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  1. Economy Unexpectedly Gains 151,000 Jobs in October

    By on November 5, 2010

    Today the uber-important nonfarm payroll report was issued by the Bureau of Labor Statistics.  For a change, the report was good*.  The economy added 151,000 jobs in October, well above the consensus predicted increase of 60,000 jobs.  Unemployment remains high at 9.6 percent.

    *This report is really only good in comparison to the last couple of reports.  A more accurate way to describe this report would be “not bad”.  While it is nice to see an increase in jobs, we have lost 7.5 million jobs since 2007 and there are currently 14.8 million unemployed in the United States.  Given expected increases in population, it would take us until sometime in the next decade to return to a normal level of employment at this pace of job creation.  Jobs should be the number one priority of every politician and economic policy-maker today.

    While the surface numbers are good, there are some blemishes when you dig a little deeper.  The labor force participation rate actually decreased in October.  There are currently 1.2 million discouraged workers, which is an increase of more than 400,000 from the year prior.  These are people who would like to work but have stopped looking for work because they believe there are no jobs.  These people are not counted in the unemployment numbers.  As the employment situation improves, we should expect to actually see the unemployment percentage increase as these discouraged workers resume their job search.

    Long-term unemployment is still ridiculously high.  There are 6.2 million people who have been unemployed for more than 26 weeks who are still looking for work.  Clearly, this is very bad.  This is where all the talk about structural unemployment comes into play.  The idea that some part of the weakness in the labor sector is going to become permanent is truly scary.  The longer the unemployment numbers remain high, the better the chances that some percentage of that becomes structural.

    Is this the beginning of a recovery for the labor market?  I’m not ready to say that yet.  We need to see a few more strong months before we are even remotely close to being out of the woods.  Even so, isn’t it nice to see a report that isn’t out and out terrible?

    Category: Mortgage Rates

  2. 95,000 Jobs Lost in September as Long-Term Unemployment Plagues the Economy

    2 By on October 8, 2010

    The Bureau of Labor Statistics released its Non Farm Payroll report today.  The results were not good and worse than anticipated.  Let’s jump right in:

    “Nonfarm payroll employment edged down (-95,000) in September, and the unemployment rate was unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment declined (-159,000), reflecting both a drop in the number of temporary jobs for Census 2010 and job losses in local government. Private-sector payroll employment continued to trend up modestly (+64,000)”.
    Much of the decline in government jobs is due to the last of the census workers being let go in September.  Other government sectors shrunk due to cost-cutting and the private sector is not picking up the slack. After census hiring is removed from the equation, the economy lost about 18,000 jobs.  Long term unemployment continues to be an insidious problem:
    “The number of long-term unemployed (those jobless for 27 weeks and over), at 6.1 million, was little changed over the month but was down by 640,000 since a series high of 6.8 million in May. In September, 41.7 percent of unemployed persons had been jobless for 27 weeks or more”.

    So 6 million Americans have been out of work for over half a year and are still seeking work.  The U.S. workforce is around 143 million people, so this represents about 4 percent of the work force.  Incredible.  To put this number in context, we can look at long term unemployment during recent recessions.   Long term unemployment peaked at about 2.5 percent in mid-1983, and around 1.5 percent in the early 90s recession, and about the same in the early 2000s recession.  When the National Bureau of Economic Research claimed in September that the recession ended in June 2009, they clearly weren’t talking about the labor situation.
    Remember that all of these numbers only factor in those who are actually actively seeking work.  As the economy improves, discouraged workers will rejoin the work force and unemployment numbers will trend up.  U-6 unemployment, which includes those “marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force” is at a staggering 17.1 percent.
    To say the least, this report is not encouraging.
    Category: Mortgage Rates

  3. HUD Program to Help Unemployed Borrowers Pay Mortgage Starts Today

    1 By on October 6, 2010

    A new HUD program started today that will provide emergency support for unemployed homeowners.  The program (which can be found under the “Featured News” section on HUD’s website), was announced in August and will provide some borrowers with $50,000 bridge loans to help them pay the mortgage while they look for work.  $1 billion has been earmarked for the program.

    According to HUD’s primer on the program, the loans will be “declining balance, deferred payment “bridge loans” (non-recourse, subordinate loan with zero interest)”.  The money can be used for “payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance”.

    The home in question would have to be a primary residence, the borrower must be three months delinquent on mortgage payments, and the owner must have a history of on-time payments (prior to the delinquency).  I was fairly critical of this program when it first came out.  I think the idea of helping those who have been crushed by the economy and unemployment is good, however $1 billion seems like a drop in the bucket compared to the size of the problem we are facing.  Unemployment is still at 9.6 percent and broadest measure of unemployment is over 16 percent.

    There are 14.9 million unemployed people in the United States (obviously they are not all homeowners who would be eligible for this program, but it gives you an idea of the magnitude of the problem).  $1 billion isn’t going to do a whole lot.  If each person who enrolls in the program needs $25,000 (half of the maximum loan amount, I have no idea what the actual average request will be), 40,000 homeowners could be helped by this program.  A lot of people are estimating that the number of foreclosures that will occur over the next year or two is between 2-4 million (although foreclosuregate may change this, nobody knows).

    This program is well-meaning, but not nearly enough.  It strikes me as a political gesture more than anything.

    Category: Mortgage Rates

  4. What to Do When 30 Percent of Americans’ FICO Scores Preclude Them From Getting a Mortgage?

    1 By on September 28, 2010

    Oh magic 8-ball, what don't you know?

    If you read anything I write here regularly (and traffic numbers indicate you probably don’t), you will have read this a million times, but I will say it once more: the biggest issue facing the housing market today is the incredibly large supply of houses on the market and the massive amount of shadow inventory that will eventually make its way to the market.  The housing sector will not heal until these houses are absorbed.  The trouble is there is an extraordinary lack of demand right now.  Current economic conditions are unfavorable for household formation, making it harder to absorb these excess homes.

    Now there is an additional hurdle to a housing recovery.  According to information from Zillow, relayed through a Housingwire.com article by Christine Ricciardi, nearly 30% of people have credit scores that disqualify them from getting a mortgage.  This is going to make it a hell of a lot harder to get rid of all the houses.  The Zillow report shows that nearly 30 percent of Americans have a credit score below 620, which is considered a baseline score to qualify for a mortgage (depending upon the lender and other factors, of course).  This shouldn’t really come as a surprise, as unemployment has been running around 10 percent for some time now.  People cannot pay their bills and maintain their credit if they have no income.

    Not only are these people going to be precluded from buying a new house in the near future (barring some sort of massive shift in the way underwriting is done), but they will not be able to refinance their old mortgage, missing out of thousands of dollars worth of savings due to record low mortgage rates.

    I’m not sure what the solution to this problem is.  I don’t know if there should be some sort of credit amnesty or fast-track credit repair for those who have been hurt by the recession.  I don’t know if  we need a new system of underwriting that relies less on FICO than other metrics.  What I do know is it is going to be difficult to sell all these homes that are sitting around if 30 percent of the marketplace is excluded from getting a mortgage right off the bat.

    Do you have any sort of solution to this problem?  What is your idea?  Let me know in the comments section below.

    Category: Mortgage Rates

  5. Foreclosure Crisis Could Continue Into 2013

    By on August 20, 2010

    File this under confirming what we already suspected: today we get a report from Lender Processing Services via REO-Insider’s Kerry Curry that says the foreclosure problem we face in this country will likely persist until late 2013.

    A choice quote from the article from Kyle Lundstedt, managing director of LPS:

    “If current trends persist, it will take about 12 months before foreclosure proceedings are initiated”, once borrowers become delinquent, he said.  “It takes a heck of a long time to get into foreclosure at this point.  When you are in foreclosure, it doesn’t get much better.  Today, if you entered foreclosure, it would be 16 months before you got out. How many people think that is a good thing?  It’s tragic”.

    Now, I’m not sure that the tragedy here is the slowness of foreclosure proceedings so much as the damage that foreclosures are doing to the finances of many Americans directly or indirectly, but the point stands that foreclosures are moving very slowly.  Part of this is due to the gigantic backlog of foreclosures.  Part of it is also due to the fact that banks probably don’t want to flood the market with REO homes, thereby putting additional downward pressure on pricing and devaluing their own assets (foreclosed homes). Some of the foot-dragging is likely intentional.

    Again, none of this is particularly surprising.  The excellent folks at Calculated Risk have been beating the drum about the housing supply for quite a while now.  We could soon be looking at a 12 month supply of homes on the market, and household formation is substantially down due to the economy and high unemployment.  Add in the fact that the country over-built during the bubble years and the high number of people who have sub-par credit due to the economy, and you can see that this excess supply is unlikely to be cleared off the market any time soon (although if the rumors about the GSEs converting a lot of this stock to rental properties are true, some of the stock can be cleared sooner rather than later).

    Long story short: foreclosures, REO, and distressed properties are going to be a fact of life for at least a few years, and we shouldn’t expect a rebound in housing prices in the near term.

    Category: Mortgage Rates

  6. Foreclosures Rise in Majority of U.S. Cities

    By on July 29, 2010

    Every day I post negative news about the economy and the housing market.  One day I hope to come in and share some good news with you.  Today is not that day.  A story from Reuters writer Lynn Adler this morning brings us more discouraging foreclosure news.

    According to the article, foreclosures rose in nearly 75 percent of U.S. metro areas with populations of more than 200,000 in the first half of 2010. According to RealtyTrac, we are unlikely to see significant increases in home values until 2013.  A quote from an interview with Rick Sharga, senior V.P. at RealtyTrac said:

    “We’re not going to see meaningful, sustainable home price appreciation while we’re seeing 75 percent of the markets have increases in foreclosures.  We’re not going to see real price appreciation probably until 2013.  We don’t see a double dip in housing, but we think it’s going to be a long painful recovery for the next three years.”

    The cities with the highest foreclosure rates are all concentrated in California, Nevada, Florida, and Arizona.  This is unsurprising, as cities in these states underwent some of the greatest price inflation during the bubble years.  According to Reuters, average home prices are 29 percent lower than at their 2006 peak.  Additionally, we are on a pace to see an all-time high number of homes seized by banks this year.

    Unemployment is running close to 10 percent, and wider measures of unemployment are near 16.5 percent.  It does not appear that these numbers are going to come down any time soon.  At the end of the day, unemployment is the root cause of nearly every other problem that our economy is facing.  Until we make strides towards solving that problem, everything else we do is likely to be marginally effective at best.

    Category: Mortgage Rates

  7. More Assistance Coming For Unemployed Homeowners

    By on July 26, 2010

    Just replace "bank failure" with "declining equity".

    “Cessation of work is not accompanied by cessation of expenses”

    -Cato the Elder

    Information continues to trickle out about a new program designed to help the unemployed keep their homes.  The Home Affordable Unemployment Program (HAUP) is a new program from the federal government (the same people that brought you HAMP!).

    We are still awaiting word on exactly how the funds will be disbursed, but the HUD program will start by October 1st.  At least $1 billion is in the legislation for redeveloping distressed property.  Another of the main thrusts of the program is to allow unemployed homeowners who are current on their mortgage to get a forbearance for at least three months.  During the forbearance, monthly mortgage payments would be reduced or eliminated entirely.

    The plan is based on a similar Pennsylvania program that effectively does the same thing.  The program has been going strong since 1983, so it may prove to be viable on a larger scale.

    Loss of income due to unemployment is (unsurprisingly) the chief reason for foreclosures.  Unemployment continues to run close to 10%, and broader measures of unemployment are running close to 17%, so barring an unforseen turnaround, the foreclosure problem will likely be with us for some time.

    Thus far, other government programs meant to reduce foreclosures have met with limited success.  The Home Affordable Modification Program (HAMP) has had more borrowers withdraw from it than have had their mortgages modified by it, and re-default rates are very high.  Again, this is unsurprising as those that have been out of work long term and don’t have much money are unlikely to be able pay even a modified mortgage.

    Many who could save money by refinancing into all-time low mortgage rates have been unable to do so, either because of credit reasons or because their home lost value and they do not have enough equity to qualify for refinancing.

    I will post more as more details about the program emerge.

    Category: Mortgage Rates

  8. Initial Jobless Claims Climb to 464,000

    By on July 22, 2010

    More Americans filed initial claims for state unemployment benefit for the week ending July 17. The amount of first-time jobless claims rose by 37,000, to a seasonally adjusted 464,000. This is the largest increase in initial jobless claims since early this year in February. Initial Jobless Claims are up this week

    The jump in jobless claims is greater then the amount projected by economists who thought that claims would rise to 445,000. The increase in claims wipes out last weeks decline in claims for state unemployment benefits, which was partly attributed to companies like General Motors reporting less temporary layoffs than they normally would during this time of year.

    Most analysts agree that the 4-week moving average is a better indicator of initial jobless claims. The average increased by 1,250 to 456,000. The number of people still receiving jobless benefits fell by 223,000 in the week ending July 10th, moving that figure to 4.49 million Americans. This does not include those who receive extended benefits as part of a federal program.

    Chairman of the Federal Reserve, Ben Bernanke, spoke yesterday saying that it will take a “significant amount of time” to recover the amount of jobs lost between 2008 and 2009.

    The report on jobless claims is just one of many indicators that have been released recently that indicate that economic recovery is beginning to slow down. So long as unemployment remains down consumer spending will be limited. It will be interesting to watch what affect this economic news has on mortgage rates and the housing industry as a whole.

    Category: General

  9. Unemployment Benefits to be Voted on in Senate

    By on July 20, 2010

    For weeks now lawmakers in Washington have bickered over whether or not to extend unemployment benefits to more than 2.5 million long-term unemployed Americans. Jobless benefits have been extended six times over the last two years, but debate over the wisdom of this policy has increased as there has been a growing focus on fiscal austerity amongst Congressmen.  Predictably, the dispute has devolved into partisan hackery as both Republicans and Democrats grandstand and point fingers at one another.

    Generally speaking, Democrats favor extending benefits, and Republicans oppose the extension (or more specifically the means of funding it).  The debate centers not so much around whether to extend benefits to the jobless, but how the extension would be paid for, and whether or not the extension would add to the deficit.

    Unemployment continues to be at extraordinarily high levels, with the traditional measure of unemployment running at 9.5 percent in June, and with broader measures of unemployment running around 16.5 percent.  More than 14 million Americans are currently without jobs.

    It appears likely that the Democrats will be able to muster the 60 votes they need to push the $34 billion measure through the Senate later today.  The House of Representatives has already passed a jobless benefits extension, but because the Senate version differs from the House version, the House would have to vote on the Senate version, assuming it passes.  If this happens, the bill could be sent to President Obama for his approval later this week.

    The bill would once again extend unemployment benefits for up to 99 weeks.

    Category: General

  10. Home Affordable Unemployment Program Provides Mortgage Relief for Unemployed Home Owners

    3 By on July 19, 2010

    Unlike the situation 80 years ago, unemployment now takes place in full color.

    The Federal Government has rolled out a new program, the Home Affordable Unemployment Program (HAUP) that aims to help unemployed borrowers who are struggling with their mortgage payments stay in their homes and avoid foreclosure.  The program would provide a mortgage forbearance to qualified borrowers.  During the forbearance period the mortgage would be reduced or eliminated.

    In order to be eligible for HAUP a borrower must meet certain criteria:

    • the property in question must be 1 to 4 units
    • the mortgage must be on the borrower’s principal residence
    • the unpaid balance of the mortgage cannot be more than $729,750
    • the mortgage has not been modified under HAMP
    • the mortgage is delinquent or will be delinquent
    • the borrowers must be unemployed

    For a complete list of details on HAUP eligibility, and participating servicers, check makinghomeaffordable.gov.

    The HAUP forbearance period is a minimum of three months, and can be longer depending upon your loan servicers.  During the forebearance, a borrower’s mortgage payment cannot be more than 31 percent of their gross monthly income.

    Unemployment dropped from 9.7 percent to 9.5 percent in June, however much of the decline can be attributed not to an increase in jobs but a decrease in the number of people receiving unemployment benefits or frustrated job-seekers ceasing their job searches.  Further, the U-6 broader measure of unemployment that includes underemployed and marginally attached workers was at 16.5 percent in June.  Unemployment is still the number one issue facing the economy and the housing recovery.

    Do you plan on utilizing HAUP?  Let us know in the comments section below.

    Category: General

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