Loan modification success

Mortgage Industry Update: Rates, News & More

***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 11^th 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.