         Total U.S. consumer credit declined by $21.6 Billion in July. This was the sixth consecutive monthly decline according to the Federal Reserve.

·         The U.S. poverty rate was 13.2% in 2008 the highest in 11 years according to the Census Bureau.

 

Foreclosure Headlines

·         August foreclosure filings fell .5% in July to 358,471 which was an increase of 18% from July 2008. Also, this was the sixth consecutive month of 300,000 or more according to RealtyTrac.

·         Rumors are floating around that the Treasury Department may issue guidelines later this month for short sales and deed-in-lieu of foreclosure in order to accelerate the time frame for doing these types of transactions.

 

Job Market Headlines

·         The President’s Council of Economic Advisors said Thursday that the stimulus package created or saved one million jobs.

·         Weekly initial jobless claims were 550,000 compared to forecast of 560,000.

·         Continuing jobless claims were down slightly to 6.09 million. According to the Department of Labor the “Exhaustion Rate” for July was 50.7% the highest rate since 1972.

 

Commentary/Observations

·         The biggest real estate deal in U.S. history may go bust soon according to the NY Times. Three years ago the biggest commercial real estate deal ever was completed for $5.4 Billion. The property is the Stuyvesant Town & Peter Cooper Village in Manhattan just off the East river. The project includes 110 buildings with 11,227 apartments. Currently valued at less than half of the purchase price and with $4.4 Billion in loans apparently the rental income is only covering half of the debt payments. Some believe the risk of default is so high that the property owners will be lucky to hang on until February.

·         A Wells Fargo executive for commercial property foreclosures in southern California has apparently taken up residence in a $12 million mansion in Malibu. The property’s previous owner was caught up in the Bernie Madoff scheme. Wells had no comment except to say it handles these types of things internally. Really? Last time I checked Wells Fargo was a public company with a greater responsibility to the public than to one irresponsible employee.

·         Iran rejected any compromise with the west over its nuclear program as the administration expressed concern in its strongest language yet. The President had said September was the deadline for Iran to start negotiating in “good faith”.

 

Finally, the purpose of this update is to provide some specific information so that you, gentle reader, can draw your own conclusions from the week’s events, data points and so forth. Rarely do I offer my opinion on anything as that would turn this into an editorial and that is not the goal. However, today I would like to digress from the format and offer an opinion. Am I the only person who thinks the Federal Reserve’s support of mortgage rates, the first time home buyers tax credit, cash for clunkers, and the coming program for appliances is artificially supporting the market and when, not if, these supports are over we will have only postponed the required pain for markets to correct themselves?

If you have any mortgage or related questions please contact me at (602) 803-9660 or by e-mail at burt@gosfm.com.

 

 

 

 

 

 

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Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage Update September 4, 2009***

Patriotic thought: This Labor Day is a great holiday to relax, enjoy the American Way of life and maybe take a minute to consider the plight of many of our citizens who find themselves out of work this weekend. I hope you all have a wonderful weekend and display your American flag. Also, don’t forget that next Friday is the eighth anniversary of the September 11 attacks on our country. Let’s show our support for those in harm’s way by flying our flags that day as well.

 

Interest Rates

Rate held at near historic lows for the week with both conventional and FHA 30 year fixed rates at 5.00% or so. The minutes from the last Federal Reserve Board meeting revealed that some members discussed extending the current Fed support for mortgage rates into 2010. While this would be good news for the housing industry it simply puts off the inevitable increase in rates to control inflation.

 

 

When	Rate
This Week	5.08
1 Month Ago	5.22
1 Year Ago	6.35
2 Years Ago	6.46

 

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.

Source: Federal Reserve Statistical H.15.

 

Mortgage Industry Update

·         This week a couple of our FHA lenders increased their minimum score to 640. While 620 is still the standard minimum score to qualify for FHA we may see more of these increases in the months ahead.

·         FHA share of the mortgage market increased to 23% in the second quarter up from 8% a year ago. The Mortgage Brokers Association (MBA) says FHA 90 day+ delinquency increased to 7.8%.

·         Delinquency (30 day late or worse) for prime borrowers who make up 80% of all mortgages reached 9.24% in the second quarter according to the MBA.

·         Your Way Home AZ program update: I called both of the approved Home Buyer Counseling offices and was told by Neighborhood Services that the waiting time for an appointment was 10-14 days and Genesis voicemail said leave a name, phone number and e-mail.

 

Good News

·         Chicago Purchasing Index for August was 50 up from July 43.4. Anything above 50 indicates economic expansion.

·         Pending home sales were up 3.2% in July double the forecast and sixth consecutive increase.

·         ISM manufacturing index for August came in at 52.9 versus forecast of 50.2. First time above 50 since January 2008.

·         Factory orders were up 1.3% in July for fourth consecutive monthly increase according to the Commerce Department.

·         Worker productivity grew 6.6% in the second quarter compared to .3% in the first quarter according to the Labor Department.

·         ISM services index rose to 48.4 in August from July’s 46.4. Any score above 50 indicates an expansion in services activity.

 

Statistics of Interest/Concern

·         The commercial real estate market is poised for implosion. CMBS (Commercial Mortgage Backed Securities) delinquency rose to 4% in August according to Trepps. A Deutsch Bank analyst said this week “we are between first and second inning” in dealing with commercial market distress. Sound familiar? Fitch recently reported that $36 Billion in loans were transferred to a “special servicer” that handles problem loans. They estimate the amount this special servicer will be handling by end of this year at $100 Billion. Fitch also observed that banks have $1.3 TRILLION in commercial mortgages plus another $535 Billion in construction and development loans. Real Capital Analytics has identified $124 Billion worth of distressed properties and less than 10% have been resolved thru loan modification or sale. Those are some pretty big numbers folks.

 

Foreclosure Headlines

·         RealtyTrac said that 67% of foreclosure filings as of July are in seven states. Arizona is one of those states.

·         LPS (Lender Processing Services) said this week that foreclosure starts in July were up 7.1% from June (second biggest increase) while foreclosure inventory increased 4.2%. The rate of loans rolling into final foreclosure stage is however slowing and approaching the mid 2006 level.

·         HOPE NOW said that in July foreclosure starts were up to 283,682 from June’s 251,340. Also, in July 60 day+ delinquency was at 5.9% or 3.1 million homeowners were at least 60 days behind on their mortgages.

 

Job Market Headlines

·         August unemployment rate increased to 9.7% a 26 year high compared to forecast of 9.5%. Monthly job losses were at 216,000 down sharply from July number of 276,000. Note that the underemployment rate (unemployed + workers who have given up looking + part time) was 16.8%. The highest since 1994 when this statistic was created.

·         Initial weekly jobless claims came in at 570,000 just above forecast of 564,000 and down slightly from the previous week. The four week moving average rose to 571,250.

·         Continuing jobless claims were up 92,000 to 6.23 million.

·         Challenger, Gray & Christmas Inc the outplacement firm said that planned U.S. layoffs in August fell by 21%.

 

Commentary/Observations

Joe Califano former Secretary of Health, Education and Welfare said this week that 30% of all health care spending is the result of smoking or excessive drinking. He did not define excessive drinking.

 

The Maui Prince Hotel will close next month according to Prince Resorts Hawaii who plans to terminate its management contract on the property. Employees have been told the resort will close on September 16. Apparently Wells Fargo has filed a lawsuit as the property has defaulted on $193 Million loan. A Wells attorney said they will try to find a way to keep the property open.

 

In a story appearing in the LA Times the Congressional Budget Office (CBO) is looking at ways for the government to raise revenue. One idea getting a lot of attention is to either reduce mortgage deductions OR impose a flat rate of 15% on all income. Other ideas include eliminating write offs for state and local property taxes and placing a 15% cap on all itemized deductions.

For more information on mortgages and related please contact me at (602) 803-9660 or by e-mail at burt@gosfm.com.