Treasury Policy Change

By Kenneth R. Harney, Realty Times

The Obama administration announced a blockbuster policy change over the holidays that didn't get a lot of press attention, but will affect the housing market for years.

The Treasury department said it is now committed to support Fannie Mae and Freddie Mac with as many billions of dollars as is necessary to get them through the next three years. There'll be no limit whatsoever anymore.

Previously the Treasury had limited its support to $200 billion apiece for the two formerly-private, now government-controlled, mortgage finance giants.

From here on, the Treasury said in its policy announcement, there will no “uncertainty about the (government's) commitment to support the firms as they continue to play a vital role in the housing market during the current crisis.”

Though some critics howled that the Obama administration is writing a blank check, the significance of the move for real estate is potentially huge, for several reasons.

Number one: Fannie and Freddie provide funding for well over half the U.S. mortgage market -- making home sales and purchases possible for hundreds of thousands of consumers.

Number two: The fact that the two companies have an explicit, full faith and credit backstop from the U.S. Treasury means that Fannie and Freddie can borrow in the capital markets at more favorable rates. Those lower costs of capital can then be passed along - at least in part - to home loan borrowers in the form of lower interest rates.

Finally, a key reason for the policy change - which also included permission for the firms to retain larger mortgage-asset portfolios - is to help Fannie and Freddie provide deeper loan modification assistance to greater numbers of seriously troubled borrowers.

Both companies are now expected to reach out and offer loan principal forgiveness to delinquent and underwater home owners - something that the current Obama loan modification program does not permit.

Partly as a result, Obama's “Home Affordable Modification Program,” or “HAMP,” has been only minimally successful in attracting the participation of borrowers in the deepest trouble - especially those so far behind and underwater that they are walking away from their houses, sending back the keys to their lenders - and ultimately losses to Fannie and Freddie.

If the revised policy helps keep larger numbers of home owners out of foreclosure and out of walkaway mode, the impact on local real estate markets and home values could be significant over the coming couple of years.

Fed Chairman Gives Feedback

"LISTEN TO WHAT THE MAN SAID." And those aren't just the words from Paul McCartney's hit song of the same title...they're also words of advice for anyone who's considering buying a home or refinancing. Last week, Federal Reserve Chairman Ben Bernanke said that as the economy heals, the Fed will be very vigilant to protect against inflation. While inflation is not a problem at present...it will most certainly become a problem down the road. So why does this matter if you are considering purchasing or refinancing? Because inflation is the arch-enemy of Bonds and home loan rates, and just the knowledge of it coming has been causing both Bonds and home loan rates to worsen in recent days. Along with the fear of inflation, the Fed's purchasing program of Mortgage Backed Securities is already slowing down, with the end of their buying in sight - and the reduced demand for these Bonds is also driving home loan rates higher. Bottom line: home loan rates are already on the rise, and we won't likely see these low historic levels again. Interest rates are still very near historic lows - George Washington couldn't have gotten a better interest rate - and the opportunity these low rates present is huge for homebuyers or people looking to refinance. If we haven't talked recently about your own home loan situation - or if you have a friend, family member, neighbor or coworker who needs advice - please call or send me an email. There's no time to waste. On the topic of inflation - Gold has been on a tear higher of late, reaching a record high of $1048 an ounce. Remember that Gold is seen as a "safe harbor" or hedge against a falling Dollar and inflation - as Gold is not likely to lose much value in periods of rising prices. Again, fears of future inflation are pervasive, particularly in light of the massive economic stimulus that has been injected into the US economy...and inflation will drive home loan rates higher. The latest spike in Gold is more likely attributable to the Dollar's recent decline, but both factors are somewhat at play. Also last week, the Initial Jobless Claims Report came in better than expected. According to the report, 521,000 new applications for unemployment benefits were received. That number was lower than the 540,000 that were expected, and marked the fewest number of new claims since the first week in January. However, that good news must be tempered by a look at the big picture...the reality is that despite a better-than-expected number, more than half a million people per week are still applying for new unemployment benefits. That's a sign that the labor market is still very weak. In fact, just last week former Fed Chairman Alan Greenspan also commented that he sees unemployment rising beyond 10%. IN LIGHT OF THE ONGOING WEAK LABOR MARKET, NOW MAY BE A GOOD TIME TO MAKE SURE YOU'RE DOING EVERYTHING YOU CAN TO BE AS PROFICIENT - AND EFFICIENT - AT YOUR JOB AS POSSIBLE. TAKE A LOOK AT THIE MORTGAGE MARKET GUIDE VIEW ARTICLE BELOW FOR HELPFUL INFORMATION ABOUT A BETTER WAY TO EVALUATE YOURSELF AND MAKE IMPROVEMENTS WHERE NECESSARY.

 

Forecast for the Week

 

 

Despite the Bond market being closed on Monday in observance of Columbus Day, the Stock market will be open, and the week ahead has plenty of market-moving economic reports on tap. On Wednesday, the Retail Sales Report will be released. This is the most-timely indicator of broad consumer spending patterns, so the markets will be watching to see if it comes in near expectations. Thursday brings us inflation news when the Consumer Price Index (CPI) is reported. After Bernanke's comment last week about the Fed protecting against inflation, the markets will be watching this report closely. On Friday, the Preliminary Consumer Sentiment Index will be reported. This survey is conducted by the University of Michigan and measures consumer attitudes regarding present and future economic conditions. The index rose at the end of September, so the markets will be watching to see if that boost in confidence continued into this month's preliminary report. In addition to the important economic reports described above, industry experts and traders will be paying close attention to the release of the Meeting Minutes from the Fed's most recent Open Market Committee meeting. Once again, any talks about future inflation could move the markets - particularly after Bernanke's comments last week. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see from the chart below, Mortgage Bonds were unable to close above a tough technical ceiling of resistance last week and were ultimately pushed lower, causing home loan rates to rise.

 

The Mortgage Market View...

 

 

Know Thyself: Here's An Easy Way To Get Constructive Feedback That May Save Your Job In These Tough Times By Marty Nemko, Contributing Columnist, Kiplinger.com For years, I've been pushing my clients to get a 360-degree evaluation -- that is, asking their boss, co-workers and supervisees for anonymous feedback on their work. I've also suggested using a 360-degree evaluation as a fast track to personal growth, getting feedback from friends, relatives and romantic partner(s). But to be candid, few of my clients have responded to my exhortations and -- hypocrisy alert -- neither had I. An easy evaluation Because I want to practice what I preach and because -- especially as I get older -- I want to do everything I can to avoid becoming stagnant, I decided to get a 360-degree evaluation. A new Web site, Checkster.com, makes it easy to get anonymous, work-related feedback. I did a five-minute self-evaluation at the site and then entered the e-mail addresses of eight people from whom I wanted feedback (you can choose from three to eight). They included my six most recent career-coaching clients, plus my editors at Kiplinger.com and U.S. News & World Report. Checkster.com sent each person an e-mail inviting him or her to give me feedback anonymously, using the five-minute questionnaire. They were given a week to reply. Five of my six clients responded; neither of my bosses did. Hmmph. (Once three or more people responded, I was notified of who did and didn't respond but was not told which questionnaire corresponded to which person.) What I learned My evaluations confirmed a number of positive aspects about me, which I'll refrain from recounting to prevent suspicious readers from thinking that I devised this column as an opportunity to toot my own horn. On the negative side, I got a few useful nuggets: Two of my clients said they wished I were more available between sessions. Now that they mention it, I'm guessing that some of my other clients feel that way, too. So from now on, I will more regularly invite my clients to send me e-mail about their progress and any stumbling blocks. I'll invite my needier clients to e-mail me every day with a rating of their progress. One of my clients wrote, "Because of his enthusiasm/energy, at times I felt that Marty was not fully in tune with someone who may just work more slowly, calmly." Although feedback from a single source should be taken with a grain of salt, that comment rings true. So I will redouble my efforts to modulate my energy level to accommodate my clients' natural style. Another client wrote, "Marty cannot solve all clients' problems, even if they are career-related: Therapy and career counseling are different." I'm not sure I'll act much on the last one. I know that I can't solve all my clients' psychological problems, and perhaps I should consider referring a few more to therapy. But too often I've seen therapy actually make clients worse. Yes, therapy patients may gain insight into the causes of their problems, but their life is often no better for it. Yet frequently, in just a few minutes, I'm able to help a client identify irrational beliefs and even the childhood roots of those beliefs that have kept the client stuck. Clients are then able to move forward and implement their action plan. How to react The way I responded to the last client's feedback illustrates an important principle. Some people feel the need to act on all feedback, while others reflexively reject all criticism. The sweet spot is to consider feedback and then accept or reject it on its merits. I understand that you may still be reluctant to do a 360-degree evaluation. You could get bad news or criticism in a tough-to-improve-on area -- for example, being told you're "too intense" or you often "don't get it." But it's worth the risk. A 360-degree evaluation is arguably the most potent way to become a better professional and usually a better person. And, especially in this lousy economy, it could even save your job. (See A Career Survival Kit for more tips.) Still unwilling? Here's a second-best solution: Do a self-SWOT. Write down your strengths, weaknesses, opportunities and threats. Now what, if anything, do you want to do differently? More of? Less of? Marty Nemko is a career coach and author of Cool Careers for Dummies. Reprinted with permission. All Contents © 2009 The Kiplinger Washington Editors. www.kiplinger.com

 

The Week's Economic Indicator Calendar

 

 

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

 

Provided to you Exclusively By Sergio Giangrande Mortgage Broker / Banker United Mortgage Services Office: 630-396-3232 Cell: 847-489-7742 Fax: 630-396-3089

Mortgage Rates Remain Low, Increasing Affordability

McLEAN, VA -- Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.04 percent with an average 0.6 point for the week ending September 24, 2009, unchanged from last week when it averaged 5.04 percent. Last year at this time, the 30-year FRM averaged 6.09 percent.

The 15-year FRM this week averaged 4.46 percent with an average 0.6 point, down from last week when it averaged 4.47 percent. A year ago at this time, the 15-year FRM averaged 5.77 percent. This is the lowest the 15-year FRM has been since Freddie Mac started tracking it in 1991.

The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.51 percent this week, with an average 0.5 point, unchanged from last week when it averaged 4.51 percent. A year ago, the 5-year ARM averaged 6.02 percent.

The one-year Treasury-indexed ARM averaged 4.52 percent this week with an average 0.6 point, down from last week when it averaged 4.58 percent. At this time last year, the 1-year ARM averaged 5.03 percent.

"Mortgage rates held relatively steady at three-month lows this week,” said Frank Nothaft, Freddie Mac vice president and chief economist. Correspondingly, the Mortgage Bankers Association reported that mortgage applications jumped 12.8 percent over the week of September 18th to the strongest pace since late May, boosted by refinancing activity."

"In its September 23rd policy statement, the Federal Reserve (Fed) indicated that it plans to keep its benchmark interest rate exceptionally low for an extended period. This will likely benefit consumers who opt for ARMs, because they are typically tied to shorter-term interest rates. The Fed also noted that activity in the economy and housing market has picked up and financial markets have improved.”

Published: September 25, 2009

Realtytimes.com

MORTGAGES: WHAT IS UP??

This report by Chris Covalle is a terrific summary of the volatility of the mortgage rates this past week. Still a great deal, but watch carefully for the right time to sign up! Tricia

Hi everyone,

I just wanted to get a quick note out regarding the extreme rate volatility which has occurred from last Wednesday thru today. Last Wednesday marked the single worst day in mortgage pricing since last October. Rates have tried to drive lower a little since then, but overall have continued to increase. Here is the basic message clients should be hearing:

1) Mortgage Pricing is tied to a bond instrument which is traded daily, just like stocks are and thus can change pricing every day, and oftentimes, more than once in the same day.

2) Rates remained low for a long period of time as investors preferred the returns on these longer maturity instruments more than the returns they could realize elsewhere-stock market, etc. Thus the government did not need to offer a particularly high yield (return) on these bonds, thus keeping the prices up due to the high demand for them.

3) Now, however, to try and continue financing all of the current government initiatives, the government has flooded the market w/ a large supply of these long term instruments. Unfortunately for mortgage rates, investors currently have more confidence in the stock market and other investment areas to deliver a higher rate of return on their investments. As a consequence, we have seen prices on the instruments tied to mortgage pricing fall as the government attempts to offer a higher yield (return) in an effort to drive more demand.

The key in the next couple of days will be how much demand bounces back and stabilizes mortgage pricing.

Please advise if anyone has any other questions on how to relay this info to clients. Here is where we are right now:

Market Update

Source is Mortgage broker Sergio Giangrande

Stocks around the globe are lower on fears that the recession is getting worse. Last Friday, US Stocks closed February with their worst performance since 1933. The S&P 500 dropped 10.9%, and has dropped 18.6% so far this year, the worst start to the year on record. And Stocks are getting no relief at the moment as the Dow trades below 7,000 for the first time since 1997.

Also pressuring Stocks lower is news that insurance giant AIG International is set to receive another lifeline from Uncle Sam to the tune of $30B after losing $61.7B in the 4th quarter of 2008...a record loss for a US company. Think about that. Losing $61B is like losing almost 1 Billion dollars a day for every business day during the quarter...or $125 Million per hour. Scary. And speaking of scary - Stock investors are clearly worried as to how far prices will drop before reaching a bottom. There have been many technical support levels that have been violated. Our charts show that the next floor of support is at 716 on the S&P, which was tested today - that floor goes back to December of 1996. Let's hope that level can hold.

With Stocks in the doldrums, you'd think Bonds would be off to the races. But that's not the case as Bonds can muster only modest gains as they continue to trade sideways, capped by both the 25 and 50-day Moving Averages. Bond Traders are certainly aware that Stocks are due for a major relief rally...and when that happens, Bonds will be sold off a bit. So the smart play for those Bond Traders is to not get too long ahead of the inevitable Stock reversal. Bonds are near unchanged on the day and are already well off the best levels seen earlier in the session. We can Float carefully here, but don't be surprised if you get a Lock Alert, should Stocks finally reverse higher.

In other news, households are hoarding their cash...in January, the Personal Savings Rate rose to a 5% annual rate, a 15-year high. January Personal Spending also rose to 0.6% versus estimates of 0.4%, while Personal Income rose 0.4%, higher than estimates of -0.2%.

By The Number$

1. AFTER 2 MONTHS - The S&P 500 is down 18.2% (total return) after the first 2 months of 2009, double the 9.1% YTD loss that the stock index had incurred at the same point one year ago. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: S&P, BTN Research).

2. SOME BETTER, SOME WORSE - The S&P 500 is down 18.2% YTD through the end of February 2009. 245 of the index’s 500 stocks are down at least 18% YTD. Another 64 stocks in the index are up YTD (source: NASD.com).

3. MOSTLY UP TO MOSTLY DOWN - The S&P 500 fell 10.6% (total return) in February 2009, its 12th down month in the last 16 months (i.e., an average of 3 down months out of every 4 months). In the 200 months prior to the aforementioned 16-month period, “up” months occurred 2 out of every 3 months (source: BTN Research).

4. CATCHING UP - Over the last 15 years (1994-2008), the S&P 500 is up +6.5% per year on a total return basis. In order to have a trailing 20-year average annual total return of +10% by the end of the year 2013 (i.e., 5 years from now), the S&P 500 would have to produce average gains of +21.3% per year over the 5 years 2009-2013 (source: BTN Research).

5. BETTER DAYS AHEAD - Only 6% of over 200 money managers worldwide that were surveyed in early February 2009 believe the global economy will be worse off a year from now (source: Merrill Lynch).

6. BIGGER LOSS - From the S&P 500’s all-time closing high set on 10/09/07 (1565) to last week’s low close on Friday 2/27/09 (735), the index has fallen 53.0%, a tumble greater than the 49.1% loss sustained during the bear market of 2000-02 or the 48.2% loss that occurred in 1973-74 (source: BTN Research).

7. SINKING FEELING - Since reaching closing highs in October 2007, the market capitalization of all US stocks has declined by more than $10 trillion to last Friday’s close. The total market value of all US stocks has fallen to less than $9 trillion by the end of last week (source: Wilshire, USA Today).

8. NATIONAL STAT - The median net worth of American families that rank in the top 10% of wage earners in the country is $1.1 million while the average net worth of that group is $3.3 million (source: Federal Reserve Board’s Survey of Consumer Finances).

9. UPSIDE DOWN - 30% of US homeowners surveyed within the last month that have mortgage debt on their residence believe their outstanding debt exceeds the current fair market value of their home (source: Pew Research).

10. ENOUGH - Nearly 2 out of every 3 American business executives surveyed (64%) do not support the rescue of any additional US industries beyond the bank and auto bailouts that have already been started by the government (source: Deloitte, USA Today).

11. BIG DROP - The size of the US economy (as measured by the GDP) fell by 6.2% in the 4th quarter 2008 (i.e., quarter-over-quarter change expressed as an annualized result), its worst quarterly change since the 1st quarter 1982. There have been only 3 worst performing quarters in the last 60 years. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US (source: Commerce Department).

12. BAD RESULTS - Collateralized debt obligations (CDOs) are investments that are composed of many different asset-backed securities (ABS). Each ABS is an individual bond made up of a pool of assets, e.g., mortgages, auto loans, student loans or credit card loans). 48% of all CDOs (by volume) issued since 2002 have defaulted (source: Wachovia, Financial Times).

13. BUDGET MANAGEMENT - Only 5 of the 50 US states are projecting a balanced budget for the current 2009 fiscal year and for next year’s 2010 fiscal year. The 5 states are Arkansas, Montana, North Dakota, West Virginia and Wyoming (source: Tax Foundation).

14. A VERY LONG TIME - The stimulus package signed into law by President Obama on 2/17/09 has been valued at $787 billion, i.e., the combined value of federal spending and proposed tax cuts over the years 2009-10. It would take an individual spending $1 million a day more than 2,156 years to spend $787 billion (source: BTN Research).

15. MANY CULTURES - More than 2 out of every 5 California families (42%) speak a language other than English within their home (source: USA Today).

Thank you for your trust,

Sergio Giangrande
Mortgage Broker/Banker
United Mortgage Services

Paulson: Not contemplating 4.5% mortgage plan

WASHINGTON (MarketWatch) -- Treasury Secretary Henry Paulson said Tuesday that he isn't contemplating a plan to set a 4.5%-target mortgage rate for new home loans, though he acknowledged that the agency is working to lower mortgage rates.

"We didn't float any plan," Paulson told the CNBC cable channel. "I am always looking at new ideas and I have said from day one that the key thing to get us through this period is getting housing prices down."
Paulson responded to speculation that the Treasury would employ Fannie Mae (FNM, Trade ) and Freddie Mac (FRE, Trade ) to offer mortgages with rates as low as 4.5%. Instead of any 4.5% mortgage rate, Paulson expressed his support for the Federal Reserve's statement Tuesday that it would buy mortgage backed securities from Fannie Mae and Freddie Mac as a means of driving down mortgage rates.
"The Fannie Mae and Freddie Mac action is so critical," Paulson said.

Paulson defended the Treasury's controversial use of a $700 billion bank bailout fund authorized by Congress. Lawmakers were told the fund was needed for purchasing large quantities of mortgage backed securities, but instead he has allocated a significant amount of it to buy large minority stakes in financial institutions.
"Seeing what is it we've done to date is stop a string or cycle of financial institutional failures which could have gone to a downward spiral," Paulson said. "I am expecting no other major financial institution to fail."
Nevertheless, Paulson acknowledged that banks have not yet responded to the injections in the way he hoped they would by lending to consumers. "Everyone understands that they are not lending enough," Paulson said.
He also reiterated a plan to support consumer finance. Treasury announced Nov. 25 that it would use $20 billion of a the bank bailout fund to buy asset backed securities for a consumer-lending facility known as Term Asset-Backed Securities Loan Facility, or TALF.

The program, which isn't expected to start until January, is expected to provide liquidity to consumer loans such as student loans, credit cards debt and auto loans. It will be operated by the Federal Reserve.
"We at Treasury are willing to support consumer finance," Paulson said. "A lot of financing takes place outside of the banking system."

Recycled: Don't Fear the Repo

An article by Daniel Gross published almost two years ago in Slate is not only proven prescient, but still has relevance for the current situation (including the McMansion crisis...). In short, it answers the question: why are banks so slow to move in and foreclose? Take a look...

Chicago: Capital of Straight Talk?

Does anyone have any thoughts as to why President Bush chose Chicago as the place to drop his "What, me worry?" stance and admit that the economy is in trouble? The threat that Bush acknowledged is a "reality" is three-pronged: rising oil prices, the job market, and the home mortgage crisis. For a very informative look at the latter, check out the first part of a two-part series by "The Mortgage Professor," aka Jack Guttentag, over at Inman news.

Ben Stein, Scandalmonger

Ben Stein has caused quite an uproar with his editorial in the New York Times on the role of Goldman Sachs in the subprime scandal. You can read the original article here. NPR has an overview of the commentary, and Stein's reaction to it, here. If you still haven't had your Stein fix, you can listen to his own voice on why the credit crunch should not induce panic; or check out his website.

The Sky Is Not Falling

This analysis of the media's role in the subprime fiasco makes for good and informative reading. The author, Bernice Ross, makes an important point about the geographic specifity of the crisis, which is largely limited to seven states (California, Nevada, Arizona, Florida, Michigan, Ohio, and Indiana). While the high rate of foreclosure may have generalizeable repercussions for the national market, it does not affect every homeowner or potential homeowner in the same way -- if indeed at all.

Scary or Merry?

Click the above to read the NY Times coverage of the Fed's decision to lower the interest rate!

Countrywide Changes Its Tune

NPR's "Morning Edition" has excellent coverage of Countrywide's change of heart: click on the link to read or hear the story about the decision to treat customers as such!

Chicago not Second, Third or Tenth City

Chicago is NOT one of the top ten cities with overextended homeowners, whose housing payments of more than 50% of their income put them at great risk of foreclosure. As The Real Estate Blogger points out, the cities represented on the list are also those with the most dramatic (illusory?) gains over the past few years. Turn to "USA Today" to read the source story in full.

Dodging the Recession Bullet

The latest Anderson Forecast predicts a "bumpy ride" ahead during which recession is -- narrowly -- avoided. Inman news has an informative report (click on link to read). Illinois is not on the list of states expected to bear the full brunt of the crisis. Nevertheless, the author of the Forecast anticipates "a whole new mortage finance system when it's all over."

How We Got Here

For those of you who like to work your way through holidays, here is another historical perspective piece from the Wall Street Journal: "How Credit Got So Easy." It sounds like a ditty that Brad Paisley should record, but in fact it is very informative (no disrespect to Mr.Paisley intended).