Finance
Mortgage Industry Update: Rates, News & More
May 31, 2010 by · Leave a Comment
***Weekly Mortgage & Business Update May 28, 2010***
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How I see it $: The crisis in Europe continues over fears that one or more Euro-zone countries could have to restructure its debt or even default. One country in the spotlight this week is Spain and especially the stability of its banking industry. On Friday Spain’s credit rating was downgraded from AAA to AA+ by Fitch Ratings Service. Meanwhile Italy announced $30 Billion in budget cuts to show investors that Euro nations can trim budget deficits. The reductions included a three year wage freeze for civil servants and a crackdown on tax evasion.
Another related issue is the increasing LIBOR rate. This is the rate that European banks charge each other to borrow money on a short term basis. While the rate itself is very low it has increased for eleven straight days (as of Monday). Given all of the borrowing going on in the Euro Zone if as rates move higher the cost of repayment increases which among other things could cause banks there to tighten lending.
Finally, in honor of all of those who have given so much for our freedom please take a moment to remember them this weekend. Happy Memorial Day!
If you have any comments or thoughts please e-mail me at burt@gosfm.com. Finally, if you would like to view any of the articles I have written click on the link http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner.
Interest Rates
Retail mortgage rates remained near the mid 4% range for the week and the average rate for a 30 year fixed rate mortgage of 4.78% (see chart below) approached the record of 4.71% set in early December 2009. In its annual report the Federal Reserve said it will not sell its MBS or mortgage financed agency debt until “the economy is clearly in a substantial recovery”. Some observers had suggested the Fed might start selling these assets sooner but apparently they will wait. What this means is that the concerns back in March that mortgage rates would increase are on the back burner for now.
|
When |
Rate |
|
This Week |
4.78% |
|
Month Ago |
5.06% |
|
Year Ago |
4.91% |
|
2 Years ago |
6.08% |
Note that actual market rates vary geographically and by lender, credit score and Loan to Value. Source: Federal Reserve Statistical H.15. http://www.federalreserve.gov/releases/h15/data.htm
Mortgage Industry
· In the first quarter of 2010 FHA insured $52.5 Billion in loans compared to the total loans by Fannie Mae and Freddie Mac of $46.5 Billion. When asked about the huge increase in FHA market share the head of the FHA said “This is a market purely on life support, sustained by the government”. FHA market share is typically 4% and before the current crisis had never been above 14%. According to the Mortgage Banker Association 12% of all FHA loans are at least one month behind on their payment (CNBC).
· FHA loan modification update: FHA did 171 loan mods in April which includes trial and permanent/fully approved modifications. There are about 6 million FHA borrowers and one million of them are delinquent (HUD Neighborhood Watch).
· A possible partial solution to Fannie Mae and Freddie Mac could be the covered bond. This is a debt security that is backed by the cash flow of a loan such as a mortgage. The loan is covered (secured) by a pool of assets that investors can claim rights to if the issuer (or originator like a bank) becomes insolvent. While not common in this country they are very common in Europe. For example, Bank of America and Chase have issues them and companies like Blackrock and Pimco have invested in them. Currently the Covered Bond Act is being discussed in Congress and may become part of the financial reform package soon to be passed into law (CNBC).
· In 2009 Arizona Mortgage Fraud Index (MFI) was 158 placing it fourth in the country for mortgage fraud with Florida number one at 292. Nationwide the MFI increased by 7% in 2009 from 2008 (Mortgage Asset Research Institute).
Good News
· Existing home sales increased 7.6% in April and the median home price increased 4% to 173,100 (NAR).
· New home sales increased 14.8% in April to the highest level since May 2008 (Commerce Department).
· Consumer confidence increased to 63.3 in May from 57.7 in April the April number was the highest since March 2008 (Conference Board).
· U.S. consumer spending was flat in April but for the first quarter 2010 was up 3.5% twice fourth quarter 2009 number. Consumer spending is about two thirds of GDP (Commerce Department).
· A key index of current business conditions in New York for May was 89.9 up from 62.2 in April. This was the fifth highest number since the index was created in 1993 (ISM).
Statistics of Interest/Concern
· First quarter GDP was 3.0% compared to the 3.2% initial reading reported last month. State and local governments reduced spending at the steepest rate since 1981 (Commerce Department).
· The U.S. economy is forecast to grow at 3.2% this year and next (NABE).
· Home prices fell in March by .5% from February but have increased 3% since April 2009. In the first quarter 2010 prices declined by 3.2% compared to fourth quarter 2009 but are up 2% year over year (S&P Case-Shiller).
· Durable goods orders decreased by 1% in April after increasing 4.8% in March (Commerce Department).
Foreclosure Headlines
· Bank of America has implemented a new automated system for handling short sale applications which has reduced the average number of days to approve a short sale from 90 to 50. The bank approved 18,000 short sale applications in April but received more than 50,000 (AZ Central).
· Lenders nationwide have repossessed 350,376 homes thru April 30, 2010 (RealtyTrac).
Jobs Update
· Initial weekly initial jobless claims declined 14,000 to 455,000 (Labor Department).
· Four week moving average for weekly jobless claims was up slightly to 465,500 (Labor Department).
· Continuing jobless claims were down 49,000 to 4.61 million (Labor Department).
Key Indicators
|
Indicator |
5/21/10 |
5/28/10 |
Change |
|
Dow |
10,193 |
10,137 |
-56 |
|
10 year yield |
3.23% |
3.30% |
-.07% |
|
Crude oil |
70.24 |
74.09 |
+3.85 |
|
Dollar (vs Euro) |
1.2579 |
1.2268 |
-.0101 |
|
Gold |
1176.9 |
1213.7 |
+36.8 |
Source: www.cnbc.com/markets/commodities
Mortgage Industry Update: Rates, News & More
May 1, 2010 by · Leave a Comment
***Weekly Mortgage & Business Update April 30, 2010***
How I see it $: Another more contemporary Greek tragedy has played out this week and with any luck may be resolved by Monday. Early in the week the Greek financial rating was downgraded to below investment grade. The downgrade set off a series of events that will lead to severe austerity measures for Greek unions and the people at large. A bailout package of about $130 billion has been proposed which will keep Greece from defaulting on its debt. While this move will “save” Greece the unions are not too happy and promise to fight pay reductions and other elements being proposed. Further, in a Greek poll taken late this week two thirds of those responding said it was likely there would be civil unrest. You may want to keep an eye on further developments in Greece. Finally, how about those wacky guys from Goldman Sachs in their appearance before our beloved elected officials? While I cannot place all of the blame for our recent financial crisis entirely on them they certainly played a role and for them too not acknowledge it is amazing. Wonder if their tune will change when they get in front of a court and respond to the SEC charges? If you have any comments or thoughts please e-mail me at burt@gosfm.com. Finally, if you would like to view any of the articles I have written please go to http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner.
Interest Rates
A month after the Fed stops buying MBS most observers expected rates to show some signs of moving up. Guess what? So far there has been little impact on rates as they have continued around the 5.00% range. How long this will last is anyone’s guess.
|
When |
Rate |
|
This Week |
5.06 |
|
Month Ago |
5.08 |
|
Year Ago |
4.78 |
|
2 Years ago |
6.06 |
Note that actual market rates vary geographically and by lender, credit score and Loan to Value. Source: Federal Reserve Statistical H.15. http://www.federalreserve.gov/releases/h15/data.htm
Mortgage Industry
· Fannie Mae announced Tuesday the extension of its incentive program to purchase its existing inventory through the Home Path program. The program will now expire on June 30, 2010. See http://www.homepath.com for program details.
· FHA loans that are 90 days or more delinquent dropped to 8.8% in March down from 9.2% in February. FHA now holds over six million mortgages with loan balances exceeding $800 Billion (FHA).
· If you have a 30 day late on your credit report your score can go down between 10 and 110 points, a 90 day late 70 to 135, a foreclosure, short sale or deed-in-lieu 130-240 and bankruptcy 130-240. These are of course educated guesses and each consumer’s situation may cause the reduction in score to be different (TBWS).
· An Arizona law professor argues that in Arizona (like most non-recourse states) lenders are charging all Arizona borrowers an additional $800 per $100,000 borrowed for the option to default on a purchase money loan without any recourse. There is no discussion on how the $800 was determined (Brent T. White, Law Professor, University of Arizona published in Arizona Republic on April 25, 2010).
Good News
· First quarter 2010 GDP grew at 3.2% less than fourth quarter 2009 which was 5.6% forecast was for 3.4% increase but still a solid number (Commerce Department).
· Consumer spending which accounts for about 70% of GDP grew 3.6% in the first quarter of 2010 compared to 1.6% in fourth quarter 2009 (Commerce Department).
· Consumer confidence increased in April to 57.9 up from 52.3 in March the highest level since September 2008 when Lehman Brothers collapsed (Conference Board).
· Home prices increased by .3% in February from the same month in 2009 the first increase in more than three years. However, it is expected that for February 2010 thru February 2011prices will decline by 3.4% (First American CoreLogic).
Statistics of Interest/Concern
· Consumer sentiment fell to 72.2 in April from 73.6 in March (Reuters Thomson/University of Michigan).
· U.S. home prices fell in February by .9% from previous month BUT were up year over year by .6% the first increase in more than three years (S& P Case-Shiller).
· Phoenix had the seventh most foreclosures in the first quarter of 2010 with one for every 38 homes. Las Vegas was first at one out of 28 homes (Realty Trac).
Foreclosure Headlines
· The Las Vegas metro area has the worst foreclosure rate in the nation at one in 28 homes while Phoenix metro is seventh at one in 38 (Realty Trac).
· Strategic defaults on home loans were at 12% in February up from an estimated 4% in mid 2007. The Treasury Department is expected to announce changes to HAMP (Loan mod program) by September to help homeowners who owe more than 115% of the home’s value reduce principal (Bloomberg).
· There could be another 1.6 million distressed sales in 2010 or about 30% of total sales and the same numbers are expected for 2011. The shadow inventory (homes at 90 days or more delinquent) is estimated at 4.6 million homes some of which will modify or work out the loan with their lender and some will be strategic defaults (Barclays Bank).
· Apparently the State of Arizona has decided how it is going to spend the $125 million from Washington. $90 million will be used to reduce loan balances on 3,000 “deeply underwater” mortgage’s, $12 million will subsidize unemployed borrowers mortgages, $7.5 million will buyout second mortgages and $10 million will be for counseling (WSJ). Some of you math wizards out there may have noticed the total is not $125 but $119.5 million. More government accounting?
Jobs Update
· Initial weekly jobless claims were down 11,000 to 456,000 (Department of Labor).
· Four week moving average for weekly jobless claims increased 1500 to 462,500 (Department of Labor).
· Continuing jobless claims declined 18,000 to 4.65 million (Department of Labor).
· Since December 2007 Congress has extended the length of unemployment benefits three times. Apparently neither party has any interest in extending them further thus the maximum length to receive benefits will remain at 99 weeks. In the coming months about one million people will see their benefits end. This fiscal year we will spend $200 Billion for unemployment benefits or about six times what it was before the recession began (Bloomberg).
· 44% of jobless people have been unemployed at least six months or more (Bureau of Labor statistics).
· At least 3.4 million people have been out of work at least one year (Pew Fiscal Analysis Initiative).
Key Indicators
|
Indicator |
4/23/10 |
4/30/10 |
Change |
|
Dow |
11,204 |
11,009 |
-195 |
|
10 year yield |
3.82% |
3.66% |
-.16% |
|
Crude oil |
85.11 |
86.18 |
+1.07 |
|
Dollar (vs Euro) |
1.3369 |
1.3296 |
-.0073 |
|
Gold |
1156.0 |
1179.4 |
+23.4 |
Source: www.cnbc.com/markets/commodities
Mortgage Industry Update: Rates, News & More
April 25, 2010 by · Leave a Comment
***Weekly Mortgage & Business Update April 23, 2010***
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How I see it $: I am wondering if the incentives offered by the government are enough to entice lenders/servicers to do a loan mod or a short sale versus foreclosure. The HAMP program pays $1,000 for each loan mod plus, if the borrower stays current, an additional $1,000 per year for three years. Wow, $4,000 to do a loan mod! Under HAFA the new short sale program the servicers get $1500 for each short sale. Double wow! Is that kind of money motivation enough to offset what might be gained from a foreclosure? Hey, I am just asking the question. With 4.6 million mortgages 90 days or more late on their payments and some estimates for as many as 7 million foreclosures in the next three years somebody better think of something and fast.That is the way I see it if you have any comments or thoughts please e-mail me at mailto:burt@gosfm.com. If you would like to view any of the articles I have written please go to http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner.
Interest Rates
Retail mortgage rates remained flat for the week even as some Federal Reserve members are talking about the Fed selling some of its MBS. This of course would put upward pressure on mortgage rates.
|
When |
Rate |
|
This Week |
5.07 |
|
Month Ago |
4.99 |
|
Year Ago |
4.80 |
|
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. http://www.federalreserve.gov/releases/h15/data.htm
Mortgage Industry
· Fannie Mae announced a revised policy on the waiting periods following a foreclosure or short sale. Generally the new policy says a borrower must wait 2 years and put at least 20% down, or 4 years and put at least 10% down or 5-7 years requires borrower meet requirements of an “eligibility matrix”. The borrower also must meet other conditions reflected in Fannie Mae’s Automated Underwriting System (AUS). HUD guidelines for FHA/VA and other government loans are 3 years.
· As of March there have been 227,922 permanent loan modifications and 108,212 approved but not accepted by the borrower. 780,951 Trial modifications are active and includes the approved but not accepted by borrowers total. Of the permanent loan modifications only 2879 have defaulted so far. The top performing major lenders as a percentage of “eligible” borrowers are; GMAC 48%, Citi 47%, Wells Fargo 38%, Chase 37% and U.S Bank and Bank of America at 26%. Eligible borrowers are at least 60 days delinquent on their first mortgage. Also, 6 million homeowners have missed at least two payments (Treasury Department).
Good News
· New home sales in March rose 27% the biggest increase in 47 years and follows February’s record low number. The median sales price was $214,000 up 4% from a year ago (Commerce Department).
· Existing home sales rose 6.8% in March with the median home price slightly higher than a year ago at $170,700 (NAR).
· 20% of sellers reduced prices in April by 10% on average compared to 27% a year ago (Trulia.com).
· U.S. growth forecast for 2010 is 3.1% up from 2.7% in January (IMF).
· U.S. leading economic indicators rose 1.4% in March the 12th consecutive monthly increase (Conference Board).
Statistics of Interest/Concern
· U.S. commercial real estate prices declined 2.6% in February the first monthly decline in four months (Moody’s/REAL Commercial Property Price Index).
· The default rate on commercial loans will continue to rise in 2010 and is estimated to reach 11% by the end of the year. A big concern is the default of large loans (over $50 million). In 2008 there were five defaults but that number increased to 56 in 2009 (Fitch Ratings).
· March Producer Price Index (PPI) rose .7% making the year over year increase a stout 6%. The main culprit was the 2.5% increase in wholesale food prices the largest increase in 26 years (Department of Labor).
· Durable goods (excluding aviation) increased 2.8% in March the biggest increase since December 2007 (Commerce Department).
Foreclosure Headlines
· The Arizona Department of Housing received $2 million from NeighborWorks America to support community revitalization and counseling families facing foreclosure. According to NeighborWorks 937,000 families have received assistance since January 2008 including loan modification assistance.
· California mortgage defaults fell 4% in the first quarter of 2010. However, defaults in the $500,000 plus range increased 1.5%. First quarter 2009 defaults were 135,431 but declined to 81,054 in same quarter 2010 (Data Quick).
· In March about 50% of home sales were distressed sales (Campbell Surveys).
Jobs Update
· Initial weekly jobless claims were down 24,000 from previous week to 456,000 (Department of Labor).
· Four week moving average for initial weekly jobless claims increased slightly to 460,250 (Department of Labor).
· Continuing jobless claims were down 40,000 to 4.65 million (Department of Labor).
· Twenty four states had an increase in their unemployment rates in March. Michigan at 14.1% led the nation with Nevada second at 13.4%. Arizona was stable at just under 10%.
Key Indicators
|
Indicator |
4/16/10 |
4/23/10 |
Change |
|
Dow |
11,019 |
11,204 |
+185 |
|
10 year yield |
3.77% |
3.82% |
+.05% |
|
Crude oil |
82.83 |
85.11 |
+2.23 |
|
Dollar (vs Euro) |
1.3500 |
1.3369 |
-.01310 |
|
Gold |
1136.9 |
1156.0 |
+19.1 |
Source: www.cnbc.com/markets/commodities
Mortgage Industry Update: Rates, News & More
March 28, 2010 by · 1 Comment
***Smart Financial Weekly Mortgage & Business Update March 26, 2010***
HEADLINE: New foreclosure prevention plan announced by the government today details can be found at www.makinghomeaffordable.com or contact me for information.
Interest Rates
Retail rates moved up toward the end of the week to just over 5%. Expectations for much better jobs numbers and a weak Treasury auction pushed the stock market and Treasury yields higher at mid week. There is growing sentiment that the Fed will have to sell the Mortgage backed securities (MBS) it owns which will put upward pressure on mortgage rates. Remember the Fed purchased $1.25 Trillion of these MBS and hold them on its balance sheet.
|
When |
Rate |
|
This week |
4.99 |
|
1 Month Ago |
5.05 |
|
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
· Effective April 5, 2010 up front mortgage insurance on FHA loans increases from 1.75% to 2.25%.
· The USDA or Rural loan program is close to running out of funding and only Congress can authorize additional funding.
· Details are now starting to emerge on the $1.5 Billion program to help underwater homeowners in AZ, CA, NV, MI and FL. It looks like Arizona will get $125 million for the Arizona Housing Department to hand out. According to the Department’s Director he will take the approach known as “earned forgiveness”. This is where the state and banks promise to forgive debt later but only if the homeowner/borrower who stays in their home, makes payments and still has a job. The Director is not inclined to help out those who overspent on their homes or took out equity lines during the boom.
· Chase Bank has finally agreed to sign up for HAMP2 the government’s second mortgage modification program. Chase joins Wells Fargo and Bank of America as program participants. Citi also announced it would participate in the program. Together the four big banks hold about $442 billion in second mortgages.
· Fannie Mae revised its first quarter funding estimate downward from plus 2.8% to minus 17.2%. In addition it downgraded its funding estimate for the entire year from $1.97 Trillion to $1.31 Trillion a reduction of over 30%.
Good News
· Commercial real estate prices improved 1% in January according to Moody’s/REAL Commercial Property Price Index. This was the third consecutive monthly increase in prices.
· The Commerce Department reported that durable goods were up .5% in February the third consecutive monthly increase.
· Consumer sentiment for March was 73.6 unchanged from February according to the Thomson Reuters/University of Michigan survey.
Statistics of Interest/Concern
· Mortgage delinquency was nearly 14% at the end of 2009 according to the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). The increase was due mainly to a 21% increase in 90 day plus delinquency.
· Existing home sales declined .6% in February the third consecutive monthly decline.
· New home sales declined 2.2% in February for the fourth consecutive monthly decline and yet another low for annualized sales according to the Commerce Department.
· Chase Bank said Monday that its losses from the Wamu mortgages it acquired could be as much as $40 Billion plus another $3-4 Billion in the quarter from the Wamu credit card portfolio.
· The New York Federal Reserve says that as much as 40% of FHA mortgages are upside down.
Foreclosure Headlines
· According to Zillow the number of cities experiencing a “double dip” in home prices increased from 5 in December to 12 in January. They also identified 10 other markets that “seemed poised for a double dip”. These cities included Boston and Denver. No Arizona cities were mentioned by Zillow.
· The Financial Times says the average cost of foreclosure to a lender is about 50% of the outstanding loan balance.
· Strategic Defaults are on the rise according to Amherst Mortgage Insight. In their report issued this week they show these defaults increasing along all types of loan classes and accelerating as negative equity increases. The report observed that if the various loan modification schemes incent borrowers to default in order to qualify look for a further increase in Strategic Defaults.
Job Market Headlines
· The jobless rates in four states (FLA, NV, GA & NC) hit record levels in February. Also, 27 states saw unemployment rates higher in February than in January according to the Department of Labor.
· Initial weekly jobless claims were down 14,000 to 442,000.
· The four week moving average for weekly claims was down 11,000 to 453,750 the lowest since September 2008.
· Continuing claims fell 54,000 to 4.65 million the lowest since December 2008.
· Congress went on its two week spring vacation without extending unemployment benefits again. Up to 750,000 could lose their benefits by the end of April if Congress does not act. Republicans argued the $9.2 billion cost should come from the Stimulus funds but Democrats said that would hurt the job creation effort. The Stimulus bill was for $787 billion.
Comments/Observations
The government has controlled the housing market for the last 18 months or so thru the GSE’s (Fannie Mae and Freddie Mac) and FHA. Collectively they own or control more than 50% of all mortgages and by some estimates 70% of mortgages done in 2009. There is increasing conversation about doing something for our national housing market the question is what and when. Do we privatize or nationalize? Do we find some sort of middle ground solution? How do we make the transition from what we have today to whatever solution is agreed upon? These are difficult decisions and ones that will impact our lives and our economy for years to come.
One of the elements of this housing reform will be the mechanism by which capital is raised. What will that process look like in the future? Clearly some portion of the funding will come from overseas investors. Perhaps the recent statements by David Stevens the FHA Commissioner will shed some light on the challenges associated with relying on foreign bankers and investors. In a recent speech Mr. Stevens said when referring to some conversations he had with international bankers about how these bankers/investors saw triple A rated securities turn to junk “We are at the point right now where no one trusts the American housing finance system”. If what he says is true one can only observe how far we have fallen in such a relatively short amount of time.
If you have 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
March 14, 2010 by · Leave a Comment
***Smart Financial Weekly Mortgage & Business Update Maech 12, 2010***
Interest Rates
Retail mortgage rates remained in the same narrow range they have been in for the last few weeks at around 5%. More on rates…………In a speech on February 23 former head of the Federal Reserve Alan Greenspan said that the 10 year Treasury yield is the “one statistic that I watch every morning and afternoon” and the National Association of Business Economists (NABE) forecasts that the Fed will increase its benchmark rate by .25% to .50% within six months.
|
When |
Rate |
|
This week |
4.95 |
|
1 Month Ago |
4.97 |
|
1 Year Ago |
5.03 |
|
2 Years Ago |
6.13 |
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 said this week that thru February there have been 170,000 permanent loan modifications or about 15.5% of those eligible. In addition another 91,800 have been approved by lenders but are just waiting to be accepted by homeowners. There are also 835,000 in trial modification.
· In mid February the President announced a plan to help underwater homeowners in the five states where the foreclosure crisis has hit the hardest. The states are CA, FL, MI, NV and AZ. The state’s Housing Finance Agencies must submit a proposal to the Treasury Department for using the funds. The program targets reducing loan balances, second liens and people out of work.
· The state of Pennsylvania has a program that provides emergency assistance funds to homeowners with financial hardships, job loss, medical issues or even divorce. The program will loan up to $60,000 for maximum 36 months for homeowners in their primary residence. Last year several thousand people took advantage of the program administered by the state’s Housing Finance Agency. The program was started in 1983.
Good News
· In a Reuter’s poll of economists most believe the economy will grow at a 2.9% rate in 2010 which is less than fourth quarter 2009 growth. One benefit will be that the Fed will likely keep rates low.
· The Bloomberg Professional Global confidence Index fell to 53.8 in March from 54.9 in February but the index was over 50 for the eighth consecutive month. Anything over 50 indicates optimism for the economy.
· Retail sales increased .3% in February according to the Commerce Department but the prior two months figures were adjusted downward. February forecast was for a decline of .2%.
Statistics of Interest/Concern
· The National Federation of Independent Businesses (NFIB) said its small business optimism index was 88 in February down slightly from January and below 90 for the 17th consecutive month.
· The Commerce Department said wholesale inventories fell by .2% in January compared to the forecast of an increase of .2%.
Foreclosure Headlines
· RealtyTrac reported there were 308,524 foreclosure notices in February down 2.3% from January but still up 6% from February 2009. Nevada led the nation with one foreclosure per 102 homes Arizona was second with one per 163 homes.
· A Washington Post story today estimated that 5 to 7 million properties are at risk for foreclosure and the number could grow as more homeowners become distressed. For example, Chase estimates while foreclosures fell steadily last year the bank expects an increase this year that could possibly double in fourth quarter 2010. The story cited RealtyTrac’s data that shows 75% of homeowners more than 90 days delinquent are prime borrowers and most of them have not made a payment in six months.
· A group called the Mortgage Investors Coalition (MIC) recently submitted a proposal to Congress to overhaul the refinancing of underwater mortgages by writing down loan balances on first and second mortgages. The plan proposes that the loan to value be capped at 96.5 and that a new FHA loan be used to provide new financing.
Job Market Headlines
· Initial weekly jobless claims were 462,000 forecast was for 460,000.
· The four week moving average for weekly initial claims was 475,500 up 5,000 from previous week.
· Continuing jobless claims were up 37,000 to 4.5 million with the states reporting that an additional 5.6 million were collecting extended unemployment benefits.
· The jobless rates increased in 30 states during January down from 43 in December according to the Labor Department.
· According to the Department of Labor at the start of the recession 146.2 million Americans were working compared to 138.6 million as of February 28, 2010. If employers added 29,000 jobs per week starting March 11 it would take five years to get back to 146.2 million.
· Manpower a global employment services firm said U.S. employers are slightly less willing to hire workers in the coming quarter than three months ago.
Comments/Observations
The Center for Budget & Policy Priorities released a report saying that states took in $87 billion less in revenue during the period from October 2008 to September 2009 than the previous 12 months. This was the steepest decline in state revenues on record. Also, Arizona announced this week it was borrowing $250 million from the federal government to replenish its unemployment fund so it can pay its unemployment claims.
The city of Kansas City’s school district to avoid filing bankruptcy is closing almost half of its schools due to a lack of funding and declining student population.
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
March 7, 2010 by · Leave a Comment
***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 30th 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.
Mortgage Industry Update: Rates, News & More
February 28, 2010 by · Leave a Comment
***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
February 21, 2010 by · Leave a Comment
***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 10th 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 10th 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 16th 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 12th 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
February 13, 2010 by · Leave a Comment
***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 32nd 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 11th 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
February 7, 2010 by · Leave a Comment
***Smart Financial Weekly Mortgage & Business Update FVebruary 5, 2010***
Fannie Mae HomePath Update: On January 28th 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 11th 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.