Greek debt crisis

Mortgage Industry Update: Rates, News & More

***Weekly Mortgage & Business Update May 7, 2010***

How I see it $:  This week there were several important events that impact all of us and I feel like some extended commentary is appropriate. To see how dramatic the week was you may want to check out Key Indicators below.

 With all the talk about sovereign debt you may want to check out Statistics of Interest/Concern below. The tease is that as a percentage of GDP (the total of ALL the goods and services an economy produces) the U.S. is at only 96.5%. Can you guess which nation has the highest? Well, the U.K. is second at 425.9% and Ireland is first with a staggering 1312% of debt to GDP! This enormous debt caused at least in part a massive sell off on Wall Street Thursday where the Dow recorded the biggest intra-day decline in history of almost 1,000 points! Today it looks like the balance of the loss was due to some sort of “electronic trading” glitch.

 

Can the Greek or any nation’s debt crisis be solved with more debt? Are we witnessing the collapse of the “Socialized Democracy” form of government? The Greek bailout plan was agreed to last weekend by the EU and IMF but by Tuesday markets became concerned that fixing a debt crisis with more debt might not be a great idea. Thursday as the Greek Parliament officially approved the bailout plan the Geeks, I mean Greeks, took to the streets in protest. Of course, they did not appear to offer any solutions to the crisis which surprised no one. This is what happens when too many people are relying on the government for their pay, holidays, health care, etc and there is an economic decline. Pay attention to what the German Bundesrat (upper house) does late Friday and over the weekend. Hopefully they will approve their portion of the Greek bailout package. If not, Monday will be a wild day! All of this Greece business brings to mind my concerns about some of the policy decisions coming out of D.C. Lastly, some of our biggest banks have major European loan exposure.

 

As most of you know state budgets are taking some big hits and in FY 2011 and 2012 none will be bigger than the loss of “Stimulus” funding. As of mid April states had received about $109 Billion since the American Recovery & Investment Act of 2009 was passed in February according to the GAO. These funds helped state’s bridge the 30-40% budget shortfall they were facing due to declining tax receipts over the last two years. In the 2011 FY only about 20% of the gap will be filled and by FY 2012 there will be almost no funding. The impact of this loss of funding includes reduction in Medicaid funding, employee layoffs and possibly more. In addition, school districts alone are estimating a loss of 275,000 jobs wiping out the estimated 300,000 jobs saved by the stimulus money. My question is was the stimulus money spent wisely or could it have been put to better use? It would appear the data leads to the obvious answer.

 

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

With all of the volatility in the market this week there was the anticipated “flight to safety” which drove 10 year yields down and long term mortgage rates as well. The week ended with retail rates just below 5%. Some believe the Fed will soon start unloading some of the $1.25 Trillion in MBS they hold which will move rates higher. The question continues to be timing.

 

When	Rate
This Week	5.00%
Month Ago	5.21%
Year Ago	4.84%
2 Years ago	6.05%

 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

·         Five percent down conventional loans are now available in Arizona but the minimum credit score is 720 and other strict qualifying criteria apply. Note that lenders may also have price adjustments for this loan product (MGIC/Radian).

·         Fannie Mae has announced tighter requirements for interest only loans. The new requirements are effective august 31, 2010 and include a minimum 30% down, minimum 720 credit score and 24 months reserves (CNN).

·         Government related entities backed 96.5% of all loans in the first quarter of 2010 and 90% of all loans in 2010 (Inside Mortgage Finance).

·         Freddie Mac asked Congress for $10.6 billion after reporting its third consecutive quarterly loss of $6.7 billion for the first quarter 2010. In January the Congressional Budget Office (CBO) estimated that Freddie Mac and Fannie Mae could need up to $319 billion by 2019 (Newsweek).

·         Countrywide has agreed to pay $624 Million to settle a lawsuit accusing it of misleading investors about its lending practices. A judge in Los Angeles has to approve the settlement.

Good News

·         Consumer spending rose .6% in March the biggest monthly increase in five months (Commerce Department).

·         Pending home sales rose 5.3% in March which was higher than forecast and follows an 8.3% increase in February (NAR).

·         Manufacturing index rose to 60.4 in April up from 59.6 in March (ISM).

·         New factory orders increased 1.3% in March following an upwardly revised 1.3% in February (Commerce Department).

·         Non manufacturing index (Service sector) for April was unchanged from March at 55.4 (ISM).

Statistics of Interest/Concern

·         Sovereign debt as percent of GDP looks like this: U.S. 96.5%, Australia 124.3%, Greece 170.5%, Germany 182.5%, Spain 186.1%, France 248%, The U.K. 425.9% and number one is Ireland at 1312% (CNBC)!

·         Non-farm production rose 3.6% in the first quarter of 2010 this following a brisk 6.3% increase in the fourth quarter 2009 (Labor Department).

·         Mortgage delinquency declined for the second month in a row in March but excluding foreclosures delinquency was up 15.7% from the previous March while foreclosures were up 32.9% for the same period.

Foreclosure Headlines

·         The housing market is set for a modest rebound in the next two years depending on where you live according to a new report from PMI Group. The complete report can be viewed at http://www.pmi-us.com/PDF/q2_10_pmi_eret.html.

·         Strategic defaults accounted for 31% of foreclosures in the first quarter of 2010 which is much higher than the Goldman Sachs number of 12% in February (Chicago Booth/Kellog School Financial Trust Index).

·         The average time from date of last mortgage payment until foreclosure and owner vacates the property is 14 months (Financial Times/Lender Processing services).

Jobs Update

·         The April job’s report showed the fastest rate of job additions in four years at 290,000 and both February and March data were revised upward by 120,000. However, the unemployment rate increased from 9.7% to 9.9%.

·         Initial weekly jobless claims were down 7,000 to 444,000 (Labor Department).

·         The four week moving average for weekly jobless claims was 458,500 down 4750 (Labor Department).

·         Continuing jobless claims were down 59,000 to 4.59 million. Those getting extended benefit increased 153,000 to 5.56 million (Labor Department).

·         Planned job cuts fell to 38,326 in April down 43% from March (Challenger, Gray & Christmas).

Key Indicators

 

Indicator	4/30/10	5/7/10	Change
Dow	11,009	10,378	-631
10 year yield	3.66%	3.43%	-.23%
Crude oil	86.18	75.28	-10.90
Dollar (vs Euro)	1.3296	1.2731	-.0565
Gold	1179.4	1208.4	+29.0

 

Source: www.cnbc.com/markets/commodities