Mortgages
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 21, 2010 by · Leave a Comment
***Smart Financial Weekly Mortgage Update March 19, 2010***
Editor’s note: If you are interested in the latest results on loan modifications check out the Mortgage Industry Update section.
Interest Rates
Retail mortgage rates declined slightly this week so pricing remains very attractive for home buyers and others.
Meridith Whitney a well respected analyst said this week that the housing market will likely do a “double dip” when the Fed stops buying Mortgage Backed Securities (MBS) later this month. She also fears that the re-defaulting on many loan mods will bring more foreclosures to the market as well. Others have a different view since the Fed has said it is prepared to start the MBS purchase program again if necessary and has pledged to keep rates low for “an extended period of time”.
The head of FHA told Congress that he anticipates a .25% to .75% increase in mortgage rates as the result of the Fed ending its MBS purchasing program. He also said that increasing the minimum down payment to 5% would not provide much risk protection and would cause an estimated 40% drop in FHA loan volume at a time when the housing market needs the support. You might want to check out this link http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner and read my article “Is FHA too big to fail? “. By the way, FHA loan volume is off substantially so far this year.
Overnight Fed Funds rates have risen to their highest level since last September and the 3 month T Bill rose last week to its highest since last August. These and other signs point to the Federal Reserve laying the foundation for increasing longer term rates.
|
When |
Rate |
|
This week |
4.96 |
|
1 Month Ago |
4.93 |
|
1 Year Ago |
4.98 |
|
2 Years Ago |
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 Update
· The results of the Making Home Affordable loan modification program thru February were released by the Treasury Department. The top three servicers for active trial mods plus permanent mods were GMAC 53%, Citi 52% and Chase 39%. The bottom three servicers were Bank United 22%, Litton 23% and Bank of America 24%. The top servicers for Permanent Loan Mods were GMAC 22%, US Bank and Aurora Loan Services 10% and Bank United 8%. Bank of America was 2%, Chase 4.5%, Citi 6% and Wells Fargo 6.5%. Seems they can get them into trial mods fairly well but are having a problem getting conversion into permanent loan mods.
· More on loan mods as of February 2010 an estimated 1.8 million homeowners are eligible but as delinquency increases this number is sure to grow. According to the treasury report almost 28% had some form of “principal forbearance” and 57% cited loss of income as the reason for loan mod request.
· The Hope Now Alliance announced that in January loan mods done outside of the government program (HAMP) were at 99,499 nearly double the HAMP mods. The mods were done by private lenders who have more flexibility than the HAMP allows. The Alliance noted that 74% of the mods involved principal and interest reductions.
· Wells Fargo said this week it will finally participate in the government’s plan to modify second mortgages. Bank of America joined the program in January. The two mortgage giants account for 25% of all second mortgages. Wells Fargo itself has about $124 billion of them. The government plan was announced last summer by the Treasury Department.
Good News
· Industrial production (factories, mines & utilities) rose .1% in February for the eighth consecutive month. Manufacturing output declined by .2% due to bad weather and the Toyota recalls.
· Credit card delinquency at Capital One and Bank of America declined in February but charge offs rose at Discover, American Express and Bank of America.
· The Producer Price Index (PPI) a good gauge of wholesale inflation fell .6% in February the sharpest decline since July 2009 according to the Commerce Department. The year over year PPI was 4.4%.
· The University of Michigan Consumer Sentiment survey for March was down to 72.5 from 73.6 in February but still at the six month average. In March 2009 the index was 57.9.
· The Consumer Price Index (CPI) rose .1% in February further supporting the belief that inflation is not an issue for now.
· The Conference Board’s index of leading economic indicators was up .1% in February. This was the 11th consecutive monthly increase in the index.
Statistics of Interest/Concern
· The U.S. government extended its monthly budget deficit streak in February to 17 months according to the Treasury Department.
· The NAHB/Wells Fargo Home Builders Confidence Index fell to 15 in March down 2 points from the previous month.
· New housing starts fell 5.9% in February and new building permits were down 1.6% according to the Commerce Department.
Foreclosure Headlines
· Lender Processing Services reports that in January mortgage delinquency hit 10.25% and that while slowing delinquency was still at an all time high. If you add in the 3.3% that are in foreclosure total delinquency is just over 13.5%. They also note that 31% of the loans more than six months delinquent had NOT yet entered foreclosure proceedings. In addition 22.8% of loans one year delinquent had not entered into foreclosure proceedings. “The nations pool of problem loans continues to grow and stagnate” said the report.
Job Market Headlines
· Initial weekly jobless claims were down 5,000 to 457,000.
· The four week moving average of weekly jobless claims was down slightly to 471,250 but still up 30,000 since the beginning of the year.
· Continuing jobless claims rose slightly to 4.58 million.
· The President signed jobs bill Thursday giving companies that hire unemployed workers a “tax holiday” thru the end of the year. Employers will not have to pay the 6.2% Social Security tax for the new workers. However, the workers will have to reimburse Social Security at some point for “lost revenue”. In addition funds were set aside for highway and transit programs.
Comments/Observations
This week both Moody’s and Fitch said that the U.S. has moved substantially closer to losing its triple A credit rating. In a related story Fitch said that hotels loan delinquency could double between now and 2012 to 30%. Hotels are currently running the highest delinquency of any commercial real estate asset class at 17%.
It is hard to see how we avoid a “double dip” in the housing market. The reasons are plentiful but include mortgage rates moving higher soon, the end of the first time home buyer credit in June, the ongoing stagnant jobs market, the modest at best success of government efforts to slow foreclosures and the re setting of Option Arm and interest only loans in the next year or so. While there are bright spots in the economy we need more of them and soon.
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 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.
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.