Loan modification update

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan modification update

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.