FHA changes coming

Mortgage Industry Update: Rates, News & More

***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 22^nd 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 10^th 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 21^st 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.

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

FHA changes coming

Mortgage Industry Update: Rates, News & More

***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 76^th anniversary of the ratification of the 21^st 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHA changes coming

Mortgage Industry Update: Rates, News & More

***Smart Financial Weekly Mortgage Update November 13, 2009***

Interest Rates

This week Fed members were out saying that with the recovery likely to be weak expect the Fed to keep rates (short term rates) low. Typically the Fed starts raising rates about 12-18 months after unemployment peaks although some economists expect the Fed to start increasing rates next summer. Mortgage rates continued to be stable at around 5.00%.

 

 

When	Rate
This Week	4.91
1 Month Ago	4.92
1 Year Ago	6.46
2 Years Ago	6.40

 

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 reserves for FHA have shrunk to .53% which is well below the legal minimum set by the government at 2.00%. One year ago FHA reserves were at 3%. While there is some dispute about what happens next clearly the data points to assistance from the government at some point. However, Housing Secretary Donovan still does not believe a bailout will be needed. Hey, Mr. Secretary, what about that 14.42% delinquency at the end of the second quarter? By the way, the new Risk Executive at FHA is working on guideline changes to minimize future risk to FHA. He also has been quoted as saying that FHA should NOT be financing 30% of home purchases in the country.

·         The Treasury released its report on the progress of the home loan modification program this week. Thru October 650,994 3 month Trial modifications have been started. Saxon Mortgage Services continues to have the highest percentage of starts with 44% followed by Citi at 40%, GMAC at 35% and Wells Fargo at 29%. Bank of America is at 14%. 72 servicers are in the program and have received $27 billion in TARP funds for the program.

·         Wells Fargo announced this week that it is increasing its minimum score on FHA loans from 620 to 640 effective November 16^th.

 

Good News

·         The NAR report for third quarter showed national median home price up 7% from previous quarter to $177,900.

·         Fewer homeowners are upside down on their homes according to Zillow.com. In the third quarter 21% of homeowners were upside down compared to 23% in the previous quarter.

 

 

 

Statistics of Interest/Concern

·         Fannie Mae received a capital injection from the government of $15 billion this week and Freddie Mac received $5 billion dollars. They both also warned that they could face additional losses from the weakening of mortgage insurance companies. Last Monday Moody’s S&P warned of downgrades for seven mortgage insurers and actually downgraded MGIC the largest mortgage insurer for both Fannie and Freddie. As a side note Freddie Mac said its exposure to the failure (bankruptcy) of Taylor Bean a huge mortgage originator could be $500 million.

·         Consumer sentiment declined in October to 66 according to Reuters/University of Michigan survey. Forecast was for 71.

·         According to Jay Butler at ASU there were 3815 sales of foreclosed homes in October which was 38% of sales up from September when foreclosures were 32% of sales. Also, he points out that 6140 of October sales “had previously been in foreclosure”. The median price home in Phoenix for October was $140,000 with the median price of a foreclosure sale at $153,450.

 

Foreclosure Headlines

·         The foreclosure rate in October declined by 3% from September but there were still 332,292 foreclosure notices recorded up 18.9% from a year ago according to RealtyTrac. Nevada led the nation with 1/80 homes in foreclosure, California was second with 1/156 and Arizona was fourth with 1/200.

·         A company called Lender Processing Services said this week that 22% of all mortgages in Florida were in a non current status (either delinquent of foreclosure).

 

 

Job Market Headlines

·         Initial weekly jobless claims came in at 502,000 below forecast of 510,000.

·         Continuing jobless claims were 5.63 million down 139,000 from previous week.

·         The consensus of a survey of economists by Reuters was that unemployment would peak at 10.5% and that the Fed will start raising rates in the third quarter of 2010.

·         The Bureau of Labor Statistics reported that in the third quarter there were 1776 “extended mass layoffs” of 277,924 workers the most ever in a third quarter.

 

Commentary/Observations

The FDIC issued a clarification of its problem loan policy for its staff in the field regulating bank activity. In part the communication tells the employees not to classify loans as problems if the payments are current even though the underlying asset has a debt greater than the assets value.

 

More from the FDIC: According to an upcoming quarterly report banks are not lending because with their cost of funds near zero they are buying high yielding assets like stocks and commodities. This is known as the “carry trade”. Guess they can make more money doing this than lending money to consumers and businesses to help speed up the economic recovery.

 

Iran update: Iran’s Persian Gulf neighbors including Saudi Arabia and United Arab Emirates are leading a drive to upgrade their missile defense spending and naval and air forces. Spending by these nations could reach $40 billion in the next two to five years. Details could be discussed at the Dubai Air Show starting November 15. Happy Friday the 13^th!

If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.