Fannie Mae & Freddie Mac

Mortgage Industry Update: Rates, News & More

***Weekly Mortgage & Business Update May 28, 2010***

                                                                                          

 

 

How I see it $:  The crisis in Europe continues over fears that one or more Euro-zone countries could have to restructure its debt or even default. One country in the spotlight this week is Spain and especially the stability of its banking industry. On Friday Spain’s credit rating was downgraded from AAA to AA+ by Fitch Ratings Service. Meanwhile Italy announced $30 Billion in budget cuts to show investors that Euro nations can trim budget deficits. The reductions included a three year wage freeze for civil servants and a crackdown on tax evasion.

Another related issue is the increasing LIBOR rate. This is the rate that European banks charge each other to borrow money on a short term basis. While the rate itself is very low it has increased for eleven straight days (as of Monday). Given all of the borrowing going on in the Euro Zone if as rates move higher the cost of repayment increases which among other things could cause banks there to tighten lending.

Finally, in honor of all of those who have given so much for our freedom please take a moment to remember them this weekend. Happy Memorial Day!

If you have any comments or thoughts please e-mail me at burt@gosfm.com.  Finally, if you would like to view any of the articles I have written click on the link http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner.

 

Interest Rates

Retail mortgage rates remained near the mid 4% range for the week and the average rate for a 30 year fixed rate mortgage of 4.78% (see chart below) approached the record of 4.71% set in early December 2009. In its annual report the Federal Reserve said it will not sell its MBS or mortgage financed agency debt until “the economy is clearly in a substantial recovery”. Some observers had suggested the Fed might start selling these assets sooner but apparently they will wait. What this means is that the concerns back in March that mortgage rates would increase are on the back burner for now.

 

When	Rate
This Week	4.78%
Month Ago	5.06%
Year Ago	4.91%
2 Years ago	6.08%

 Note that actual market rates vary geographically and by lender, credit score and Loan to Value. Source: Federal Reserve Statistical H.15. http://www.federalreserve.gov/releases/h15/data.htm

 

Mortgage Industry

·         In the first quarter of 2010 FHA insured $52.5 Billion in loans compared to the total loans by Fannie Mae and Freddie Mac of $46.5 Billion. When asked about the huge increase in FHA market share the head of the FHA said “This is a market purely on life support, sustained by the government”. FHA market share is typically 4% and before the current crisis had never been above 14%. According to the Mortgage Banker Association 12% of all FHA loans are at least one month behind on their payment (CNBC).

·         FHA loan modification update: FHA did 171 loan mods in April which includes trial and permanent/fully approved modifications. There are about 6 million FHA borrowers and one million of them are delinquent (HUD Neighborhood Watch).

·         A possible partial solution to Fannie Mae and Freddie Mac could be the covered bond. This is a debt security that is backed by the cash flow of a loan such as a mortgage. The loan is covered (secured) by a pool of assets that investors can claim rights to if the issuer (or originator like a bank) becomes insolvent. While not common in this country they are very common in Europe. For example, Bank of America and Chase have issues them and companies like Blackrock and Pimco have invested in them. Currently the Covered Bond Act is being discussed in Congress and may become part of the financial reform package soon to be passed into law (CNBC).

·         In 2009 Arizona Mortgage Fraud Index (MFI) was 158 placing it fourth in the country for mortgage fraud with Florida number one at 292. Nationwide the MFI increased by 7% in 2009 from 2008 (Mortgage Asset Research Institute).

Good News

·         Existing home sales increased 7.6% in April and the median home price increased 4% to 173,100 (NAR).

·         New home sales increased 14.8% in April to the highest level since May 2008 (Commerce Department).

·         Consumer confidence increased to 63.3 in May from 57.7 in April the April number was the highest since March 2008 (Conference Board).

·         U.S. consumer spending was flat in April but for the first quarter 2010 was up 3.5% twice fourth quarter 2009 number. Consumer spending is about two thirds of GDP (Commerce Department).

·         A key index of current business conditions in New York for May was 89.9 up from 62.2 in April. This was the fifth highest number since the index was created in 1993 (ISM).

Statistics of Interest/Concern

·         First quarter GDP was 3.0% compared to the 3.2% initial reading reported last month. State and local governments reduced spending at the steepest rate since 1981 (Commerce Department).

·         The U.S. economy is forecast to grow at 3.2% this year and next (NABE).

·         Home prices fell in March by .5% from February but have increased 3% since April 2009. In the first quarter 2010 prices declined by 3.2% compared to fourth quarter 2009 but are up 2% year over year (S&P Case-Shiller).

·         Durable goods orders decreased by 1% in April after increasing 4.8% in March (Commerce Department).

Foreclosure Headlines

·         Bank of America has implemented a new automated system for handling short sale applications which has reduced the average number of days to approve a short sale from 90 to 50. The bank approved 18,000 short sale applications in April but received more than 50,000 (AZ Central).

·         Lenders nationwide have repossessed 350,376 homes thru April 30, 2010 (RealtyTrac).

Jobs Update

·         Initial weekly initial jobless claims declined 14,000 to 455,000 (Labor Department).

·         Four week moving average for weekly jobless claims was up slightly to 465,500 (Labor Department).

·         Continuing jobless claims were down 49,000 to 4.61 million (Labor Department).

 

 

Key Indicators

 

Indicator	5/21/10	5/28/10	Change
Dow	10,193	10,137	-56
10 year yield	3.23%	3.30%	-.07%
Crude oil	70.24	74.09	+3.85
Dollar (vs Euro)	1.2579	1.2268	-.0101
Gold	1176.9	1213.7	+36.8

 

Source: www.cnbc.com/markets/commodities

 

 

 

 

 

 

 

 

 

 

 

 

Fannie Mae & Freddie Mac

Mortgage Industry Update: Rates, News & More

*** 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.