Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage & Business Update February 25, 2010***

Food for thought: Clearly one of the challenges to economic recovery is getting people back to work. You may want to check out the Job Market Headlines below. Note the reference to the 318,000 people who are no longer getting extended unemployment benefits. Did these people find jobs or, more likely, are they still looking for work and are no longer getting unemployment benefits? Gentle readers these jobless statistics are for one week.

 

Interest Rates

This week’s retail mortgage rates remained at the 5% level and maybe a tick below. Some analysts are now saying that the Fed’s support of mortgage rates which ends in March may not mean higher rates in the near term. This is due they say to the markets calm response to the increase in the discount rate (what the Fed charges banks for emergency loans) and the pull back of some other liquidity measures. Some argue that the Fed’s exit from the mortgage market is already “priced in” and the Fed has indicated that it might start the support again if warranted. On the other side of the equation is the Fed has not indicated when it will start selling the billions of dollars of MBS it currently has on its books. The good news may be that demand is down at the moment but that could lead to higher rates at some point as the Fed attempts to attract buyers of its MBS.

 

When	Rate
This week	5.05
1 Month Ago	4.98
1 Year Ago	5.07
2 Years Ago	6.24

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

·         Freddie Mac reported a larger than expected fourth quarter 2009 loss of $6.5 Billion up from last year’s loss of $5.4 Billion. For all of 2009 the mortgage giant lost $21.6 Billion much less than its 2008 loss of $50.1 Billion. The company ended the year with $4.4 Billion in net worth which means for now it will not need a capital infusion from the government/taxpayers. Since it was put into receivership in September 2008 (essentially taken over by the government) it has received $50.7 Billion in tax payer funding.

·         Rates on jumbo loans have declined in recent months from high’s of well above 7% to just below 6% recently says Informa Research Services. However, the qualifying and down payment requirements while slightly better still remain stringent.

 

Good News

·         Friday the Commerce Department reported fourth quarter revised GDP was 5.9% up slightly from the previous number and the highest increase in six years. However, inside the numbers the consumer portion shrank from 2% to 1.7%. Consumer spending makes up about 70% of GDP.

·         The Case Shiller U.S. Home Price Index declined .2% in December and declined 3.1% for all of 2009. The trend in downward home prices is improving as indicated by Q1 2009 decline of 19%, Q2 2009 decline of 14.7% and Q3 decline of 8.7%.

·         The Federal Housing Finance Agency (FHFA) said Thursday that home prices in the U.S. declined 1.5% in 2009.

·         The National Association for Business Economists (NABE) says it expects the economy to “remain firmly on track” and grow at 3.1% in both 2010 and 2011.

·         The FDIC said that in the fourth quarter 2009 bank profits were $914 million compared to fourth quarter 2008 losses of $37.8 Billion.

 

Statistics of Interest/Concern

·         New home sales fell to a record low in January according to the Commerce Department. Sales of newly built homes declined 11.2% to the lowest level since 1963. It was the third consecutive monthly decline.

·         Existing home sales fell 7.2% in January but year over year they actually increased 11.4% according to the National Association of Realtors (NAR).

·         The Commerce Department said that durable goods (ex transportation) fell .6% in January after posting an increase of 2% in December. The forecast was for an increase of 1%.

·         According to Real Capital Analytics across the country at the end of 2009 there were 340,000 apartments units worth about $28 Billion in delinquency or foreclosure.

·         According to the East Valley Tribune there are 70,000 developed vacant lots in the Phoenix metro area but only 8,000 new homes were sold in 2009. In December there were only 479 new homes sold in the metro area.

·         The Conference Board’s Consumer Confidence Index fell sharply in February to 46.0 from January’s 56.5. This was the lowest level in 10 months.

 

Foreclosure Headlines

·         Fiserv and Moody’s Economist.com forecast home prices will decline another 6% in 2010 and be mostly flat in 2011. The reason Economy.com founder Mark Zandi says is foreclosures. The latest estimate for foreclosures in 2010 is 4.5 million this after 2.8 million in 2009.

·         First American Core Logic reported that 11.3 million or 24% of homeowners with mortgages were upside down at the end of 2009. Nevada led all states with 70% and Arizona was second with 51% of homes upside down.

 

Job Market Headlines

·         Initial weekly jobless claims were up 22,000 to 496,000 the forecast was for 455,000. Note: Since the recession began in December 2007 payrolls have declined every month except for November 2009.

·         The four week moving average of initial claims was 473,750 up slightly.

·         Continuing jobless claims were up slightly to 4.617 million.

·         The number of people getting extended unemployment benefits declined by 318,000 to 5.5 million.

·         About 2.7 million jobless workers will lose unemployment benefits by the end of April and 6.3 million have been unemployed for more than six months.

·         A Gallup report released this week said that almost 20% of the U.S. workforce lacked adequate employment in January (government data says it is 16.5%) and was struggling to make ends meet.

·         The number of jobs needed to absorb new entrants into the labor force (population growth and immigration) has been estimated between 100,000 and 125,000 per month. This would neither add nor subtract from the work force it would simply keep pace with normal economic conditions. The National Association for Business Economists (NABE) forecasts about 50,000 jobs will be added per month in the first quarter of 2010 and will average just over 100,000 for the remainder of 2010. The current estimate for unemployed is 15 million and underemployed 8 million.

 

Comments/Observations

The data suggests that the housing market remains fragile even with the extension of the buyer tax credit and continued historical low mortgage rates. Don’t be fooled by the strong GDP number as consumer confidence struggles, the job market is a mess and the outlook for more foreclosures is ugly. Policy makers need to focus their attention on creating programs that generate jobs and soon because time is our enemy.

If you have any mortgage or related questions please contact me at burt@gosfm.com.

 

 

 

 

 

 

 

 

 

 

Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage & Business Update February 19, 2010***

Editorial Comment: The purpose of this weekly update is to provide a snapshot of a variety of factors influencing both the mortgage and housing markets. As we all know our country is facing a host of financial challenges which need to be addressed and very soon. We need leaders with ideas who are willing to compromise to move us forward and that does not appear to be the case. So, because of what is being called “gridlock” in our nation’s capital, I am offering my views on the subject in the Comments/Observations section of this week’s update. I am not promoting any particular agenda other than taking positive action for the good of the country. I hope you find it informative.

 

Interest Rates

Retail mortgage were in a very narrow range for the week. The Treasury Department said Tuesday that foreign demand for U.S. Treasury Securities fell by the largest amount on record in January with China reducing its holdings by $34.2 Billion. This reduction if continued could force the government to make higher interest payments (rates would have to be increased to attract investors in our Treasuries) which will lead to higher mortgage rates. All of this at a time when we have a record budget deficit.

When	Rate
This week	4.93
1 Month Ago	4.99
1 Year Ago	5.16
2 Years Ago	5.72

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 Mortgage Banking Association (MBA) said this week that fourth quarter mortgage delinquency was 9.47% down from third quarter’s 9.64%.

·         Mortgage insurer PMI Group Inc the third largest mortgage insurer reported its 10^th consecutive quarter of unprofitability posting a $228.2 million loss. One market analyst said that PMI’s future claims are likely to offset future premiums. In a related move moody’s cut the firms rating from B2 to Ba3. PMI’s largest competitor MGIC Investment Corp. has a $280.1 million loss for the quarter. Look for mortgage insurance rates to increase and guidelines to become stricter in the coming months.

 

Good News

·         New home construction was up 2.8% in January but building permits were down 4.9% according to the Commerce Department.

·         U.S. industrial output rose .9% in January with December’s gains revised upwards slightly according to the Federal Reserve.

·         The Conference Board’s index of leading economic indicators rose for the 10^th consecutive month .3% in January following a gain of 1.2% in December.

·         The Philly Fed economic survey/business index rose to 17.6 in February from 15.2 in January.

·         The PPI (Producer Price Index) which measures wholesale activity was up 1.4% in January above the forecast of .9%.

·         According to the NAHB/Wells Fargo Home Affordability Index (HOI) 70.8% of all new and existing homes sold in the fourth quarter of 2009 were affordable for families earning the national median income of $64,000.

·         Thursday the yield curve steepened to a record 2.92%. A steepening yield curve is normally an indicator the economy is expanding. The steepness of the yield curve is the difference between the two year yield and the 10 year yield on Treasury Notes.

 

Statistics of Interest/Concern

·         The Treasury Department reported that the government posted its 16^th consecutive monthly deficit with a shortfall of $42.6 Billion in January.

·         Capital One credit card defaults rose from 10.14% in December to 10.41% in January.

·         Moody’s Investors Services reported that Commercial Mortgage Backed Securities (CMBS) specialty loan delinquency increased $3 Billion in February to $36 Billion and a 5.42% delinquency rate.

·         The Consumer Price Index (CPI) for January was up .2% after December’s increase of .2%. The year over year increase in the CPI was 2.6%. Note that core prices (excluding food & energy) fell for the first time since 1982 according to the Labor Department.

 

Foreclosure Headlines

·         Today the President announced a new program to address the foreclosure crisis in five states (CA, NV, AZ, FL & MI). The program will be funded with $1.5 Billion in returned TARP money and will include measures to assist unemployed borrowers, programs to assist underwater homeowners, programs that address challenges with second mortgages and other programs to encourage “sustainable and affordable homeownership”. The funding will go to the state Housing Finance Authorities and no timetable for implementation was given.

·         Trans Union said that the mortgage delinquency rate for 60 day plus rose to 6.89% in the fourth quarter of 2009 marking the 12^th consecutive quarterly increase. By comparison fourth quarter 2008 delinquency was 4.58%. They also said that the delinquency will peak between 7.5% and 8% mid-summer 2010.

 

Job Market Headlines

·         Initial weekly jobless claims rose to 473,000 which were higher than the forecast of 438,000 and an increase of 31,000 from the previous week.

·         The four week moving average of initial weekly claims was 467,000 down 1500 from previous week.

·         Continuing jobless claims were 4.56 million unchanged from previous week. There were 5.8 million collecting “emergency” claims this week up 304,748 from the previous week!

·         The Minneapolis head of the Federal Reserve said this week that growth will be slower than many think and that unemployment is unlikely to go below 9% in 2010 and 8% in 2011. He did say the Fed had kept inflation at good levels but careful policy choices are still critical.

·         INS Global Insight, Moody’s and others now credit last years $787 Billion Stimulus package with adding between 1.6 and 1.8 million jobs since its passage. Also, the CBO (Congressional Budget Office) a non partisan group said it believes the estimates are too conservative.

 

Comments/Observations

Our nations elected decision makers are mired in gridlock. Fumbling around trying to find answers for historical problems. They are not volunteers they applied for the jobs they have. They took a sacred oath to act in our best interests. From the President down to the first year congressman they wanted those jobs. They need to get their act together!

Like most Americans I am aware that our country faces serious financial and other problems. Also, like most Americans, I am unhappy with what is going on in our nation’s capital. We have seen and been told for years that health care costs, budget expansion, Medicare, Medicaid, Social Security and more need serious attention. And yet today we appear no closer to solving these problems than a decade ago.

No one in government is without blame and it is high time, no PAST high time, that our elected officials set aside politics and face up to their responsibilities to themselves, to you and to me. End the bickering, back biting and B.S.  and do the job you were elected to do and that is represent the people’s interests!

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage & Business Update February 12, 2010***

Interest Rates

Retail mortgage rates remained at or just below 5% again. Seems that there is a fairly vigorous debate over what rates will do at the end of March. This week the head of the St. Louis Federal Reserve James Bullard said that he did not expect to see a noticeable increase in mortgage rates when the Fed ends its MBS purchasing program in March. This comment is in contrast to many industry participants who believe that rates will increase .50% to .75%. Guess we’ll know pretty soon.

 

When	Rate
This week	4.97
1 Month Ago	5.06
1 Year Ago	5.16
2 Years Ago	5.72

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

·         CitiMortgage is introducing a new foreclosure pilot program for homeowners. The program calls for the lender to take back the home and forgive the debt without a foreclosure (deed-in-lieu-of-foreclosure). It is aimed at homeowners who don’t want to keep their homes (Strategic Defaulters for example). The homeowner can stay in the home for six months as long as they pay the utilities and negotiate other costs (property taxes, insurance, HOA dues). At the end of six months they will get $1000 to help cover relocation expenses. Citi will also review other options for the homeowner including short sale and loan modification. Six states will participate in the pilot program and if successful it will be expanded. Arizona is not one of the six states.

 

Good News

·         The National Federation of Independent Business said its January Index of Small Business Confidence was 89.3 the highest level since September 2008 but was the seventh consecutive quarter below 90 which is seen as minimally optimistic.

·         Retail sales were up .5% in January which was higher than forecast and both November and December’s numbers were revised upward according to the Commerce Department (see below for results of Gallup Poll).

 

Statistics of Interest/Concern

·         A Gallup Poll on consumer spending showed that in January spending was down 16.5% from December 2009 and 5.8% from January 2009.

·         The rating agency Fitch said that jumbo loans seriously delinquent continued to increase for the 32^nd consecutive month in January and rose to 9.6% from Decembers 9.2%.

·         The University of Michigan Consumer Sentiment Index was down to 73.7 in February from January’s 74.4 but this compares favorably to a year ago when the number was 56.3.

·         FY 2001 was the last year the government tax receipts ($2.0 TRILLION) exceeded spending ($1.9 TRILLION).

 

Foreclosure Headlines

·         One solution to the foreclosure crisis has been the HAMP (loan modification). Missing from the loan mod program is a principal reduction component. Apparently there is a law/rule/guideline that says first mortgages cannot be written down before seconds. There is just over one TRILLION dollars in second mortgages outstanding and the majority is held by four banks (B of A, Chase, Citi & Wells). Last summer a loan mod program for second mortgages was introduced and has not gone very far. Only B of A has signed up. Hopefully Treasury is working on a way to address the principal reduction issue using whatever tools are available because many believe lowering loan balances is critical to resolving the foreclosure crisis.

·         RealtyTrac reported for January foreclosures were down 9.7% from December but still at 315,716 for the month and the 11^th consecutive month foreclosures exceeded 300,000.

·         Zillow.com reports that 21.4% of homeowners in the fourth quarter of 2009 owed more than their homes than they were worth. This was a slight increase from third quarter’s 21.0%. They also said that home values declined 5% from the previous year and that they expected home values to bottom out in mid 2010.

 

Job Market Headlines

·         Initial weekly jobless claims declined to 440,000 down 43,000 from previous week and below forecast of 465,000.

·         The four week moving average of weekly claims was 468,500 down 1,000.

·         Continuing jobless claims were 4.538 million down 79,000 from previous week and below forecast of 4.6 million.

·         According to ADP the world’s largest payroll processor small business (500 or fewer employees) lost 3,000 jobs in January and has been reducing capital expenditures for several months. Small business growth has helped lead the economic recovery in the last four recessions.

 

Commentary/Observations

The Chairperson of the committee that oversees the TARP program in commenting about a committee report on the commercial real estate market said unless regulators start preparing now these loans could “go sour and wreck the economy”. Between 2010 and 2014 $1.4 TRILLION in commercial loans come due and at least half are “underwater”. The report predicts that unless appropriate actions are taken hundreds of small and medium size banks could fail.

 

The CEO of Pimco the world’s largest bond firm has expressed concerns about the massive U.S. debt and says he currently prefers to buy German government bonds over U.S. bonds. He went on to say that the Greek situation is a “massive wake-up call” especially given that our government’s debt is about 60% of total GDP. 

 

Iran’s president claimed that his country will not be bullied by the west into halting its nuclear program just one day after the U.S. imposed new sanctions on the country.

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

 

 

 

 

 

 

 

 

 

 

 

Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage & Business Update FVebruary 5, 2010***

Fannie Mae HomePath Update: On January 28^th Fannie Mae announced 3.5% seller assistance to cover closing costs on Fannie Mae’s HomePath properties. The program is good for HomePath purchases that close by May 1, 2010.  For more information go to www.homepath.com.

 

Jobs Report Headlines: The jobs report for January showed a loss of 20,000 compared to forecast of a 15,000 gain. The unemployment rate was 9.7% (aka U-3) down from 10.0%. However, among other important data in the report were in 2009 the economy lost 4.8 million jobs or 600,000 more than previously thought, 8.4 million jobs have been lost since the recession began in December 2007 or 1.4 million more than previously thought and the under employed number (aka U-6) declined from 17.3% to 16.5%. Note the unemployment rate (U-3) only reports those who are receiving benefits for 26 weeks. As we know many are on extended unemployment benefits or are working part time but looking for full time work (U-6). These people are what makes the under employed number so big and perhaps a better measure of the real unemployment rate.

 

Interest Rates

One impact from our large national budget is that the government has to sell Treasury notes and bonds to fund the spending. If the number of buyers goes down (say China is not interested or buys less than expected) then the rate of return has to increase to attract buyers which results in increased rates. Speaking of rates the President of the Boston Federal Reserve has said that he believes that when the Fed stops buying MBS mortgage rates could increase to almost 6% pretty quickly.

The Australian Central Bank in a surprising move kept its key lending rate at 3.75% (ours is zero to .25%), the ECB kept its key rate at 1.00% and the Bank of England followed suit by keeping its key rate at .5%. The Australian bank said in its statement that it wanted to see how the three previous increases were working before taking any further action. It also said that if the economy continues to improve it was likely that further increases would be needed.

For the week retail mortgage rates moved lower to 5.00% or slightly lower as the stock market experienced a sharp decline late in the week. The decline was driven by worldwide concerns about sovereign debt that could slow down or stop the economic recovery. Finally, along those lines, the Congress approved increasing our national debt limit to a staggering $14.294 TRILLION.

 

When	Rate
This week	5.01
1 Month Ago	5.09
1 Year Ago	5.25
2 Years Ago	5.67

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

·         In the new national budget the President proposes to increase FHA’s annual mortgage insurance premium from the current .55% to at least .90%. This rate is applied to the loan amount and is then paid monthly with the mortgage payment. If Congress agrees to the increase then the Up Front Mortgage Insurance Premium (paid up front and included in the loan amount) would be reduced from the previously proposed increase of 2.25% down to 1.00%.

 

Good News

·         In the fourth quarter 2009 non-farm productivity rose 6.2% the quickest pace in six years and above forecast of 6.0% according to the Labor Department.

·         The ISM Manufacturing Index increased to 58.4 in January from 54.9 in December.

·         Construction spending fell 1.2% in December to the lowest level since 2003. For all of 2009 spending was down a record 12.4%.

·         Pending home sales were up 1.0% in December and up 10.9% for all of 2009 compared to 2008.

 

Statistics of Interest/Concern

·         Consumer spending rose .2% in December slightly below forecast. For all of 2009 spending was down .4% the sharpest decline since 1938.

·         In December defaults by small and medium size businesses on loans, leases and lines of credit fell for the first time in two years according to PayNet. However, moderate delinquency while declining from 4.26% in November to 4.22% in December was still more than double what it would be in more normal times.

·         Consumers borrowed less for a record 11^th consecutive month in December according to the Federal Reserve.

 

Foreclosure Headlines

·         New research suggests that when a home value falls below 75% of what the homeowner owes they start seriously considering walking away (Strategic Default). For the third quarter 2009 it was estimated that 4.5 million homeowners were at or below the 75% threshold. Data released last week suggested that the latest number could be as high as 5.1 million homes or 10% of all homes in the U.S. with mortgages. It has also been estimated that in 2008 588,000 or 17% of mortgage defaults were homeowners who were capable of making the payment on their mortgage but simply decided to walk away. Finally, according to First American Core Logic it would cost about $745 Billion to restore upside down homeowners to breakeven on debt to value or roughly what the 2008 Economic Stimulus package cost.

·         According to Tom  Farley, CEO of the Arizona Association of Realtors while Arizona’s anti deficiency laws protect a large number of property owners in foreclosure there is no statute that provides this protection to any property owner in case of a short sale. The bottom line is short sellers need to seek advice of legal counsel.

 

Job Market Headlines

·         Initial weekly jobless claims were up by 8,000 to 480,000 higher than forecast of 455,000.

·         The four week moving average for weekly jobless claims was up by 11,750 to 468,750.

·         Continuing claims were 4.6 million up 2,000 from the previous week.

·         Challenger, Gray & Christmas reported planned layoffs in January increased to 71,482 from December’s 45,094. The January number is much better than a year ago when reported layoffs reached 271,749.

 

 

Commentary/Observations

The big question these days for the housing industry is what is going to happen to Fannie Mae and Freddie Mac? Will they or should they become official agencies or departments of the government? The Congressional Budget Office (CBO) says yes. It estimates that it will cost $291 Billion to bail them out and at least another $99 Billion over the next decade. The Administration has not made a decision yet but is showing only what cash it injects into the two entities which so far is $112 Billion. The agencies have a combined $3.9 TRILLION of debt. Interestingly enough Fannie and Freddie got their start in the late 1930’s as government agencies but in 1968 President Johnson privatized them to keep their debt off the books as the cost of the Vietnam War increased.

 

The FHA continues to struggle as it reported 90 day plus delinquency was at 9.1% in December up from 6.5% just a year earlier. In addition, loans in foreclosure were up 26% from a year ago. It projects that it will have to pay claims on one in four of its 2007 loans which is the highest rate in three decades. Also it expects to lose $10.5 Billion from those popular down payment assistance programs. All the news is not bad however as buyer credit quality has increased. The average credit score in the two years prior to 2009 was 630 but in 2009 the average increased to 690. The increase in scores is due in part to many lenders who do FHA loans increasing their minimum scores.

 

S & P believes that U.S. banks will lose $800 Billion between 2008 and 2010 and estimates banks are only one third of the way through mortgage losses in their portfolio’s. They also said that they see no big bank ($100 Billion in assets) failure this year. In a related story Market Watch said that the big banks (Chase, Bank of America & Wells Fargo) may have to repurchase up to $10 Billion in bad loans from investors and Fannie Mae and Freddie Mac.

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