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  1. Mortgage Rates: Obama to “Friend” Millions?

    By on February 1, 2012

    Today is the day that Facebook will file its initial public offering.  There are also rumors that today is the day that President Obama will announce his plan to enable millions of homeowners to refinance at current historically low interest rates.  In some ways, it’s as if he is sending a huge “friend request” to American homeowners.  Is this good economic policy or simply politics as usual and what effect will it have on mortgage rates?

    It appears from early trading in mortgage-backed securities (MBS) today that the markets are focused on the Facebook IPO and stocks are set to rise.  This will put pressure on MBS pricing today and could keep rates from falling any further.  Unless the stock market surges more than appears likely, mortgage rates will likely remain close to current levels throughout the day.

    Several economic reports are also in the mix today.  The ADP Employment Change report came in about at the point of expectations though newly created jobs were down significantly from December.  Analysts were encouraged however by the surge in new service sector jobs, explaining that a broad-based improvement in employment across all sectors is necessary for sustainable economic growth.

    At 10 AM both the Construction Spending report and the ISM Manufacturing Index will be released.  The ISM Index is a gauge of manufacturing industry activity and is a very important report.  If this report is at or above expected levels, mortgage pricing may feel more upward pressure.  If, however, we see a surprise to the downside, then mortgage pricing may improve.

    Let’s get back to the President’s refinance plan.  According to reports the plan will call for a tax on large banks to pay for the cost of allowing homeowners to refinance into Federal Housing Administration loans.  Having failed to get the conservator of the other two government-sponsored housing agencies to go along with a similar plan, the president has turned to the one agency he has direct control over.  That being said, the plan has virtually no chance to pass Congress as it has failed to even be acted on twice before.

    As to its public policy and economic implications my belief is that it is poor policy to allow refinancing into government (taxpayer) backed mortgages by homeowners that would not otherwise qualify for the loans.  Economically, it would provide substantial stimulus initially but it might also have the unintended consequence of causing mortgage rates to rise.  Banks unable to handle the onslaught of borrowers, and fearing repurchase risks from loans that go bad, may raise their interest rates to discourage borrowers.

    Category: Current Mortgage Rates, Mortgage Interest Rates, Mortgage Rate Trends and Analysis, Mortgage Rates, Purchase, Refinance

  2. Fannie Mae: Housing Will Experience a “Subdued Recovery” in 2012.

    1 By on December 20, 2011

    Today Fannie Mae released it Economics and Mortgage Market Analysis for December.  Fannie Mae economist Doug Duncan noted that “fourth-quarter economic activity seem[s] to indicate we will end 2011 on a positive note…however, the U.S. economy continues to face many obstacles, and we expect momentum to slow going into 2012″.

    As with everybody else, Fannie’s predictions for 2012 are muddled due to the ongoing European debt crisis.  Despite efforts by European authorities to formulate some sort of plan to deal with the problems, a solution has remained elusive, and the specter of sovereign defaults in Europe looms over the markets.  Duncan noted that “the global economic recovery appears to be losing steam.  We now expect that the Euro Zone has slipped into a recession in the current quarter that will likely last through the first half of 2012″.

    Another complicating factor is the uncertainty surrounding U.S. fiscal policy.  The ongoing payroll tax extension battle in Congress is emblematic of this.  Our elected officials are not very good at compromise, and the direction of U.S. fiscal policy is cloudy to say the least. Duncan notes that “fiscal contraction at all levels of government, including the scheduled increase in payroll taxes and reduction in unemployment benefits, will restrain growth”.

    As to housing, Fannie says that there are signs that low mortgage rates are spurring demand, and recent housing numbers (residential home construction and homebuilder confidence) have improved significantly (although by many measures home prices are still falling).  Regardless of recent improvements, Fannie predicts a “subdued recovery” for housing in 2012, muted by low household formation and an uncertain job market.

    Interestingly, Fannie “do[es] not anticipate that the Fed will engage in another round of quantitative easing” unless the European debt crisis gets worse, in which case the Fed could buy mortgage backed securities in an effort to drive down mortgage rates.  Personally, I think it is likely that the situation in Europe will get worse, and that the Fed will engage in QE3.

     

     

     

     

     

    Category: Mortgage Rates

  3. Freddie Mac Sees HARP 2.0 Helping 1.5 Million Borrowers

    3 By on November 21, 2011

    Today Freddie Mac released its November 2011 Economic Outlook.  While U.S. economic numbers have improved somewhat of late, Frank Nothaft, Chief Economist for Freddie noted that “the economic growth rate for the third quarter is barely sufficient to keep up with the labor force frowth, and insufficient to make a sizeable dent in unemployment”.

    While this analysis is not particularly novel, I think it is important to realize that recent better-than-expected economic numbers are relatively meaningless if they don’t put a dent in unemployment.

    The most of interesting part of the report (at least to me) is the predicted impact of the new version of HARP.  The much heralded updates to HARP are designed to let more borrowers with high loan-to-value ratios refinance at today’s low rates.

    Nothaft says that

    “Estimates of the number of additional HARP refinances vary, with the Federal Housing Finance Agency stating that “HARP refinances may roughly double or more from their current amount”, Keefe Bruyette & Woods’ analysts estimating about “1 million incremental loans”, and Moody’s Analytics projecting as much as 1.6 million additional loans above what would have occurred under the original HARP terms, bringing the total number of HARP refinances to as much as 2.85 million loans by the end of 2013″.

    Ultimately, Nothaft predicts that HARP 2.0 will increase mortgage originations by $2-300 billion over 2012-13.  I would like to believe this, but I’ve seen too many rosy predictions for government programs designed to help the housing market that end up falling flat.

    Will this program be any different? The determinant is going to be whether or not investors participate, and to what degree.  There are some parts of the new program that lead me to believe it will be more effective than the first iteration of HARP, as well as programs such as FHA short refi.  Despite this, I think it will mostly help around the margins of the housing market (admittedly, this is better than nothing).  There is more than $700 billion worth of negative equity that is an albatross around the neck of the housing market.  Until something is done to address this problem, the housing market will have difficulty recovering.

     

    Category: Mortgage Rates

  4. Fannie Mae Anticipates Unemployment, Tight Credit Will Continue to Restrain Housing Market

    By on July 25, 2011

    Last Friday Fannie Mae published their monthly Economics and Mortgage Market Analysis for July.  Fannie’s economists noted that there are several factors that have the economy “struggling to regain momentum”, including continued high unemployment, the continuing European debt crisis, and the potential that no budget deal is met before the U.S. debt ceiling deadline on August 2nd.

    On housing specifically, the report said that “some positive signs are emerging” but that “the current state of housing remains downbeat”:

    “Sales of existing homes in May fell to their lowest level since last November, while new home sales dropped during the month after two consecutive monthly gains.  Total housing starts rebounded modestly in May, only partially offsetting the large drop in the prior month, and builders’ confidence eroded further in June. 

    There are some positives for the near-term outlook of the housing market.  One positive for the existing home market is that pending home sales (contract signings) rose 8.2 percent in May, suggesting that sales of existing homes, which are recorded at closing, should rebound in coming months.”

    Continue Reading…

    Category: Mortgage Rates

  5. Freddie Mac Predicts “Gradual Improvement Over Time” for Housing Market

    1 By on July 19, 2011

    Yesterday Freddie Mac released its July 2011 Economic Outlook.  Freddie’s economists said that the housing market “is unlikely to experience a double dip”, and that home sales are projected to rise 3 to 5 percent from the 2010 pace.

    Noting that the economy only added 18,000 jobs in June, Freddie’s economists said that the “sluggish” labor market “likely reflects a temporary soft patch in the economy rather than foreshadowing an inflection point in gross domestic product growth”.

    Freddie’s economists noted that home affordability remains high, but that other factors, including uncertain employment prospects moving forward, tighter credit and underwriting, and declining home values continue to restrain the market.

    Moving forward, Freddie predicts that:

    • The S&P/Case-Shiller Home Price Index will decline by another 2.0% in the fourth quarter of 2011, before rebounding by 10 percent in 2012 (seems overly optimistic to me).
    • Mortgage rates will rise to 5.0% by the end of 2011, and then to 6.0% by the end of 2012.
    • The unemployment rate will decline to 8.0% by the end of 2012.
    • Housing starts are predicted to rebound to nearly one million starts per quarter by the end of 2012.
    All of these predictions seem overly optimistic to me.  We haven’t seen very substantial improvements in employment in nearly two years (in June 2009, unemployment was at 9.5%, in June 2011, 9.2%).  We’ve also experienced a decline in the labor force participation rate, which is concerning because it seems likely that there are a lot of frustrated job-seekers who are waiting for the jobs to return that are not currently being counted in unemployment surveys.  There are few signs that the employment sector is about to turn around, either.
    At the same time, there is still a massive imbalance in the supply of homes and the demand for them.  This imbalance will not be corrected until the jobless situation improves.  As a result, it is difficult for me to envision significant improvements in the housing market in 2011-12.

     

     

    

    
      Category: Mortgage Rates

    
      
    
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    QRM Rules Could Keep 25 Million Homeowners From Refinancing, Cause More Declines in Home Values
    
	  	        By  on April 14, 2011
		
    
      
    

    This morning a white paper on the proposed risk retention (QRM) guidelines for mortgage lending was published by a variety of housing industry groups including the National Association of Realtors, the Mortgage Bankers Association, The National Association of Home Builders, the Mortgage Insurance Companies of America, the Center for Responsible Lending, and the Community Mortgage Banking Project.
    

    The groups ask regulators to reconsider the QRM rule, saying that it is a “devastating, unnecessary, and very expensive wrench [thrown] into the American dream.”  They claim that the rule would preclude 25 million homeowners from refinancing their mortgages because they lack the home equity required under QRM.
    

    The controversial risk-retention rules, required under the Dodd-Frank reforms, would require mortgage originators to retain reserves equal to 5 percent of all but the safest mortgages. The mortgages that would be exempt from the requirement are called Qualified Residential Mortgages (QRMs).
    

    The proposed QRM rule requires a 20 percent down payment for new mortgages.  It also precludes anyone with a 60 day delinquency on their credit report from receiving a QRM.  Government loans (FHA, VA, USDA) would be exempt from the requirement, as would Fannie/Freddie loans so long as Fannie/Freddie are under government conservatorship.
    

     Continue Reading…
    

    
      Category: Mortgage Rates

    
      
    
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    Canadians: Possible Saviors For Distressed Housing Markets
    
	  	        By  on March 31, 2011
		
    
      
    canadian real estate investors, canadian home buyers
    

    Distressed housing markets can try looking north for help. With home prices low in the American Sun Belt and the Canadian dollar strong, Canadians might be doing more than sunbathing during spring vacations stateside.
    

    One in five Canadians would now consider purchasing real estate in the United States, reveals a survey from BMO Bank of Montreal. Lower prices for American homes and a strong Canadian dollar are boosting their interest in U.S. properties.
    

    Housing prices in the U.S. overall have dropped 30 percent from their peak four years ago, but prices where Canadian snowbirds traditionally visit have dropped even more. For instance, prices have dropped 44 percent in Tampa,  Fla., 54 percent in Phoenix, 57 percent in Las Vegas, and 49 percent in Miami.
    

    “Now, with the American economy and employment gaining strength, home sales should pick up and put a floor under soft prices,” says Sal Guatieri, a senior economist at BMO Bank of Montreal. “We expect prices to rise over time as the overhang of unsold homes eases.” Continue Reading…
    

    
      Category: Housing Market

    
      
    
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    In A Reversal, More Homeowners Pay Credit Cards And Miss Mortgage Payments
    
	  	        By  on March 31, 2011
		
    
      
    pay mortgage or credit card?In a departure from traditional behavior, more homeowners continue to pay their credit card bills while falling behind on mortgage payments.
    

    Consumers typically paid their mortgages and missed credit card bills during financial troubles, but that pattern revered in the recent recession.
    
Experts thought payment behaviors would return to normal when the recession ended. Instead, the trend became even more widespread, finds a study by TransUnion, a company providing credit and information services.
    

    “The latest data from our study show that the new payment hierarchy has persisted for longer than many industry experts initially believed, and provides evidence that consumers continue to adjust their payment behavior in response to their economic and personal financial environment,” said Sean Reardon, author of the study released yesterday.
    

    The percentage of consumers current on their credit card payments and delinquent on their mortgages first surpassed the percentage of those current on their mortgages and delinquent on credit cards in the first quarter of 2008. Continue Reading…
    

    
      Category: Housing Market

    
      
    
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    Is A Canadian Home Price Bubble Ready To Burst?
    
	  	  1      By  on March 30, 2011
		
    
      
    canadian home price bubble, canadian housing marketThe Bank of Montreal, in a recent report, said the Canadian home values have gone has high as they can. If prices don’t stop increasing, the housing markets could crash in a repeat of the U.S. housing bust.
    

    “I think the main message is that the boom we’ve seen in home prices, for all intents and purposes, is over,” Douglas Porter from the Bank of Montreal told CTV.
    

    Five provinces, Saskatchewan, followed by Manitoba, Newfoundland/Labrador, British Columbia and Quebec, are in danger. Canadian home prices grew twice as fast as incomes from 2002 to 2007, and houses are selling at prices 14 per cent higher than the average income. They dropped during the recessions, then quickly rebounded and are now 10 percent over 2007 levels. If interest rates remain low, they could fuel a bubble, but hiking rates quickly could cause home prices to fall quickly.
    

    Some pundits are warning of a 25 percent drop in housing prices. But the Bank of Montreal predicts that increasing interest rates and stricter lending rules will probably put a damper on accelerating home prices. As it stands now, the bank believes home prices are only moderately overvalued. Continue Reading…
    

    
      Category: Housing Market

    
      
    
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    Mortgage Fraud Up In Hard-Hit Housing Markets
    
	  	        By  on March 30, 2011
		
    
      
    mortgage fraud, foreclosure rescue schemes
    

    Mortgage fraud is increasing where foreclosures are the highest and home values have fallen the most.
    

    Criminals are gravitating to those distressed housing markets to employ foreclosure rescue schemes and other fraudulent plots such as “flopping” or selling homes at deflated short sale values then quickly selling it for a higher price, according to Interthinx, a California company specializing in detecting and preventing mortgage fraud.
    

    Mortgage fraud is way up in Nevada, as well as the Chicago area. Nevada had the same fraud risk level as California in late 2009, but since then Nevada has become much riskier. Mortgage fraud in California, meanwhile, has actually decreased, although it remains high, especially in its Central  Valley region.
    

    “This may be due to a migration of fraudsters seeking to take advantage of the more fertile grounds for fraud in Nevada, where the proportion of foreclosure and distressed sales is by far the highest in the nation,” Interthinx states in its 2010 annual mortgage fraud risk report.
    

    The riskiest states are Nevada, Arizona, California, Michigan, Florida, Colorado, Minnesota, Georgia, Rhode   Island and Massachusetts. The District of Columbia, Maryland, New Jersey, Tennessee, Ohio, Illinois, Oregon and Hawaii also have higher than average fraud risks.
    

    Employment/income and identity fraud risk both increased substantially over the past year. In those types of fraud, borrowers lie to qualify for a loan.
    

    Lenders and law enforcement officials have largely ignored those loans, believing they are uncommon and rarely default. Instead, they focused on sophisticated criminals trying to defraud lenders in “fraud for profit” schemes.
    

    However, they were the predominant form of mortgage fraud during the real estate boom, mostly through stated income and low- and no-document programs. Sometimes encouraged by mortgage professionals to lie, millions of borrowers obtained loans they could not afford to repay.
    

    “When these borrowers began to default en masse,” the report states, “it sparked the mortgage meltdown, which led to the failure of hundreds of financial institutions, the liquidity crisis, and, ultimately, the Great Recession.”
    

    Going forward, Interthinx warns, they must be identified and addressed with the same urgency as frauds for profit.
    

    
      Category: foreclosures

    
      
    
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