Freddie Mac losses

Mortgage Industry Update: Rates, News & More

***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.