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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.