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Mortgage Industry Update: Rates, News & More

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

Interest Rates

Retail mortgage rates remained stable in a narrow range around 5% again. This week both the Bank of England and the European Central Bank kept their rates constant at .5% and 1.0% respectively. In contract The Australian Central Bank raised its key rate Tuesday by .25%. The increase is based on the surprisingly good economic recovery in the country and it is expected that there will be further increase before the end of 2010. Australia is far ahead of most rich nations where key rates are at 1% or lower. Finally, some indicators of possible rising rates would be increasing prices in commodities like oil, gold, the Dollar and the 10 year Treasury yield.

 

When	Rate
This week	N/A
1 Month Ago	5.01
1 Year Ago	5.15
2 Years Ago	6.03

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 Making Home Affordable Refinance Program has been extended until June 30, 2011. This program allows a homeowner to refinance up to 125% of the home’s value. However, note that very few lenders will go to 125%.

·         Fannie Mae reported fourth quarter loss of $15.2 Billion down slightly from its third quarter loss of $18.9 Billion. The loss resulted in negative equity which triggered a request to the Treasury Department for $15.3 Billion so the firm could stay technically solvent.

·         In another announcement Fannie Mae said it would start purchasing up to 200,000 loans per month that are more than four months delinquent. The total could be between $40 and $50 Billion per month. They say this will help reduce their expenses.

·         Barney Frank the House Financial Services Committee Chairman said Friday that he agrees with the Administration’s decision to fully support Fannie Mae and Freddie Mac bondholders. He went on to say that he did not want the bondholders to think they were without risk however unlikely that might be.

·         Freddie Mac has indicated it will stop buying interest only loans on September 1, 2010.

 

Good News

·         The Labor Department reported that productivity in fourth quarter was a higher than expected 6.9% and for all of 2009 was up 3.8% the biggest annual increase in 7 years.

·         Consumer spending increased .5% in January according to the Commerce Department. This increase following December’s increase of .3% and 1.7% for the fourth quarter 2009.

·         The ISM Services Sector Index for February rose to 53.0 from January’s 50.5. February’s reading was the highest since December 2007. Readings above 50 indicate expansion in the service sector which makes up about 70% of the economy.

 

Statistics of Interest/Concern

·         According to the NAR pending home sales declined 7.6% in January.

·         The Commerce Department said construction spending was down .6% in January following decline of 1.2% in December. January was the third monthly decline in a row.

·         The ISM Manufacturing Index fell to 56.5 in February from 58.4 in January. Anything below 50 indicates contraction in the manufacturing sector. The index had been above 50 for seven consecutive months.

 

Foreclosure Headlines

·         Last November 30^th the government announced the Home Affordable Foreclosure Alternatives (HAFA) Supplemental Directive 09-09 to help address the foreclosure crisis. The program outlines how borrowers can do short sales or Deed-in-lieu to avoid foreclosure. This program applies to primary homes for loans originated before January 1, 2009. There are some additional qualifying criteria that both borrowers and lenders must meet. The program is effective April 5, 2010 but some servicers may have already signed up. This is another option for homeowners who are struggling with their mortgage. To explore this option you should contact your lender. Finally, if you would like a copy of the Directive please let me know.

 

Job Market Headlines

·         February jobless rate came in at 9.7% unchanged from January according to the Labor Department.

·         Initial weekly jobless claims were down 29,000 to 469,000 in line with forecast.

·         The four week moving average for jobless claims was down 3500 to 470,750.

·         Continuing jobless claims came in at 4.5 million down 134,000 from previous week. Note that this does not include the 5.9 million receiving extended unemployment benefits.

·         The outplacement firm Challenger, Gray and Christmas reported that February planned layoffs declined 41% to 42,090 the lowest number since June 2006.

 

Comments/Observations

There is no question jobs will be important to the full recovery of the economy. So understanding the challenges in getting people back to work is important. Recently in Kiplinger’s Personal Finance Magazine it was reported that if 100,000 new jobs are created each month for the remainder of 2010 the economy will grow at 3% and the unemployment rate will be 9.5%. While meaningful for the folks getting back to or finding work the fact is these numbers only get us back to break even. During the current recession the economy has lost 8.5 million jobs give or take. At 100,000 per month how long will it take to get all of those folks back to work?

 

A report from Realpoint on the commercial real estate market shows continued weakness in the market. In their report for January delinquency increased to $45.94 Billion up from December’s $41.64 and well above a year ago when it was $10.79 Billion. The distressed loan category (90 days plus delinquent) increased to $7.42 Billion in January and up some $27.95 Billion from a year ago.

 

This week two Federal Reserve Officials came out with somewhat contradictory comments highlighting the difficulty in predicting the future for interest rates. Kansas City Fed President Hoening told CNBC the Fed should raise rates sooner rather than later and his view is “raising rates is not creating tightening but removing a substantial easing policy”. Also in a CNBC interview Dallas Fed President Fisher said “I expect we’ll see low interest rates for some time”.

If you have any mortgage or related questions I can be reached at burt@gosfm.com.