Finance
Mortgage Industry Update: Rates, News & More
January 30, 2010 by · Leave a Comment
***Smart Financial Weekly Mortgage & Business Update January 29, 2010***
SHORT SALE/FORECLOSURE WARNING! N If you have done a short sale or foreclosure, are thinking about it or know someone who is consider the following. Banks have become increasingly aggressive in collection efforts against borrowers who do a short sale or foreclosure where a balance remains. The primary targets so far seem to be borrowers who did a strategic default (walked away from the home even though they could afford it). The banks are converting the secured debt to unsecured and then pursuing the borrower. According to the FDIC from January 2009 thru September 2009 banks collected $1.01 Billion or 48% more than the same period a year earlier. This is all bottom line profit folks! The banks are being very careful in the short sale agreements to preserve their rights. The good news is that Arizona and California have anti deficiency laws that protect the homeowner from collection activity but only on a primary residence. Given the huge number of dollars involved and the related risk if you are considering a short sale or foreclosure get the best advice you can.
Loan Modification Help: For homeowners with a Freddie Mac loan they can contact the City of Phoenix NHS office at (602) 258-1659 for assistance with their loan modification, debt counseling and other mortgage related matters. The service is new and it is free!
More Loan Modification: The Hope for Homeowners program is back in the news this week. Apparently the Treasury Department has finally figured out that lowering payments is fine but reducing loan balances is even better. Some 15 million homeowners are upside down in their homes and the concern is an increasing number of them may throw in the towel and move on. Yah think!
Interest Rates
At the Federal Reserve Board meeting this week the Board said it will maintain its position on rates for the foreseeable future. However, with respect to mortgage rates and its support of them since early last year which ends at the end of March, the Board said “it is prepared to modify those plans if necessary to support financial stability and economic growth”. Meanwhile retail rates hovered around 5% for most of the week. More and more analysts are suggesting that maybe we will not have the anticipated increase in rates and even if it happens it will not be as severe as previously thought.
|
When |
Rate |
|
This week |
4.98 |
|
1 Month Ago |
5.14 |
|
1 Year Ago |
5.10 |
|
2 Years Ago |
5.68 |
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 is working to help clear up the backlog of about 450,000 loan modifications that are in the Trial period and moving them to Permanent status. The Department issued new guidelines this week that it says will help speed up the modification process. In a novel approach Treasury is going to require that borrowers provide all forms and documents up front! Previously they had given servicers the ability to decide how they wanted to get the information. The new rule is effective June 1. Many of the homeowners in the Trial period have completed the required payments and are simply waiting to be notified that their loan has been permanently modified but servicers are still chasing paperwork.
· FHA has announced an update to its loan modification program by expanding it to include homeowners that are current or just 30 days delinquent (Mortgagee Letter 2010-004). A loan can be temporarily modified by verbal agreement with the servicer for up to 90 days or in writing for longer under the FHA-HAMP.
Good News
· Fourth quarter 2009 GDP was 5.7% the highest since third quarter 2003. Forecast was for 4.6%. Note that without a sharp liquidation in inventory the number would have been 2.2%. For the full year 2009 GDP was down 2.4% the deepest annual decline since 1946.
· The National Association of Business Economists survey showed 61% expect gain in 2010 GDP of 2% or more.
· The University of Michigan Consumer Sentiment survey for January was 74.1 up from 72.5 in December and the highest since January 2008. Also, the Conference Board’s Consumer Sentiment Index increased to 55.9 in January from 53.6 in December. This was the highest number since September 2008.
· The ISM Midwest Index of business activity rose to 61.5 in January from 57.4 in December.
· The National Retail Federation forecast retail sales to grow 2.5% in 2010 compared to a decline of 2.5% in 2009.
· Durable goods increased .2% in December but well below forecast of a 2.0% increase.
Statistics of Interest/Concern
· The Congressional Budget Office (CBO) estimates that FY 2010 deficit will be $13.5 TRILLION and that a new jobs bill and war funding requests could push the number higher.
· December existing home sales fell 16.7% in December the steepest monthly decline on record according to the NAR. For the year sales increased 4.9% while the average price fell 12.4% from 2008.
· Case-Shiller reported that home prices declined by .2% in November the first decline in 7 months. This is an improvement from a year ago when prices declined by 5.8%. Phoenix prices in November were up 1.1%.
· The Commerce Department reported new home sales were down 7.6% in December and finished 2009 down 22.9%.
Foreclosure Headlines
· The Orange County Register (California) reports that foreclosures notices in December were 10,513 which is double the total from March of 2009.
Job Market Headlines
· Initial weekly jobless claims fell 8,000 to 470,000 which were higher than the expected 450,000.
· The four week moving average of initial weekly claims rose 9,500 to 456,250.
· Continuing claims (measures only those on 26 week benefits) fell by 57,000 to 4.6 million however if you add in workers on extended benefits the total number of workers collecting benefits is 10.2 million!
· According to Fortune magazine the 22 best companies to work for have 87,500 job openings to fill.
Commentary/Observations
The International Monetary Fund (IMF) said this week in its updated Global Financial Stability Report that the global financial system remains “fragile” and that banks need to increase their capital and emerging economies need to be concerned about asset bubbles.
Wednesday the Greek 10 year bond yield surged to 10 year high of 6.7% (our 10 year yield is 3.60%) and the World Stock Index declined for the sixth day. The concern is that sovereign debt will derail the world economic recovery.
Japan’s bond issuance may climb in FY 2011/2012 from an already record amount planned for FY 2011. The increase is to fund rising welfare costs and off-set declining tax revenue. S & P has said that unless Japan produces a credible plan to control its debt and grow the economy it faces a downgrade in its credit rating. This of course would increase the country’s cost to borrow only adding to the problem. Currently Japans debt is about 200% of its GDP but the good news is that because of its huge domestic savings it should be OK for a few years at best. After that the risk of default becomes very real says S & P. Does any of this sound somewhat familiar?
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
January 23, 2010 by · Leave a Comment
***Smart Financial Weekly Mortgage & Business Update January 22, 2010***
FHA Update Number 1: Changes: This week FHA announced the much anticipated changes to its lending policies. The changes include an increase in up front mortgage insurance from 1.75% to 2.25% of the loan amount, establishment of a minimum credit score of 580 for 3.5% down payment and requiring a 10% down for scores less than 580 and reducing the Seller Contributions from 6% to 3%. See Mortgage Update section below for more details.
FHA Update Number 2: Anti flipping rule waived: FHA has announced a new policy effective February 1, 2010 that temporarily waives its previous 90 day anti flipping rule. The new policy applies to HUD owned, bank owned and privately owned properties and will no longer require a 90 day waiting period from change of ownership before a buyer can use FHA financing. There are certain conditions that apply for the property to be eligible for the waiver. The new transaction must be an arm’s length one and there cannot be any identity of interest between the buyer, seller or any other parties to the transaction. In addition, if the new sales price exceeds the sellers acquisition cost by more than 20% the increase in value must be documented by the lender. Further, a property inspection may be required by the lender to strengthen the case for the excessive value. Finally, no pattern of previous flipping such as multiple sales in the past twelve months can exist.
Interest Rates
The PMI Group Housing & Mortgage Market Review has forecast that rates will gradually rise and average 6% by the end of 2010. Tuesday both India and the UK said they expect higher inflation in their countries and for the world economy as a whole. Typically as inflation heats up rates increase as well. Besides inflation rates usually increase as the economy grows and there is a more positive outlook for the economy. Offsetting the inflation news was the sharp decline in stocks this week which helped keep rates low. Retail rates for the week remained in the low 5% range and within a narrow range.
|
When |
Rate |
|
This week |
5.15 |
|
1 Month Ago |
5.05 |
|
1 Year Ago |
5.12 |
|
2 Years Ago |
5.48 |
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
· As mentioned above FHA has introduced some changes to its lending policies. Note that the increase in up front mortgage insurance will be effective April 5, 2010 and the credit score/down payment and Seller Contribution changes will be effective this summer. FHA took these steps because its share of the market has grown from 3% to over 35% with the resulting adverse impact on its reserves which have fallen to .53% well below the minimum of 2.00% required by Congress. Thru third quarter 2009 FHA delinquency was at 14.36% compared to 9.64% for all loans. Note that FHA is expected to ask Congress for authority to increase the annual mortgage insurance premium which if granted will result in the lowering of the up-front mortgage insurance payment. Typically a borrower pays a one-time up-front fee for mortgage insurance plus an annual insurance premium that is paid with the monthly payment.
· Loan modification update: The Treasury says that thru December 2009 there had been 66,465 permanent modifications up from 31,382 in November. There are another 46,056 homeowners whose permanent modifications are pending. In the same report Treasury noted that the best performing lenders were Citi, GMAC, Saxon and Chase while the worst performing were Bank of America, Litton, American home Mortgage Servicing and Wachovia.
Good News
· The Producer Price Index (PPI) rose for the third straight month in December by .2%. the annual rate in 2009 was an increase of 4.4% in line with forecasts.
· New housing permits increased by 10.9% in December to 653,000 the highest number since October 2008 yet for all of 2009 permits were down 36.9%.
· The Philly Fed report of manufacturing expanded in January for the fifth consecutive month although declining slightly from December.
· The Conference Board’s Index of Leading Economic Indicators rose for the ninth straight months suggesting a strong first half of 2010.
Statistics of Interest/Concern
· The Financial Times reports that 260 publically traded companies defaulted on their corporate bonds in 2009 the most ever recorded.
· The U.S. government collected $219 billion in revenue in December 2009 but had to pay out $311 billion. December was the 15th consecutive month in which a deficit was record a national record.
· New housing starts fell 4% in December to an annual rate of 557,000 the forecast was for 580,000.
· U.S. home builder sentiment fell to 15 in January down from 16 the previous month and the lowest level since June 2009.
Foreclosure Headlines
· First American Core Logic LLP says that about 12% of loans over $1,000,000 are late which is three times what it was a year ago.
· According to an ASU report lenders foreclosed on 41,000 single family detached homes in Arizona in 2009 the most in any year on record.
· Moody’s has revised its loss projections for jumbo loans originated between 2005 and 2008 saying it now expects higher delinquencies which will increase through 2010.
Job Market Headlines
· Initial weekly jobless claims increased to 482,000 from 446,000 the previous week.
· Four week moving average for initial jobless claims was 448,250 up 7500 from previous week.
· Continuing claims came in at 4.599 million down 18,000 from previous week.
· 43 states had an increase in the jobless rate in December according to the Labor Department. This was an increase over 36 states in November.
Commentary/Observations
The Treasury Department has been unable to get any lenders holding home equity debt (second mortgages) to participate in a program announced eight months ago. The lenders hold just over one TRILLION dollars in debt which may be nearly worthless. These second lien holders are not working toward solving the housing crisis according to the government. Frequently they delay or effectively cancel short sales and can be an additional hurdle in loan modification. It has been estimated that some of the big banks carry their second liens at more than $150 billion above the real value.
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
January 17, 2010 by · Leave a Comment
***Smart Financial Weekly Mortgage & Business Update January 15, 2010***
First time home buyer tax credit SNAFU: Homeowners who closed on their purchases before November 6, 2009 file IRS Form 5405 to get the credit. However, so far the IRS has not issued a form for claims after November 6 when the tax credit extension became effective. A new form was expected in early January. It also looks like a buyer will now have to provide “proof” of the purchase and e-file will not be accepted. As always check with your tax professional for the latest details on getting the tax credit.
Interest Rates
So far we have not seen signs of the much anticipated increase in mortgage rates as retail rates remain in the low 5% range. Yes that is higher than the high 4% of recent times but still extraordinary by historical standards. We don’t want to be perceived as crying wolf on rates but folks trust in the markets rates are going to increase and fairly soon.
|
When |
Rate |
|
This week |
5.06 |
|
1 Month Ago |
4.94 |
|
1 Year Ago |
4.96 |
|
2 Years Ago |
5.69 |
Note that actual market rates vary geographically and by lender, credit score and Loan to Value.
Source: Federal Reserve Statistical H.15.
Mortgage Industry Update
· The Federal Housing Finance Agency (FHFA) reports that Fannie Mae and Freddie Mac delinquency for third quarter came in at 7.6% and that 1.6 million homeowners were 60 day’s or more behind on their mortgages.
· More Fannie Mae and Freddie Mac: One expert estimates that they could lose a combined $448 billion which is about 10% of value of their book of loans. Since September 2008 when the government took them over we have injected $112 billion which means the budget could take a $336 billion hit in the next few years.
· OK, last Fannie Mae and Freddie Mac: In July 2008 Barney Frank said they were fundamentally sound and “in good shape going forward”. In September the government seized control and committed $200 billion to cover future mortgage defaults. Then in February 2009 the government increased their support to a combined $400 billion. Last month with little publicity the government announced “unlimited” support for these two organizations thru 2012.
Good News
· The Bloomberg Professional Global Conference Index forecasts an increase in the 10 year note rate in the next six months and is optimistic on global recovery for the sixth consecutive month.
· Consumer Price Index (CPI) for December was up .1% less than forecast increase of up .2% but lower than last November’s increase of .4%. Note that 2008 CPI was up .1% and 2009 was up 2.7%.
· Industrial output was up .6% for December which was in line with forecast.
· University of Michigan Consumer Sentiment Index came in at 72.8 up slightly from 72.5 in December.
Statistics of Interest/Concern
· Rating service Fitch reported that Commercial Mortgage Backed Securities (CMBS) delinquency for 2009 finished at 4.71%. Fitch predicts that CMBS delinquency could go as high as 12% by 2012 as a large amount of loans come due with little hope of refinancing if credit is not more readily available.
· The Agriculture Department reports that 38 million people or one in eight received food stamps in October the most recent month data was available. This was an increase of 746,000 from the previous month the ninth record month in a row and the highest percentage ever recorded.
· KB Home posted its first quarterly profit since 2007 due to a tax gain of $191.7 million.
· The Commerce Department reported that December retail sales declined .3% forecast was for increase of .5%.
Foreclosure Headlines
· Several sources are estimating foreclosures in 2010 could be between 3 and 3.5 million exceeding 2009’s 2.8 million.
· Lender Processing Services LLP reports that delinquency on mortgages hit 13.2% or one out of every seven or so homeowners is in one form of delinquency or the other.
· Fitch says that 88% of Option Arms originated between 2004 and 2007 are going to adjust between now and 2012. Most if not all will carry increased payments and loan balances they said. Further, as rates increase the problem will only get worse.
· The delinquency (60 days or more late) on jumbo loans hit 9.2% in December an increase of 300% from December 2008.
· Realty Trac reports that even though there were 2.8 million foreclosure notices in 2009 only 871,000 homes were actually repossessed.
Job Market Headlines
· Initial weekly jobless claims rose by 14,000 to 444,000 forecast was for 436,000.
· Four week moving average for weekly jobless claims fell to 440,750 from 449,750 the lowest level since fall of 2008.
· Continuing claims came in at 4.596 million down 211,000 from previous week.
NOTE: The weekly and continuing claims data was “seasonally adjusted” without this adjustment initial claims would have been 156,000 more and continuing claims 504,000 more. It seems the government does not include the new unemployment benefits extension program in the data.
· The National Federation of Independent Business (NFIB) said that that small business optimism declined for the second consecutive month to 88. The NFIB also said that capital spending by small business rose to 18 barely above the 35 year record low.
· Global Insight says that a potential new wave of regulations and increased taxes may keep businesses from hiring. The Chamber of Commerce and NFIB both agree.
Commentary/Observations
The Committee on the Fiscal Future of the U.S. co chaired by the former head of the Congressional Budget Office (CBO) has said that if we do not raise taxes and/or reduce government spending to curb our debt we risk a “crippling dollar crisis”. Our national debt as percentage of GDP is above 40% and in 20 years could exceed 100% for the first time since the end of WW2.
States continue to struggle with budget problems. A report from State University in New York for third quarter 2009 showed 2009 state tax collections have had the sharpest decline in 46 years. At least 30 states have raised taxes an estimated $112 billion according to the Pew Center.
China increased the reserve requirement on its banks as a way to cool their fast growing economy as a credit boom threatens to create asset bubbles and introduce inflation.
If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.
Mortgage Industry Update: Rates, News & More
January 9, 2010 by · Leave a Comment
***Smart Financial Weekly Mortgage & Business Update January 8, 2010***
Something New! We decided to start the New Year by upgrading this publications name to be more in line with what we are trying to accomplish. So, please note our new name is Smart Financial Weekly Mortgage & Business Update. I hope you like it! Finally, there is a lot of jobs news below and as we have said before our view is jobs are the key to recovery not only for housing but also the economy as a whole.
Interest Rates
We start off the year with mortgage rates stable from 2009. The good news continues but as we have said before there are forces at play that will mean higher rates in the near term. Most observers believe that the Federal Reserve’s support of rates will end in late March as they have said recently. This will almost certainly mean an uptick in rates. However, a minority of observers think that if it is clear the housing market is not getting better the Fed may make a move to help. In the meantime you may want to watch the ten year Treasury yield as mortgage rates typically move with it. You can see it at www.cnnmoney.com/markets/bonds and you may want to add the link to your favorites. Note that the 10 year Treasury yield increased 1.62% in 2009 from 2.22% to 3.84% which was the highest yearly increase since 1999. The yield finished this week at just over 3.80%. Finally, Freddie Mac has reportedly said it believes that mortgage rates could be as high as 7%+ in the last half of 2010. I hope they are wrong!
|
When |
Rate |
|
This Week |
N/A |
|
1 Month Ago |
4.71 |
|
1 Year Ago |
5.10 |
|
2 Years Ago |
6.07 |
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
· According to MSN Money the administration is set to announce changes to FHA lending in late January that include an increase in the down payment, increase in the minimum credit score, increase in the mortgage insurance premium along with how it is paid and a reduction in what sellers can pay toward closing costs.
Good News
· The American Bankers Association (ABA) said late this week that delinquency in seven categories declined in the third quarter. Only home equity loans and mobile home loans increased and they increased to a record 4.3%. The ABA defines delinquency as 30 days or more. Also, home mortgages were not included in the report and are treated separately.
· ISM Manufacturing Index for December was the highest in four years rising to 55.9 from November’s 53.6.
· SBA (Small Business Administration) lending increased 37% in the fourth quarter from the previous year.
· The Commerce Department said that factory orders increased 1.1% in November which was much better than the forecast of .5%.
· ISM Services Index increased to 50.1 in December from 48.7 in November forecast was for 53. Anything over 50 suggests expansion.
Statistics of Interest/Concern
· Pay Net reported severe delinquency (180 days late or more) on business lending to small and mid-sized businesses rose in November for the 22nd consecutive month. These are loans, leases and lines of credit to run businesses.
· Pending home sales declined 16% in November much more than expected.
· Vacancies for strip malls hit an 18 year high in the fourth quarter at 10.6% and regional malls vacancy rates were at the highest level in 10 years.
· Business bankruptcies rose in 2009 to 89,402 up from 2008 64,584 according to Jupiter eSources LLC.
· According to the Federal Reserve consumer borrowing declined by $17.5 billion in November much more than the forecast of $5 billion. November was the 10th consecutive monthly decline in consumer borrowing and the decline is the lowest in decades.
Foreclosure Headlines
· Economy.com estimates 2.4 million homeowners will lose their homes to foreclosure in 2010.
· Silicon Valley is experiencing the biggest office glut since the dot com bust 5 years ago with more than 43 million square feet of commercial space vacant at the end of the third quarter according to CB Richard Ellis Group LLC. It is expected that foreclosures on commercial property will double in 2010.
· Commercial real estate loan losses pose the biggest threat to banks in 2010 said U.S. bank examiners. The losses will be “quite high by historic standards” and “hundreds of banks will fail” said Eugene Ludwig former head of the OCC. Most of the banks will be regional and local banks that made commercial and real estate loans in the last few years.
· The Office of the Comptroller of the Currency (OCC) reported on December 21st that prime mortgages 60 days or more delinquent more than doubled to 838,000 in the third quarter 2009 from the year before.
Job Market Headlines
· The Department of Labor reported 85,000 jobs lost in December compared to forecast for no gains or losses. The unemployment rate came in at 10% in line with forecast. For 2009 4.2 million jobs were lost. After the 2001 recession which lasted several months job losses continued for two years and resulted in 1.1 million job losses. The current recession started in late 2007 and ended in the third quarter of 2009.
· More December jobs data shows the November jobs loss number revised to PLUS 4,000 the first increase since December 2007. However, more distressing data shows 661,000 left the work force. These “discouraged workers” as defined by the Department of Labor have not looked for work in four weeks. In addition, the number of unemployed, discouraged workers and those working part time but looking for full time work was 17.3%. Finally, in the methodology used by the government is something called the “household survey” and it showed 589,000 jobs lost in December.
· Initial weekly jobless claims were 434,000 up only 1,000 from previous week for a 16 month low.
· Four week moving average for weekly jobless claims was 450,250 down 10,250 from previous week.
· Continuing jobless claims were 4.80 million down 179,000 from previous week. The peak for continuing claims was in June 2009 when they hit 6.9 million. Note that the number of emergency claims those for more than 26 weeks increased from 4.91 million to 5.1 million.
· The number of U.S. cities with unemployment rates above 15% increased in November to 17 up from October’s 15.
· Outplacement firm Challenger, Gray & Christmas Inc. reported 45,094 job cuts in December the lowest since December 2007.
Commentary/Observations
One definition of “shadow inventory” of homes has three elements. First, homes not listed for sale but likely to hit the market within a year (Arm re-sets on interest only loans and Option Arm’s for example). Second, bank owned homes that have not yet been listed. Third, homeowners who are waiting to sell but only at a price they feel good about. It is unclear how many homes this represents but some estimates have the number at 7 million. In estimating the shadow inventory first American Core Logic is assuming 68% of homeowners 90 days or more delinquent are “cured”. Cure means their default is fixed by either a short sale or loan modification for example. Many think the 68% is too high and as that percentage goes down the number of foreclosures goes up.
Thursday Lennar the third largest home builder released its fourth quarter earnings which showed a profit of $36 million. The problem is that the profit was driven by a $353 million tax gain. They and other companies (mostly home builders, auto industries and financial firms) will benefit from a change in how corporate losses are treated. The new change was part of the legislation extending the first time home buyers tax credit. This new change allows companies to apply losses in 2008 and 2009 to income earned in the previous five years up to 2007. The old law required the losses be applied to two years. Because of this tax benefit Lennar will get a $320 million tax refund this year. The National Bureau of Economic Research estimates that the total cost of the tax credit will be $53 billion.
During the week the yield curve steepened to its highest level since 1990 suggesting chances of a recession by the end of the year are slim and that the economy is expected to grow. The steepness of the yield curve is measured by the difference between the yields on the two year Treasury note compared to the ten year note.
If you have any mortgage or related questions I can be reched at (602) 803-9660 or by e-mail at burt@gosfm.com.
Mortgage Industry Update: Rates, News & More 2010 Outlook
January 2, 2010 by · Leave a Comment
***Smart Financial Weekly Update 2010 Outlook***
Editors Note: At the beginning of 2009 my goal with this update was to give you a glimpse of some of the factors that influence the mortgage and housing industry’s and let you draw your own conclusions. Hopefully that goal has been achieved and you are better informed than you were when we started. As 2009 comes to a close I thought it appropriate to look at what may be in store for us 2010. Finally, I want to thank those of you who have given me an opportunity to assist you or your clients in any mortgage or related matter. I truly appreciate the opportunity!
Interest Rates
The Federal Reserve has been supporting the mortgage market for some months now and that effort is slowly coming to an end. The question is what happens when the Fed support ends? In a normal world private investors would step up and buy the Mortgage Backed Securities (MBS) but that had not been happening so enter the Fed. What is likely is that to attract investors the returns (yields) will have to be higher to allow for the risk these private investors will be taking. This risk allowance means higher rates. If private investors don’t participate that leaves the government and FHA as the only games in town. Neither of these options is especially attractive or sustainable and may be politically challenging.
Moody’s has recently expressed concern over our huge debt which could put pressure on rates unless a “credible plan is put in place to address our debt issues”. A well known Morgan Stanley analyst has said that the 10 year Treasury yield could go as high as 5.50% in 2010 (the yield was 3.84 at the end of 2009) which could push mortgage rates to north of 7%! Finally, the chart below shows that since early 2004 we have generally had mortgage rates at or below 6%.
TIP: If you want to watch an index that is a good indicator of the trend in mortgage rates watch the 10 year Treasury Yield. You can find it at www.cnnmoney.com/markets/bonds and save it to your favorites for reference.
2010 OUTLOOK: Look for mortgage rates to approach 6% and perhaps higher depending on market conditions.
|
When |
Rate |
|
This Week |
5.14 |
|
11/26/09 |
4.78 |
|
10/1/09 |
4.94 |
|
7/2/09 |
5.32 |
|
4/2/09 |
4.78 |
|
1/1/09 |
5.10 |
|
1/3/08 |
6.07 |
|
1/4/07 |
6.18 |
|
1/5/06 |
6.21 |
|
1/6/05 |
5.77 |
|
1/8/04 |
5.87 |
Note that actual market rates vary geographically and by lender, credit score and Loan to Value.
Source: Federal Reserve Statistical H.15.
Mortgage Industry
Towards the end of the year a number of changes in both conventional and FHA loans were published or proposed. For conventional loans Fannie Mae announced it was raising the minimum credit score from 580 to 620 (previously if you put 20% down or more and had 580 to 619 score Fannie Mae would accept the loan) and lowering the minimum debt ratio from 55 to 50 with compensating factors or 45 without. It also looks like the timeframes for eligibility following a bankruptcy or foreclosure will be increased as well.
Recently Fannie Mae and Freddie Mac went to the Treasury Department to get their limits raised on future government support. Turns out that they got what amounts to unlimited support for the future. Reason for this is that if they had waited until January 1, 2010 or later Congress would have to approve increasing the limits. In addition, new accounting rules go into effect in January that would have required Fannie and Freddie to carry an additional $1.5 TRILLION in debt on their balance sheet (they are currently servicing this debt). This additional debt would have required them to raise more capital and that would have been near impossible. Of course, the other option would have been to get the money from the Treasury.
FHA has gone on record that it will announce changes in January and hinted at what they might be. I am sure at least in part these changes are to address FHA’s growing delinquency problem which currently has one in six buyers delinquent or in foreclosure. In all likelihood the minimum score will be increased (something many lenders are already doing), the maximum debt ratio will be lowered, credit history flexibility will be reduced and perhaps even an increase in down payment to 5% (although unlikely). FHA has also recently revised its condo guidelines and now requires projects not approved in the last two years to be “re-certified”. Finally, there is some concern for FHA as it has seen both its volume and share of the market increase significantly (in previous years market share was less than 5% today it’s about 30%) while its reserves have shrunk to well below the statutory minimum.
In 2009 the mortgage industry saw the introduction of much more regulation of how it conducts its business. In May it was the Home Valuation Code of Conduct (HVCC), in July it was the Mortgage Information Disclosure Act (MIDA) and in January it will be the latest revision to the Real Estate Settlement and Procedures Act (RESPA) and the new Good Faith Estimate (GFE). The RESPA changes have been described as the most sweeping since the 1970’s. These regulations and more to come are likely to make the borrower interaction with the loan originator more challenging for both parties.
TIP: A proper and complete pre qualification of will be even more important than in past years. Plus educate yourself on the new regulations as they will impact you and your clients.
2010 OUTLOOK:
Conventional and FHA loans will continue to see qualifying standards become more restrictive and as rates increase affordability will decrease as well. Of course if home prices remain at current levels or decline then the affordability factor will be influenced less. Jumbo loans, VA and specialty loan products (the Rural loan for example) may not change much in the coming year although jumbo pricing will increase and the qualifying standards will remain tight. Look for more regulation to increase the complexity of the loan process and expect delivery (service) to be impacted. Finally, do not expect the first time home buyer tax credit to much of an impact on housing in 2010 and it is unlikely it will be extended again.
Good News
There are a number of factors pointing to an improvement in the overall economy including consumer and business confidence is improving; retail sales are up slightly; durable goods, industrial production and non-farm productivity are all improving and household wealth in the third quarter grew for the second consecutive quarter. In addition the decline in home valuation is slowing and existing home sales seem to be improving. GDP forecasts for next year generally predict modest growth. Employers appear to be more optimistic about hiring full time workers in 2010.
2010 OUTLOOK:
I hope the forecasts for GDP are on target or low as the best way to get people back working again is for the economy to grow. However, we could experience a double dip effect and lose most if not all of the ground we have made up. Since housing is what got us in the current crisis it will be housing that gets the economy back on track. Of course, that means keeping people in homes and getting people back to work.
Statistics of Interest/Concern
· New home sales were down 11% in December, there were only 430,000 new homes sold in 2009 the lowest since 1982 and the number of new homes for sale was the lowest since 1971. No wonder builder sentiment declined in December.
· Third quarter GDP was revised downward to a final 2.2%. Fourth quarter estimates range from 4 to 4.5%.
· Lender Processing Services reported that the combined delinquency and foreclosure rate for all loans thru October was 12.6%.
· Mortgage Bankers Association said this week that MBS (Mortgage Backed Securities) delinquency (30 days or more late) reached 4.06% in the third quarter.
· The FDIC said that on loans held by them the 90 day or more delinquency rate was 3.43% in the third quarter up by .51% from the second quarter.
· According to Real Estate Econometrics LLP unpaid loans on commercial property were 3.4% at the end of the third quarter and could go as high as 5.3% in two years. Of the 35 biggest regional lenders that got TARP money commercial construction loans are 37% of the group’s total loans outstanding.
· The Commerce Department said that consumer spending was flat in October and it revised its September numbers from up .8% to down 1.6%.
· Producer Price Index rose 2.4% from December 2008 to December 2009.
· In the third quarter banks had to repurchase $7.1 billion in defaulted single family home loans this compared to $1.9 billion in the second quarter. Most of the repurchases were by Bank of America and Chase.
· FDIC head Shelia Baer says bank failures will peak in 2010.
Foreclosure
The economy suffered a record 3.9 foreclosures in 2009 following 2008 number of 3.2 million. In addition millions of homeowners are upside down in their homes. Many more are close to being upside down. Deutsche Bank estimates that 1 in 5 homeowners owe more than their home is worth. As shown above mortgage delinquencies are very high and clearly more foreclosures are coming. Worse yet millions of interest only Adjustable Rate Mortgages (ARM’s) and Option Arm loans will be re-setting in 2010 and 2011. These loans will add to the foreclosure inventory at some point. The number of personal bankruptcy’s in 2009 will be double that of 2007 or about 1.4 million. Add it all up and it seems to me that we will be dealing with foreclosures and their consequences for some time to come.
So far the solution to the problem has included HAMP (loan modification); HAFA (new foreclosure program); Deed for Lease program (homeowner leases home from Fannie Mae instead of foreclosing); First Look Initiative (new helps buyers compete with investors on REO purchases); HOPE NOW; NACA and a variety of other organizations trying to help homeowners avoid foreclosure. At this point most observers agree that all of this has had only a modest impact on the problem. Some homeowners have taken it upon themselves and simply walked away from their homes even though they can make their payment (this is called a Strategic Default). These homeowners simply determined that because they owe way more than the home is worth it is financially better for them to walk rather than wait many years for any equity. One solution to this problem is for lenders to reduce loan balances to current market value. Shelia Baer head of the FDIC has proposed this for certain lenders that they insure. In addition, some analysts think that with Fannie Mae and Freddie Mac getting an unlimited line of credit from the Treasury loan balance reductions may be coming and forced on lenders under certain circumstances. If so it will be costly but it is about time in my view.
2010 OUTLOOK:
Unless the various program mentioned above start to make a real difference I don’t see much improvement in the foreclosure situation. However, if we do get an aggressive loan balance reduction program in place and operational in the early part of the year it could make a difference.
Jobs
The year ended with the unemployment rate at 10.0%. For the last week of the year initial weekly jobless claims came in at 432,000 down 22,000 from the previous week a level not seen since July 2006 and the 17th consecutive weekly decline. The four week moving average was also down as well. Continuing claims were down 57,000 to 4.9 million. At year’s end there were 4.7 million workers getting unemployment benefits. CareerBuilders.com reported that in its survey 20% of employers plan on hiring full time employees in 2010. In December the House passed a $155 billion jobs creation program that the Senate will consider in early 2010. Among other things the bill provides for up to an additional unemployment benefit extension of 26 weeks. There is no question in my mind that jobs are the key to recovery. So far it does not look like the stimulus package passed earlier this year has made much of a difference in creating or saving jobs.
2010 OUTLOOK: My view and hope is that by mid-year unemployment moderates and the full impact of the stimulus and other government actions start to pay off.
Commentary/Observations
A lot of ground has been covered so far and I hope you are still with me as we face perhaps one of the most important years since WWII ended. There are still some “wild cards” out there that could influence the recovery and our economy for years to come. Perhaps the biggest wild card is what impact will our enormous debt have on recovery? Recently Congress raised the national debt ceiling to $12.394 TRILLION from just over $12 TRILLION. The states collectively have a massive budget deficit led by California’s $21 Billion deficit. Moody’s has expressed concern that if we don’t get our financial house in order soon our triple A rating could be gone. The European Commission said just this week that after two years of bank system issues and recession the Euro Zone could enter 2010 with a “full blown debt crisis”. At least half of the Zone’s 16 countries public finances are at risk for becoming “unsustainable”. Something has to be done about all of this debt and soon!
Our banking industry is another wild card as it is struggling with historic mortgage, credit card and commercial real estate delinquency. How much of this delinquency turns into foreclosures and loan losses is anybody’s guess. What is clear is that the losses are coming and it is just a matter of when and how big they will be. A partial solution to the housing crisis is to force banks to reduce loan balances but that will just add to their losses. Of course the government could step in and provide some funding but that will just add to our debt and the deficit. Not exactly a good set of choices.
The government wild card may be the most interesting. While Washington has instituted many programs to help deal with the housing and financial system crisis so far these programs appear to have mixed results at best. With a mid-term election coming this fall it will be interesting to see how the key players act.
Another wild card is that at least one well respected bond strategist has suggested that the Bond market bubble will burst and it will be sooner rather than later perhaps even in 2010. His reasoning is the steepening of the yield curve (the difference between the two year and 10 year Treasury yield). Such an event would cause rates to accelerate upward quickly. Tempering this observation is a Market Watch survey of the 18 primary bond dealers which found that most expect the 10 year Treasury yield to be about 3.76% until mid year and finish the year at 4.16%. The reality is that there are too many factors at play and no one knows for certain except that rates will increase in 2010.
Lastly, the risk of inflation is very real. A recent survey by the Conference Board revealed that many consumers believe prices will increase more than 5% in 2010. In addition gold has always been a historic hedge against inflation and it set a record price in 2009. An interesting trend comes from Google by way of Web Search who said that the number of web searches for the word “hyper inflation” increased dramatically in 2009. With all of the government spending and money in the system it seems likely that we will see inflation at some point in the next year or two.
Well, there it is all 2700 or so words! For those of you who have made it this far congratulations and thanks. I hope we have given you something to think about. We live in challenging times and one of the best tools to survival is information. Lastly, I want to wish all of you a very Happy New Year and hope that 2010 brings you all of the success you seek!
If you have any mortgage or related questions please contact me at (602) 803-9660 or by e-mail at burt@gosfm.com.
Mortgage Industry Update: Rates, News & More
December 26, 2009 by · 2 Comments
***Smart Financial Weekly Mortgage Update December 24, 2009***
Editor’s note: In next week’s update we will offer up some thoughts for the outlook in 2010.
Interest Rates
It would appear that our historic low rate world is slowly coming to an end. This week retail mortgage rates pushed a little deeper into the 5% range as the market responded to less support from the Federal Reserve. In addition, there was less demand for government bonds which put pressure on 10 Treasury yields and has pushed them to 3.80%. It wasn’t very long ago that the 10 year yield was below 3.50%. Remember, a general rule is that when the economic news is good (or perceived to be good) bond yields will move up normally taking mortgage rates with them but when the news is not so good the reverse takes place.
|
When |
Rate |
|
This Week |
5.05 |
|
1 Month Ago |
4.78 |
|
1 Year Ago |
5.14 |
|
2 Years Ago |
6.17 |
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
· According to the National Association of Realtors (NAR) 40% of existing home purchases in November were FHA loans.
· HUD has issued FHA Mortgagee Letter 2009-52 stating that borrowers are not eligible for an FHA loan if the did a short sale to take advantage of reduced prices or the declining market. However, this is the best part, if the short sale proceeds covered the loan balance (isn’t a short sale done because a regular sale would not clear the balance?) AND if the borrower is current on their mortgage and other debts at the time of the short sale they are eligible. Also, this means that if the borrower is eligible for a short sale under HAFA (the new short sale program for the government) the borrower will not be eligible for FHA loan to purchase a home for three years.
Good News
· Existing home sales were up 7.4% in November from October.
· Median home price for November was $172,600 down 4.3% from one year ago the smallest decline in two years.
· Existing home inventory for November was 6.5 months down from 7 months in October.
· The University of Michigan/Reuters consumer sentiment index rose to 72.5 in December just short of the expected 73.5 but up from 67.4 in November.
· Durable goods orders were up 2.0% in November higher than forecast of 1.0% and up from October decline of .7%.
Statistics of Interest/Concern
· The Commerce Department revised third quarter GDP down to a final 2.2% from a previous estimated 2.8%. Economists are estimating fourth quarter GDP to be in the 4 to 4.5% range.
· New home sales fell in November by 11.3% to the lowest level in 7 months the forecast was for an increase in sales.
· The number of new homes on the market in November was 235,000 the lowest since 1971.
Foreclosure Headlines
· According to First American Core Logic the “Shadow inventory” grew to 1.7 million thru September 30, 2009 up from 1.1 million a year ago. Shadow inventory is defined as homes owned by lenders and other homes 90 days or more delinquent.
· A report by the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) showed that 60 day plus delinquency increased 20% from the second quarter to the third quarter to 3.6% of all prime loans.
Job Market Headlines
· Initial weekly jobless claims were 452,000 down 28,000 from previous week.
· Continuing jobless claims came in at 5.076 million down from 5.203 million the previous week.
· 4.7 million workers were collecting extended unemployment benefits at the end of the year according to the Labor Department.
Commentary/Observations
Late this week Arizona Governor Jan Brewer issued a statement “Arizona Crisis of Unparalleled Dimension” in which she points out this year’s budget deficit is $1.5 billion and that next year’s budget which starts in just six months has projected deficit of $3.4 billion. Note that California’s current year budget deficit is $21 billion.
Fannie Mae and Freddie Mac CEO’s will each receive $6 million in base pay and deferred compensation as a result of their company’s stellar performance this year.
Thursday the Senate approved an increase in the national debt limit from $12.104 TRILLION to $12.394 TRILLION.
Treasury Secretary Geithner said Wednesday “we are not going to have a second wave of financial crisis” in the country. Wow, I feel better already.
If you have ay mortgage or related questions please give me a call at (602) 803-9660 or e-mail me at burt@gosfm.com.
Mortgage Industry Update: Rates, News & More
December 19, 2009 by · 1 Comment
*** Smart Financial Weekly Mortgage Update December 18, 2009***
Reminder: If you or anyone you know is interested in getting FREE assistance with a loan modification please let me know or have them contact me.
Interest Rates
Retail mortgage rates maintained their sub 5% position for the week. In a statement after its meeting this week the Federal Reserve made it a point to reiterate that its MBS program (to support keeping mortgage rates low) will end as scheduled on March 31, 2010. There had been some chatter in the market that the Fed would extend the program and that does not seem to be the case. This came after Moody’s comments on Monday saying the sovereign debt risk is rising globally and especially in the U.S. They predicted long term rates will increase globally in 2010 and may increase more rapidly than expected. Moody’s added that the U.S. will have to put in place a “credible plan to address the problems of large debt”. Absent a strong policy response the U.S. triple A credit rating will be under threat in two to three years. So, gentle reader, as we have said for many weeks now the specter of increasing rates looms large on the horizon.
|
When |
Rate |
|
This Week |
4.94 |
|
1 Month Ago |
4.83 |
|
1 Year Ago |
5.19 |
|
2 Years Ago |
6.14 |
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
· Bloomberg reported this week that Fannie Mae and Freddie Mac are in discussions with the Treasury Department to increase their $400 billion lifeline before the end of the year. Between the two they represent the largest sources of mortgage financing in the country. They have used $111 billion of the $400 billion in less than a year.
Good News
· Conference Board index of leading economic indicators was up .9% in November above forecast of .7%.
· Industrial production rose .8% in November after being flat in October.
· Housing starts rose 8.9% in November the biggest increase in six months according to the Commerce Department.
Statistics of Interest/Concern
· FDIC head Shelia Baer said that in 2010 bank failures will peak.
· The Consumer Price Index (CPI) rose .4% in November after a .3% increase in October the Labor Department said.
· Producer Price Index (PPI) rose 1.8% in November up from an increase of .3% in October. Forecast was for increase of .8%. Note that the Labor Department said the year over year increase was 2.4%.
· The New York Empire State index of business conditions fell 2.55 in November.
· Capital One at 9.6% and Discovery at 8.98% reported charge off’s on credit cards rose in November. A charge off is debt that the creditor does not believe can be collected. Both reported 60 day plus delinquency near 6%.
· The National Association of Home Builders sentiment index declined slightly in November. The decline was mostly due to concerns about the weak job market.
Foreclosure Headlines
· In testimony before the House Financial Services Committee Laurie Goodman veteran MBS analyst and Senior Managing Director of Amherst Securities said that her analysis led her to conclude that negative equity was the biggest driver in foreclosures and that employment was a catalyst. Her research further caused her to conclude that reducing loan balances would be a more effective way to reduce foreclosures than reducing monthly payments.
Job Market Headlines
· The House approved a $155 billion job creation bill this week that the Senate is expected to consider shortly after the New Year begins. Among its provisions is an extension of unemployment benefits for an additional six months. In a separate but related action the House attached an extension of two months unemployment benefits to a mandatory military spending bill.
· Weekly initial jobless claims were 480,000 up 7.000 from the previous week and above forecast of 465,000.
· The four week moving average came in at 467,500 down 5250 from previous week.
· Continuing jobless claims were up slightly to 5,186 million.
· The Labor Department reported that in November more states had a decline in the unemployment rate than had an increase. Compared to October’s data which showed 29 states had an increase the November data is an improvement.
Commentary/Observations
Moody’s Delinquency Tracker of commercial mortgages (CMBS) reports that in November delinquency was 4.47% up .46% from October and that the total of delinquent loans was about $30 billion. This is considerably higher than the December 2008 total of $6.7 billion. Four states had delinquency above 10% one was Michigan another was…………………..Arizona.
According to a USA Today analysis of federal salary data the number of employees making $100,000 per year increased from 14% to 19% in the recession’s first 18 months. Also in the period from December 2007 until June 2009 the number of Defense Department employees making $150,000 per year increased from 1868 to 10,100. But wait there is more. At the Department of Transportation only one person was making $170,000 or more in late 2007 but in mid 2009 that number had increased to 1690. Finally, the average federal employee salary BEFORE overtime is now $71,206.
Iranian forces entered Iraqi territory yesterday at dawn. They occupied a well about 280 miles south of Baghdad. This could be part of the ongoing border dispute between the two countries or something else. Iranian officials were unavailable as Friday is a weekend day in Iran.
The Washington Post reported late this week that Citigroup will not have to pay billions in taxes as part of their deal to repay the TAPR money we provided to keep them from being broken up or worse.
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
December 12, 2009 by · Leave a Comment
***Smart Financial Weekly Mortgage Update December 4, 2009***
Interest Rates
Retail mortgage rates closed the week about .25% higher than what we started the week with. Could this be the beginning of a more regular uptick in rates? Conventional wisdom has it that the rates will move higher but the move up will be bumpy. Stay tuned.
|
When |
Rate |
|
This Week |
4.81 |
|
1 Month Ago |
4.91 |
|
1 Year Ago |
5.47 |
|
2 Years Ago |
6.11 |
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
· An amendment to HR 4173 the Wall Street Reform and Consumer Protection Act allows bankruptcy judges to modify mortgages. These are a number of big time sponsors for this amendment which could light a fire under banks to move the loan modification process along more quickly. In the past the banking lobby has been able to get similar legislation defeated.
· A new Hope Now Alliance website lets HUD approved counseling agencies in certain markets submit loan modification applications on behalf of certain distressed borrowers. The program is called Hope Loan Port and GMAC, Chase, Sun Trust, PNC and Saxon Mortgage are part of the pilot program. In a related note Chase Bank says that it has been more successful with its own internal loan modification process than with the Making Home Affordable program. It said that 31% of homeowners offered Trial Modifications under the government plan never sent in a single payment.
· GMAC announced underwriting changes for buying a home after foreclosure. The timeframe is 5 years with a minimum down payment of 10% and minimum credit score of 680. The minimum timeframe from Chapter 7 bankruptcy is 4 years and Chapter 13 bankruptcy is 2 or 4 years depending on the disposition.
· Last week one of our sources AmTrust Bank was taken over by the FDIC then quietly but quickly acquired by New York Community Bancorp. So far this year 130 banks have failed compared to 25 in all of 2008.
Good News
· U.S, households wealth rose $2.7 Trillion in the third quarter the second quarterly increase in a row according to the Federal Reserve.
· Zillow says homeowners will lose about $500 billion in value this year a big improvement from 2008 when $3.6 Trillion was lost.
· The Business Roundtable said its CEO Economic Outlook Index moved strongly positive to 71.5 from 44.9 in the third quarter.
· Freddie Mac said that its Home Price Index increased .9% in the third quarter following a 2.0% increase in the second quarter.
· The Commerce Department reported that wholesale inventory increased by .3% in October the first increase in more than a year. The forecast was for decline of .5%.
· Retail sales were up 1.3% in November much higher than the forecast of .6%.
· University of Michigan consumer sentiment index for November increased to 73.4 from 67.4 in October the forecast was for 68.8.
Statistics of Interest/Concern
· Lender Processing Services reported that the combined delinquency and foreclosure rate for all loans thru October was 12.6%.
· Mortgage Bankers Association said this week that MBS (Mortgage Backed Securities) delinquency (30 days or more late) reached 4.06% in the third quarter.
· The FDIC said that on loans held by them the 90 day or more delinquency rate was 3.43% in the third quarter up by .51% from the second quarter.
· According to Real Estate Econometrics LLP unpaid loans on commercial property were 3.4% at the end of the third quarter and could go as high as 5.3% in two years. Of the 35 biggest regional lenders that got TARP money commercial construction loans are 37% of the group’s total loans outstanding.
· U.S. consumer spending fell by $3.5 billion in October according to the Federal Reserve. The decline was the ninth consecutive monthly decline.
· A Bloomberg national poll revealed that Americans have become gloomier about the direction of the nation than three months ago.
Foreclosure Headlines
· Foreclosure filings fell 8% in November to 306,627 (ninth consecutive month of 300,000+ filings) according to RealtyTrac. However, this was the fourth consecutive monthly decline in filings. RealtyTrac said they thought the decline was “artificially induced” due to mediation programs that likely postponed the inevitable. Nevada again led the nation with one filing per 119 households Arizona came in at one per 186 households. RealtyTrac said further it estimates a record 3.9 million foreclosures in 2009.
· According to a study by Experian 18% of foreclosures are “Strategic Defaults”. A Strategic Default is when a homeowner who is current on all of their debt but is upside down in their home walks away.
· The Treasury Department reported that thru November 30th Permanent Loan Modifications had increased to 30,650 from 2711 on September 1 this out of 697,026 homeowners in Trial Modification.
· This week Standard and Poor’s said that MBS (Mortgage Backed Securities) performance continued to deteriorate in October which they think means more foreclosures in the future.
· The U.S. Court reported that in fiscal year 2009 bankruptcy filings were up over 100% from 2007.
Job Market Headlines
· Initial weekly jobless claims increased by 17,000 to 474,000 while forecast was for 455,000.
· Four week moving average of weekly claims was 473,750 down slightly from previous week.
· Continuing jobless claims came in at 5.157 million down 303,000 from previous week.
· The labor Department reported that job openings in the second quarter were down 26% from a year ago and that layoffs were up slightly in October.
Commentary/Observations
Dr. Jay Butler of ASU said in November that previously foreclosed property accounted for 41% of the traditional sales. So I guess the question is are we just churning foreclosed property and if so what does that say about the housing recovery in Arizona?
In the November 4th minutes of the Federal Reserve’s last ten members believe it will be 5 to 6 years before the economy returns to growth, employment and inflation levels consistent with the Boards objectives.
In New York a new foreclosure tactic has been noticed. It seems that second mortgage holders are selling the debt to collection firms who are able to freeze bank accounts and/or garnish wages in their efforts to collect.
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
December 5, 2009 by · Leave a Comment
***Smart Financial Weekly Mortgage Update December 4, 2009***
FHA Update: The noise is becoming more frequent and intense about changes to FHA. Clearly new guidelines and changes are nearly upon us. Look for the minimum credit score to increase, bigger down payment, lower closing costs paid by the Seller (currently maxed out at 6% some think the new limit could be as low as 2%), possible increases in mortgage insurance premiums (monthly payments just went up) and tighter underwriting guidelines (less flexibility with credit history). For FHA buyers out there who may be on the margin the time is NOW!
Interest Rates
Last Friday two days after Dubai World the financing arm of Dubai reported it was postponing repayment of $60 billion in debt Treasury yields fell quickly as investors sought safety in U.S. debt. Guess what? Mortgage rates moved down as well. Since then things have calmed down some and rates have returned to pre Dubai crisis levels for now. Today the government released the November jobs report and the news was unexpectedly good (see Job Market Headlines below for details). This news sent Treasury yields higher pushing up mortgage rates. So in the last week Treasury yields have increased about 25 basis points or .25%. The point here is that we never know what is going to influence the markets and rates so it is wise to be and stay informed. Finally, the average 30 year fixed rate for the week was a new record low!
|
When |
Rate |
|
This Week |
4.71 |
|
1 Month Ago |
4.98 |
|
1 Year Ago |
5.53 |
|
2 Years Ago |
5.96 |
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
· Fannie Mae said this week that their data showed that borrowers with credit scores below 620 were NINE times more likely to default than those with scores above 620 therefore the recent change in the minimum score.
· Wells Fargo announced this week that is was lowering its debt to income ratio’s on conventional loans from to 45 on loans with LTV’s below 80 and to 41 for loans above 80 LTV.
Good News
· Pending home sales rose 3.7% in October this was ninth straight monthly increase.
· The ISM business barometer increased in November to 56.1 the highest level since August 2008. Anything above 50 indicates expansion in the economy.
· The Labor Department said that non-farm productivity rose 8.1% in the third quarter the quickest pace since third quarter 2003.
· Commerce Department reported that factory orders rose .6% in October expectation was flat.
Statistics of Interest/Concern
· The Commerce Department said that consumer spending was flat in October and it revised its September numbers from up .8% to down 1.6%.
· In the third quarter banks had to repurchase $7.1 billion in defaulted single family home loans this compared to $1.9 billion in the second quarter. Most of the repurchases were by Bank of America and Chase.
· ISM manufacturing index was 53.6 in November down from 55.7 in October. Anything above 50 indicates expansion in the economy.
· An ABC News consumer comfort index after “Black Friday” came in at -45. This put the index on a path for its worst year in 23 years. The index ranges from +100 to -100.
Foreclosure Headlines
· Treasury announce this week that it was going to lean on lenders and servicers to do a better job of converting Trial Period loan modifications to Permanent modifications. Treasury threatens actions including the possibility of fines against those who don’t live up to Treasuries expectations. My question is what is the purpose of the Trial Payment period? Either a borrower can make the lower, modified payment or not. It seems to me they could have simple eliminated the Trial Payment period and gone straight to Permanent Modification.
Job Market Headlines
· The November jobs report had unemployment at 10.0% down from the previous months 10.2% and below forecast of 10.2%. Only 11,000 jobs were lost compared to forecast of 125,000. In addition, the previous two months job loss numbers were revised downward. The 11,000 jobs lost is the lowest number since the recession began in December 2007. All of this good news must be tempered with the fact that millions of Americans are not able to find work or cannot find the full time job they want or need. Finally, the 5.9 million out of work in November represents the biggest number on record.
· Weekly initial jobless claims fell to 457,000 a 15 month low. Forecast was for 480,000.
· The four week moving average for jobless claims was 481,250 down 14,250 from the previous week.
· Continuing jobless claims were 5.46 million up 28,000 from previous week.
· Challenger, Gray and Christmas Inc said that in November planned firings declined 72% from a year ago to 50,349.
Commentary/Observations
The U.S. is financing more than one TRILLION dollars a year in borrowing at historical low interest rates. So what happens when rates go up? The interest payments on this debt go up and by some estimates it will be $700 billion per year. In addition, a lot of the borrowing has been short term at rates near zero. In the months ahead this borrowing will be rolled over (refinanced) into more short term financing or longer term financing. Either way it is likely that rates will be higher and the interest will grow. Some experts believe the Fed will start pushing rates up by mid 2010. It should be an interesting summer.
The top Moody’s Economist Mark Zandi said that home prices will resume their decline in 2010 as foreclosures pick up again. He also said the lull in foreclosure sales recently had resulted in the modest gains of the last few months. He forecasts 4.8 million foreclosures from 2009 to 2011 and that the unemployment rate will peak at 10.7% in the third quarter of 2010.
Our Iranian friends announced plans this week to start building TEN Uranium enrichment facilities within the next two months in defiance of U.N. demands. The move was condemned by the Obama administration and France called the move “infantile”. You gotta love the French! The U.K. said Iran had chosen to “provoke” the international community. The question is what is the international community going to do about it?
This Saturday is the 76th anniversary of the ratification of the 21st Amendment which repealed prohibition nationwide. Have a cold one on me!
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
November 22, 2009 by · Leave a Comment
***Smart Financial Weekly Mortgage Update November 20, 2009***
Interest Rates
On December 18, 2008 the average 30 year fixed rate for the week was 5.19%. Since then the average rate has been below 5.25% except for the period between June 4 thru July 2 and the week of June 11 when it was 5.59%. This trend is likely to switch to an upward movement in rates as the Fed ends its support of long term rates. Also, the Fed heavily hinted this week that it would keep short term rates low for “an extended period”. Did you know that at the end of the eight month long recession in November 2001 it took the Fed two and one half years to raise short term rates?
|
When |
Rate |
|
This Week |
4.83 |
|
1 Month Ago |
5.00 |
|
1 Year Ago |
6.04 |
|
2 Years Ago |
6.20 |
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 Your Way Home Az program for the purchase of foreclosures is almost out of funds and I am told they are not taking any more applications.
· Mortgage delinquency (60 days late or more) for the third quarter was 6.25% up from 3.96% a year ago. Nevada had the highest rate of 14.5% and Arizona was at 10.4%.
· FHA delinquency for the third quarter was 8.2% plus another 3.32% in foreclosure. In other words one in six FHA loans is delinquent or worse.
Good News
· Producer Price Index (PPI) for October came in at .3% compared to forecast of .5%.
· Consumer Price Index (CPI) was up .3% in October slightly higher than expected.
· Housing starts declined 10.6% in October to a seasonally adjusted rate of 592,000 lowest since April of this year. Building permits were also down by 4% in October.
· Conference Board said its index of leading economic indicators rose by .3% in October just below forecast of .5%. In the last six months the indicators have grown 5.0%.
Statistics of Interest/Concern
· In fiscal year 2009 (ended 9/30/09) the U.S. Postal Service lost $3.8 Billion. This AFTER reducing expenses by $6 Billion including eliminating 40,000 jobs. The Service is asking for authority to drop Saturday service thus saving an estimated $3.5 Billion in fiscal 2010.
· Retail sales were up 1.4% in November compared to forecast of +.9%.
· The Empire State Manufacturing Index was 23.5 in November forecast was for 30.
· Defaults on credit cards fell in October but delinquencies rose across the board according to the credit card companies.
· Industrial output in October was up .1% expectation was for increase of .4%.
Foreclosure Headlines
· The Urban Institute said in a report that borrowers facing foreclosure were 60% more likely to keep their homes if they sought counseling and were saving an average of $454 per month if the got counseling for loan modification compared to those who did not seek counseling. Note that this counseling is free and provided thru NeighborWorks America.
· Las Vegas again led the nation in percentage of homes underwater at 81.1%. Phoenix came in fifth at 63.5%.
Job Market Headlines
· The Labor Department reported that 13 states have unemployment rates above 10.2% and jobless rates in 29 states increased in October. The states with the highest unemployment rates are Michigan 15.1%, Nevada 13%, Rhode Island 12.9%, California 12.5% and South Carolina at 12.1%. Arizona was not in the top ten.
· Initial weekly jobless claims were 505,000 and in line with expectations.
· The four week moving average for weekly claims fell to 514,000 also in line with expectations and the eleventh consecutive weekly decline.
· Continuing claims were 5.61 million and in line with forecast.
Commentary/Observations
According to the government the “real” unemployment rate is 17.5%. This is referred to as the U-6 number which includes the U-3 number (commonly referred to as the unemployment rate which for October was 10.2%) plus those workers who have given up looking for work and those working part time who want to work full time.
It took nearly two years to consistently add jobs after the eight month long 2001 recession which ended in November 2001. It took another two years to recoup all of the jobs lost according to Moody’s Adversity Index report. The current recession is already much longer and more destructive than the 2001 recession.
The key to the economic recovery is job’s folks! When people work they can pay their mortgages and buy stuff. They feel good about themselves and their futures. The concept of a “jobless recovery” to me is non-sense. How does our economy recover without people working?
The following was borrowed from Rick Roper at GEM Corp. but I thought it makes a worthwhile point….
From time to time, news reporters have called the office and wanted comments about various mortgage news. And invariably, they usually get the quotes wrong. Nothing like being misquoted and wanting the news organization to publish a retraction. Or the news organization has a particular slant for how they want to present the news. Recently a Harley Bike Club member told of the story of a Harley biker riding by a zoo in Washington, DC when he sees a little girl leaning into the lion’s cage. Suddenly, the lion grabs her by the cuff of her jacket and tries to pull her inside to slaughter her, under the eyes of her screaming parents. The biker jumps off his Harley, runs to the cage and hits the lion square on the nose with a powerful punch. Whimpering from the pain the lion jumps back letting go of the girl, and the biker brings her to her terrified parents, who thank him endlessly. A reporter has watched the whole event. The reporter addressing the Harley rider says, “Sir, this was the most gallant and brave thing I’ve seen a man do in my whole life.” The Harley rider replies, “Why, it was nothing, really, the lion was behind bars. I just saw this little kid in danger and acted as I felt right.” The reporter says, “Well, I’ll make sure this won’t go unnoticed. I’m a journalist, you know, and tomorrow’s paper will have this story on the front page… So, what do you do for a living and what political affiliation do you have?” The biker replies, “I’m a U.S. Marine and a Republican.” The journalist leaves. The following morning the biker buys the paper to see if it indeed brings news of his actions, and reads, on the front page:
“U.S. MARINE ASSAULTS AFRICAN IMMIGRANT AND STEALS HIS LUNCH”
If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.