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Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage & Business Update January 15, 2010***

First time home buyer tax credit SNAFU: Homeowners who closed on their purchases before November 6, 2009 file IRS Form 5405 to get the credit. However, so far the IRS has not issued a form for claims after November 6 when the tax credit extension became effective. A new form was expected in early January. It also looks like a buyer will now have to provide “proof” of the purchase and e-file will not be accepted. As always check with your tax professional for the latest details on getting the tax credit.

 

Interest Rates

So far we have not seen signs of the much anticipated increase in mortgage rates as retail rates remain in the low 5% range. Yes that is higher than the high 4% of recent times but still extraordinary by historical standards. We don’t want to be perceived as crying wolf on rates but folks trust in the markets rates are going to increase and fairly soon.

 

When	Rate
This week	5.06
1 Month Ago	4.94
1 Year Ago	4.96
2 Years Ago	5.69

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 Federal Housing Finance Agency (FHFA) reports that Fannie Mae and Freddie Mac delinquency for third quarter came in at 7.6% and that 1.6 million homeowners were 60 day’s or more behind on their mortgages.

·         More Fannie Mae and Freddie Mac: One expert estimates that they could lose a combined $448 billion which is about 10% of value of their book of loans. Since September 2008 when the government took them over we have injected $112 billion which means the budget could take a $336 billion hit in the next few years.

·         OK, last Fannie Mae and Freddie Mac: In July 2008 Barney Frank said they were fundamentally sound and “in good shape going forward”. In September the government seized control and committed $200 billion to cover future mortgage defaults. Then in February 2009 the government increased their support to a combined $400 billion. Last month with little publicity the government announced “unlimited” support for these two organizations thru 2012.

 

Good News

·         The Bloomberg Professional Global Conference Index forecasts an increase in the 10 year note rate in the next six months and is optimistic on global recovery for the sixth consecutive month.

·         Consumer Price Index (CPI) for December was up .1% less than forecast increase of up .2% but lower than last November’s increase of .4%. Note that 2008 CPI was up .1% and 2009 was up 2.7%.

·         Industrial output was up .6% for December which was in line with forecast.

·         University of Michigan Consumer Sentiment Index came in at 72.8 up slightly from 72.5 in December.

 

Statistics of Interest/Concern

·         Rating service Fitch reported that Commercial Mortgage Backed Securities (CMBS) delinquency for 2009 finished at 4.71%. Fitch predicts that CMBS delinquency could go as high as 12% by 2012 as a large amount of loans come due with little hope of refinancing if credit is not more readily available.

·         The Agriculture Department reports that 38 million people or one in eight received food stamps in October the most recent month data was available. This was an increase of 746,000 from the previous month the ninth record month in a row and the highest percentage ever recorded.

·        KB Home posted its first quarterly profit since 2007 due to a tax gain of $191.7 million.

·        The Commerce Department reported that December retail sales declined .3% forecast was for increase of .5%.

 

Foreclosure Headlines

·         Several sources are estimating foreclosures in 2010 could be between 3 and 3.5 million exceeding 2009’s 2.8 million.

·         Lender Processing Services LLP reports that delinquency on mortgages hit 13.2% or one out of every seven or so homeowners is in one form of delinquency or the other.

·         Fitch says that 88% of Option Arms originated between 2004 and 2007 are going to adjust between now and 2012. Most if not all will carry increased payments and loan balances they said. Further, as rates increase the problem will only get worse.

·         The delinquency (60 days or more late) on jumbo loans hit 9.2% in December an increase of 300% from December 2008.

·         Realty Trac reports that even though there were 2.8 million foreclosure notices in 2009 only 871,000 homes were actually repossessed.

 

Job Market Headlines

·         Initial weekly jobless claims rose by 14,000 to 444,000 forecast was for 436,000.

·         Four week moving average for weekly jobless claims fell to 440,750 from 449,750 the lowest level since fall of 2008.

·         Continuing claims came in at 4.596 million down 211,000 from previous week.

NOTE: The weekly and continuing claims data was “seasonally adjusted” without this adjustment initial claims would have been 156,000 more and continuing claims 504,000 more. It seems the government does not include the new unemployment benefits extension program in the data.

·         The National Federation of Independent Business (NFIB) said that that small business optimism declined for the second consecutive month to 88. The NFIB also said that capital spending by small business rose to 18 barely above the 35 year record low.

·         Global Insight says that a potential new wave of regulations and increased taxes may keep businesses from hiring. The Chamber of Commerce and NFIB both agree.

 

Commentary/Observations

The Committee on the Fiscal Future of the U.S. co chaired by the former head of the Congressional Budget Office (CBO) has said that if we do not raise taxes and/or reduce government spending to curb our debt we risk a “crippling dollar crisis”. Our national debt as percentage of GDP is above 40% and in 20 years could exceed 100% for the first time since the end of WW2.

 

States continue to struggle with budget problems. A report from State University in New York for third quarter 2009 showed 2009 state tax collections have had the sharpest decline in 46 years. At least 30 states have raised taxes an estimated $112 billion according to the Pew Center.

 

China increased the reserve requirement on its banks as a way to cool their fast growing economy as a credit boom threatens to create asset bubbles and introduce inflation.

If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.