Archive for January, 2009
For those who missed it, below is the full text of president-elect Obama's speech on the economy and his plan when he takes office Jan. 20, courtesy of his transition office:
Throughout America's history, there have been some years that simply rolled into the next without much notice or fanfare. Then there are the years that come along once in a generation – the kind that mark a clean break from a troubled past, and set a new course for our nation.
This is one of those years.
We start 2009 in the midst of a crisis unlike any we have seen in our lifetime – a crisis that has only deepened over the last few weeks. Nearly two million jobs have now been lost, and on Friday we are likely to learn that we lost more jobs last year than at any time since World War II. Just in the past year, another 2.8 million Americans who want and need full-time work have had to settle for part-time jobs. Manufacturing has hit a twenty-eight year low. Many businesses cannot borrow or make payroll. Many families cannot pay their bills or their mortgage. Many workers are watching their life savings disappear. And many, many Americans are both anxious and uncertain of what the future will hold.
I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible. If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four. We could lose a generation of potential and promise, as more young Americans are forced to forgo dreams of college or the chance to train for the jobs of the future. And our nation could lose the competitive edge that has served as a foundation for our strength and standing in the world.
In short, a bad situation could become dramatically worse.
This crisis did not happen solely by some accident of history or normal turn of the business cycle, and we won't get out of it by simply waiting for a better day to come, or relying on the worn-out dogmas of the past. We arrived at this point due to an era of profound irresponsibility that stretched from corporate boardrooms to the halls of power in Washington, DC. For years, too many Wall Street executives made imprudent and dangerous decisions, seeking profits with too little regard for risk, too little regulatory scrutiny, and too little accountability. Banks made loans without concern for whether borrowers could repay them, and some borrowers took advantage of cheap credit to take on debt they couldn't afford. Politicians spent taxpayer money without wisdom or discipline, and too often focused on scoring political points instead of the problems they were sent here to solve. The result has been a devastating loss of trust and confidence in our economy, our financial markets, and our government.
Now, the very fact that this crisis is largely of our own making means that it is not beyond our ability to solve. Our problems are rooted in past mistakes, not our capacity for future greatness. It will take time, perhaps many years, but we can rebuild that lost trust and confidence. We can restore opportunity and prosperity. We should never forget that our workers are still more productive than any on Earth. Our universities are still the envy of the world. We are still home to the most brilliant minds, the most creative entrepreneurs, and the most advanced technology and innovation that history has ever known. And we are still the nation that has overcome great fears and improbable odds. If we act with the urgency and seriousness that this moment requires, I know that we can do it again.
That is why I have moved quickly to work with my economic team and leaders of both parties on an American Recovery and Reinvestment Plan that will immediately jumpstart job creation and long-term growth.
It's a plan that represents not just new policy, but a whole new approach to meeting our most urgent challenges. For if we hope to end this crisis, we must end the culture of anything goes that helped create it – and this change must begin in Washington. It is time to trade old habits for a new spirit of responsibility. It is time to finally change the ways of Washington so that we can set a new and better course for America.
There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy. It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy – where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.
That is why we need to act boldly and act now to reverse these cycles. That's why we need to put money in the pockets of the American people, create new jobs, and invest in our future. That's why we need to re-start the flow of credit and restore the rules of the road that will ensure a crisis like this never happens again.
That work begins with this plan – a plan I am confident will save or create at least three million jobs over the next few years. It is not just another public works program. It's a plan that recognizes both the paradox and the promise of this moment – the fact that there are millions of Americans trying to find work, even as, all around the country, there is so much work to be done. That's why we'll invest in priorities like energy and education; health care and a new infrastructure that are necessary to keep us strong and competitive in the 21st century. That's why the overwhelming majority of the jobs created will be in the private sector, while our plan will save the public sector jobs of teachers, cops, firefighters and others who provide vital services.
To finally spark the creation of a clean energy economy, we will double the production of alternative energy in the next three years. We will modernize more than 75% of federal buildings and improve the energy efficiency of two million American homes, saving consumers and taxpayers billions on our energy bills. In the process, we will put Americans to work in new jobs that pay well and can't be outsourced – jobs building solar panels and wind turbines; constructing fuel-efficient cars and buildings; and developing the new energy technologies that will lead to even more jobs, more savings, and a cleaner, safer planet in the bargain.
To improve the quality of our health care while lowering its cost, we will make the immediate investments necessary to ensure that within five years, all of America's medical records are computerized. This will cut waste, eliminate red tape, and reduce the need to repeat expensive medical tests. But it just won't save billions of dollars and thousands of jobs – it will save lives by reducing the deadly but preventable medical errors that pervade our health care system.
To give our children the chance to live out their dreams in a world that's never been more competitive, we will equip tens of thousands of schools, community colleges, and public universities with 21st century classrooms, labs, and libraries. We'll provide new computers, new technology, and new training for teachers so that students in Chicago and Boston can compete with kids in Beijing for the high-tech, high-wage jobs of the future.
To build an economy that can lead this future, we will begin to rebuild America. Yes, we'll put people to work repairing crumbling roads, bridges, and schools by eliminating the backlog of well-planned, worthy and needed infrastructure projects. But we'll also do more to retrofit America for a global economy. That means updating the way we get our electricity by starting to build a new smart grid that will save us money, protect our power sources from blackout or attack, and deliver clean, alternative forms of energy to every corner of our nation. It means expanding broadband lines across America, so that a small business in a rural town can connect and compete with their counterparts anywhere in the world. And it means investing in the science, research, and technology that will lead to new medical breakthroughs, new discoveries, and entire new industries.
Finally, this recovery and reinvestment plan will provide immediate relief to states, workers, and families who are bearing the brunt of this recession. To get people spending again, 95% of working families will receive a $1,000 tax cut – the first stage of a middle-class tax cut that I promised during the campaign and will include in our next budget. To help Americans who have lost their jobs and can't find new ones, we'll continue the bipartisan extensions of unemployment insurance and health care coverage to help them through this crisis. Government at every level will have to tighten its belt, but we'll help struggling states avoid harmful budget cuts, as long as they take responsibility and use the money to maintain essential services like police, fire, education, and health care.
I understand that some might be skeptical of this plan. Our government has already spent a good deal of money, but we haven't yet seen that translate into more jobs or higher incomes or renewed confidence in our economy. That's why the American Recovery and Reinvestment Plan won't just throw money at our problems – we'll invest in what works. The true test of the policies we'll pursue won't be whether they're Democratic or Republican ideas, but whether they create jobs, grow our economy, and put the American Dream within reach of the American people.
Instead of politicians doling out money behind a veil of secrecy, decisions about where we invest will be made transparently, and informed by independent experts wherever possible. Every American will be able to hold Washington accountable for these decisions by going online to see how and where their tax dollars are being spent. And as I announced yesterday, we will launch an unprecedented effort to eliminate unwise and unnecessary spending that has never been more unaffordable for our nation and our children's future than it is right now.
We have to make tough choices and smart investments today so that as the economy recovers, the deficit starts to come down. We cannot have a solid recovery if our people and our businesses don't have confidence that we're getting our fiscal house in order. That's why our goal is not to create a slew of new government programs, but a foundation for long-term economic growth.
That also means an economic recovery plan that is free from earmarks and pet projects. I understand that every member of Congress has ideas on how to spend money. Many of these projects are worthy, and benefit local communities. But this emergency legislation must not be the vehicle for those aspirations. This must be a time when leaders in both parties put the urgent needs of our nation above our own narrow interests.
Now, this recovery plan alone will not solve all the problems that led us into this crisis. We must also work with the same sense of urgency to stabilize and repair the financial system we all depend on. That means using our full arsenal of tools to get credit flowing again to families and business, while restoring confidence in our markets. It means launching a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes. It means preventing the catastrophic failure of financial institutions whose collapse could endanger the entire economy, but only with maximum protections for taxpayers and a clear understanding that government support for any company is an extraordinary action that must come with significant restrictions on the firms that receive support. And it means reforming a weak and outdated regulatory system so that we can better withstand financial shocks and better protect consumers, investors, and businesses from the reckless greed and risk-taking that must never endanger our prosperity again.
No longer can we allow Wall Street wrongdoers to slip through regulatory cracks. No longer can we allow special interests to put their thumbs on the economic scales. No longer can we allow the unscrupulous lending and borrowing that leads only to destructive cycles of bubble and bust.
It is time to set a new course for this economy, and that change must begin now. We should have an open and honest discussion about this recovery plan in the days ahead, but I urge Congress to move as quickly as possible on behalf of the American people. For every day we wait or point fingers or drag our feet, more Americans will lose their jobs. More families will lose their savings. More dreams will be deferred and denied. And our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.
That is not the country I know, and it is not a future I will accept as President of the United States. A world that depends on the strength of our economy is now watching and waiting for America to lead once more. And that is what we will do.
It will not come easy or happen overnight, and it is altogether likely that things may get worse before they get better. But that is all the more reason for Congress to act without delay. I know the scale of this plan is unprecedented, but so is the severity of our situation. We have already tried the wait-and-see approach to our problems, and it is the same approach that helped lead us to this day of reckoning.
That is why the time has come to build a 21st century economy in which hard work and responsibility are once again rewarded. That's why I'm asking Congress to work with me and my team day and night, on weekends if necessary, to get the plan passed in the next few weeks. That's why I'm calling on all Americans – Democrats and Republicans – to put good ideas ahead of the old ideological battles; a sense of common purpose above the same narrow partisanship; and insist that the first question each of us asks isn't "What's good for me?" but "What's good for the country my children will inherit?"
More than any program or policy, it is this spirit that will enable us to confront this challenge with the same spirit that has led previous generations to face down war, depression, and fear itself. And if we do – if we are able to summon that spirit again; if are able to look out for one another, and listen to one another, and do our part for our nation and for posterity, then I have no doubt that years from now, we will look back on 2009 as one of those years that marked another new and hopeful beginning for the United States of America. Thank you, God Bless You, and may God Bless America.
Mortgage rates are on a roll — downward, that is — for the tenth consecutive week, Freddie Mac (FRE: 0.00 N/A) reported Wednesday. 30-year fixed-rate mortgages averaged a shockingly low 5.01 percent with an average 0.6 point this week, down from 5.10 percent last week and 5.87 percent a year ago.
“Interest rates for 30-year fixed-rate mortgages fell for the tenth week to a fourth consecutive record low due in part to the Federal Reserve’s recent purchases of mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Since the end of October 2008, these rates have declined by almost 1 1/2 percentage points, or payment savings of about $184 a month for a $200,000 loan. – an additional $11 dollars from last week.”
Rates on 15-year fixed-rate mortgages also eased, averaging 4.62 percent with an average 0.7 point, down from last week's 4.83 percent average, according to the GSE's weekly survey. And five-year Treasury-indexed ARMS fell from 5.57 percent last week to 5.49 percent.
One-year Treasury-indexed ARMS actually rose to 4.95 percent from 4.85 percent last week.
Bankrate.com's weekly mortgage rate survey also reported a drop in mortgage rates. The benchmark 30-year fixed-rate, according to Bankrate, fell 31 basis points to 5.33 percent. The average 15-year fixed-rate mortgage also fell 31 basis points to 4.85 percent.
Bankrate's Holden Lewis said in his mortgage analysis report that the Federal Reserve's move to promise a "shopping spree for mortgage backed securities" last week, has indeed played a role in rates.
"Think of the Fed as an extremely deep-pocketed bank, competing with other banks to provide money for mortgages," Holden said. "When banks compete, you win: Rates go lower."
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
Both Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) said Thurday morning that they had extended a prior freeze on foreclosure sales and evictions on single-family properties through Jan. 31, as both continue to work on implementation details surrounding the Streamlined Modification Program, or SMP.
Both GSEs had halted foreclosures and evictions on Nov. 21, originally suggesting the freeze would expire on Jan. 9.
For Fannie Mae, the extension will also provide additional time for the company to operationalize what it is calling its new National REO Rental Policy, which will allow renters in company-owned foreclosed properties to stay in their homes. Details of the new policy are expected to be announced shortly, company officials said in a press statement.
Both GSEs touted the timeline extension as part of a commitment to working with troubled borrowers. "Freddie Mac is committed to pursuing every responsible opportunity to reduce foreclosures and accelerate the return of stability to the U.S. housing market," said Freddie CEO David Moffett in a statement. "Today's announcement will provide Freddie Mac and its servicers additional opportunities to help put more families on the path to stable homeownership."
The SMP, announced on Nov. 11 of last year, is aimed at borrowers who have missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. Critics have suggested the bulk modification effort will encourage borrowers to default on their mortgages, in order to obtain favorable interest rates and possible principal reduction on their mortgages.
Write to Paul Jackson at paul.jackson@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
An interesting little survey released Thursday morning suggests that banking executives see lax underwriting and politics as the chief reasons behind the nation's housing and credit crises. A survey conducted by Grant Thornton LLP and Bank Director magazine found that underwriting and a "political emphasis on increasing home ownership," as well as a "lack of oversight of the mortgage industry" were cited as the top three causes for the current credit crisis.
54 percent of bankers cited underwriting as a problem, while 46 and 44 percent of survey participants said political emphasis and a lack of oversight were among the primary causes. Notably, only 15 percent of bankers selected the much-maligned fair value accounting standard as one of their three top choices as the main cause of the credit crisis — only mortgage fraud was given a lower response response rating (11 percent).
Which suggests that either most banking executives are out of touch, or that some of the reasons being bandied about for the financial crisis aren't really reasons at all.
"I think bankers understand that fair value accounting affects only a portion of the balance sheet and by itself it did not cause the current crisis," said Dorsey Baskin, a partner in Grant Thornton's National Professional Standards Group. "Nevertheless, efforts underway to revisit this and related issues such as 'other than temporary impairment' are very welcome."
Write to Paul Jackson at paul.jackson@housingwire.com.
U.S. Treasury secretary Henry Paulson managed to shake more than a few feathers in the mortgage industry Wednesday, with a speech that suggested in part that the government consider turning Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) into public utilities, akin to power and telephone companies.
"Government support [of mortgages[ needs to be either explicit or non-existent, and structured to resolve the conflict between public and private purposes," he told the Economic Club of Washington. "Any middle ground is a recipe for another crisis."
Prior to the government's take-over, the "inherent conflict" in the structure of Fannie and Freddie was obvious, Paulson contended. "[T]he GSEs served both a public mission and private shareholders — they received public support but operated for private shareholder gain … returning the GSEs to their pre-conservatorship form is not an option."
That sort of policy decision won't be Paulson's to make, of course, since the outgoing Treasury secretary will be replaced on Jan. 20 by current New York Fed chief Tim Geithner. But Paulson outlined a utility-model for the GSEs that hasn't been suggested in the past, likely in the hopes of influencing at least some debate over the future of Fannie and Freddie — and the government's ultimate role in mortgage banking.
"A public utility-like mortgage credit guarantor could be the best way to resolve the inherent conflict between public purpose and private gain,” Paulson said. Under this approach, Fannie and Freddie would be replaced by a private entity or entities, regulated heavily by a rate commission, that would purchase and securitize mortgages guaranteed by the government. The private organizations would not have investment portfolios, he said.
The suggestions drew sharp responses from industry participants.
"We have public utilities because of economies of scale in power and utility production and distribution and because everyone needs it," Jim Vogel, head of fixed-income research at First Financial Capital Markets Corp., told American Banker. "So you need a common capital pool to produce utilities. I'm not sure how mortgages fit into any of those economic categories unless we've just changed the whole nation's housing system."
Vogel's remarks underscore what may be the core agenda difference between more than a few consumer groups and those in the industry: is housing a right for everyone? Or is it a privilege for those who have the means to afford it? Much of the lobbying sure to follow over the GSEs in months to come will center squarely on whatever vision for the nation's housing system a particular group subscribes to.
Other options for the GSEs Paulson discussed included nationalization, privatization and one hybrid approach; all are options that have been discussed before, and Paulson made it clear there are problems with each, at least in his view.
Soon-to-be Treasury secretary Timothy Geithner and the new administration will need to decide if the government will explicitly back Fannie and Freddie debt and mortgage-backed securities, said Paulson. Doing so, however, would come with some hurdles; the Congressional Budget Office has already said in Sept. 2008 that it believes the GSEs should be incorporated directly into the federal budget. An explicit guarantee would likely force that to take place.
Paulson also suggested that the Obama administration could use the GSEs to push mortgage rates down to 4 percent, but warned — as we have at HousingWire in the past — that doing so would require a huge issuance of new Treasury notes; he also hinted that the government could use such a program temporarily, as well. Of course, such efforts would require that the GSEs remain under government control, something Paulson doesn't believe is feasible long-term.
"Fannie Mae and Freddie Mac are in a temporary form that, while stable, cannot efficiently serve their Congressionally-chartered mission and protect the taxpayers' investment over the long-term," he said. "We took the right actions to meet a specific need at a specific time."
In other words: what happens next is a problem for the next guy.
- Paul Jackson contributed to this report.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
First-time applications for state unemployment benefits dropped 24,000 to a seasonally adjusted 467,000 in the week ending Jan. 3, the Labor Department said Thursday. This report marks the third consecutive week of declines, a much improved trend that may foreshadow an unexpected sign of stability in the economy, as Dow Jones Newswires expected claims would actually climb 63,000.
Or it may prove to mean little at all, too, given that holiday readings of employment data tend to be rather volatile.
Labor Department officials said the drop in this week's data, as well as the sharp decline in last week's figures, may be due to layoffs that occurred earlier than government analysts had originally expected. They added that claims could remain low for a couple of weeks before turning upward again, according to a Market Watch report.
While new claims fell, continuing claims — declared by workers who have collected benefits for more than a week — for the week ending Dec. 27, rose 101,000 to 4,611,000, the highest level since Novemer 1982. So as it appears less people have lost their jobs in the past few weeks, finding a job in the current economy surely isn't getting any easier.
The largest increases in initial claims were seen in Wisconsin — where 16,801 people filed a claim — Michigan, Kansas, Massachusetts and New Jersey, according to the report. Interestingly, California posted the largest increase in claims during the last reporting period, but dropped off the radar this past week.
The four-week moving average of new jobless claims, which can sometimes even volatility in the data, dropped 27,000 to 525,000, Thursday's data said. The level of initial claims remains 42 percent higher than the same period last year.
Write to Kelly Curran at kelly.curran@housingwire.com.
The year-old recession will continue "well into 2009" before beginning a slow recovery in 2010, according to a budget and economic outlook published Wednesday by the Congressional Budget Office (CBO). Among other bleak forecasts was a marked contraction in 2009 with real gross domestic product declining 2.2 percent and gaining back only 1.5 percent in 2010. The CBO also said it expects inflation to decline to only 0.1 percent in 2009 and for unemployment to exceed 9 percent early in 2010. "[It] is too early to determine whether the government’s actions to date have been sufficient to put the system on a path to recovery," the report's author wrote.
The slow financial recovery was forecast for a variety of reasons. The CBO warned that financial institutions will need time to recover from losses incurred from loan defaults. "As a result, borrowers will continue to find the terms and availability of credit tight, which will increase the cost of capital and hold back the growth of investment and consumption, dampening economic activity for several years," the report read.
The CBO said the 2009 deficit will reach a record high of 8.3 percent of GDP, despite President-elect Barack Obama's plans to enact a stimulus package to assist struggling Americans. "Enactment of an economic stimulus package would add to that deficit," the CBO report read. Even without such a stimulus, the deficit for 2010 was estimated to fall to 4.9 percent of GDP, "still high by historical standards."
The CBO estimated continued home prices to decline an average 14 percent between the third quarter 2008 and second quarter 2010. It acknowledged lowered mortgage rates led to a boom in refinance applications, but that the number of purchase applications remains low. "The correction in the housing market will probably continue for most of this year," the report read, in part.
As home prices decline and settle, homeowners have more and more negative equity and become increasingly underwater on their payments — meaning they owe more on their homes than the homes are worth. This, the CBO said, will affect their ability to secure mortgage refinancing loans. "Foreclosure rates are likely to remain high while house prices continue to fall and the economy remains in recession," the report read.
An all-out depression?
Economic outlook was bleak elsewhere on Tuesday, when the Federal Reserve released minutes from the mid-December meeting of the Federal Open Market Committee, which revealed fears about prolonged recession and continued moderation of inflation — and eventual deflation. Some meeting members were indicated to have seen "the distinct possibility of a prolonged contraction, although that was not judged to be the most likely outcome," according to the minutes.
The FOMC acknowledged inflationary pressure has "diminished appreciably," but the question remains whether Fed efforts will put so much downward pressure on inflationary mechanics as to foster deflation in 2009. Several meeting members went so far as to indicate they "saw significant risks that inflation could decline and persist for a time at uncomfortably low levels" and perhaps "drop for a time below rates they viewed as most consistent over time with the Federal Reserve's dual mandate for maximum employment and price stability."
The FOMC minutes suggested the economic outlook will remain weak "for a time" and hinted that economic activity might be at substantial risk. "In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters," the minutes read, in part. "In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."
Write to Diana Golobay at diana.golobay@housingwire.com.
No miracles this holiday season for an already bleak job market, as U.S. private-sector firms shed 693,000 jobs in December alone, according to the ADP employment index released Wednesday — the most since ADP Employer Services began its gauge based on payroll data in 2001.
“The level of unemployment is going to be higher” and may exceed 10 percent, said Martin Feldstein, former National Bureau of Economic Research president and Harvard University professor, in a Bloomberg Television interview. “It’s really bad and it needs a fix.”
Large businesses — those with 500-plus workers — saw employment decline by 91,000 jobs in December, while medium-size businesses cast off a whopping 321,000 jobs and small companies dropped 281,000 jobs.
"Sharply falling employment at medium- and small-size businesses clearly indicates that the recession has now spread well beyond manufacturing and housing-related activities," ADP said in the National Employment Report.
Employment in the services sector was hit particularly hard, falling 473,000, while employment in goods-producing fell by 220,000 and construction posted its twenty-first consecutive monthly decline, dropping 102,000 jobs.
A steep climb from November's revised 476,000 job losses, December's figures were far worse than economists expected — discouragingly foretelling of dismal labor market data set to be released from the government on Friday. If the Labor Department reports findings similar to the ADP's, total job cuts for 2008 could reach around 2.4 million, according to a Bloomberg report.
At a press conference Wednesday morning, President-elect Barack Obama continued to promote his massive economic stimulus plan, much of which would be devoted to creating jobs to jolt the economy.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
A task force at the Mortgage Bankers Association this week issued a white paper that represents the Washington-based industry lobbying group's first swing at pushing forward a vision for the future of the nation's secondary mortgage markets.
Obviously, much of the private-party mortgage market has been decimated by the past two years, and plenty of questions remain over just what the agency and government-led mortgage market might look like — in particular, as participants have noted to HousingWire repeatedly, a growing concern is eating away at industry participants over just what the future sources of mortgage liquidity will be, what they will look like, and where they will come from.
The white paper, released Tuesday morning by the MBA's Council on Ensuring Mortgage Liquidity, isn't an attempt to provide policy recommendations; if anything, the paper reads like a 40-page overview of how the secondary markets operate, and makes a few broad characterizations about such things as the need for better transparency and limiting fraud. See the white paper.
"The paper has been designed to provide a common foundation and language as the policy discussions take shape," John Courson, the newly-installed president and CEO at the MBA, wrote in an opening letter. "In coming weeks and months, the Council will build on the work of the summit and this paper to identify key principles that policymakers and others should consider when evaluating proposals that will affect the market’s future."
The MBA isn't alone in its effort to attempt to chart a course for the secondary markets — the American Securitization Forum launched its own program, called Project RESTART, in July of last year.
It's unclear if the MBA and ASF are coordinating their own efforts in this area, and its also unclear if the recommendations yet forthcoming from the MBA will map onto what's already been done by other groups, including the ASF, in recent months. But the fact that the task force's name centers on liquidity is telling — much of the mortgage bankers' perspective on the issue of secondary markets remains focused on origination issues, after all.
But a large portion of the problems in the secondary market center also on servicing practices, loss mitigation and default management, as well; a fact that has clearly been borne out in recent months over growing frustration with loss mitigation efforts. The MBA white paper released Tuesday did not address a market typology in this complex and oft-misunderstood space, although it did more directly address the role of the GSEs (much of the ASF efforts thus far have centered on revitalization of private party markets, if only because agency markets continue to lurch forward).
Beyond Project RESTART and the MBA's efforts, the ASF, along with the Securities Industry and Financial Markets Association, the European Securitisation Forum and the Australian Securitisation Forum, also released a set of recommendations in Dec. that the groups said was designed to prioritize the market responses needed to restore the securitization market; the groups suggested that banks may fail to meet $2 trillion of demand for credit origination over the next three years, without well-functioning securitization markets.
Click here to read the joint ASF/SIFMA/ESF/AuSF report.
Of course, as HousingWire Magazine readers know well from our most recent issue, officials with the U.S. Treasury and Federal Reserve have been pushing covered bonds as a liquidity option for the mortgage market going forward. While key market participants committed to such a program have yet to issue a deal involving the funding mechanism, sources said they expect to see a few deals issued for covered bonds before the end of the first quarter of this year as issuers "test the waters."
Write to Paul Jackson at paul.jackson@housingwire.com.
Meredith Whitney has rightfully made a name for herself throughout the current credit crisis — mostly by being right in her calls — and her latest call in a research note late Monday is a doozy. The prominent Oppenheimer & Co. analyst suggested that the pace and effect of securities downgrades in the fourth quarter alone will be enough to eat through the roughly $300 billion in funding provided to banks via the U.S. Treasury through its Troubled Asset Relief Program and associated capital purchase program.
"From July 2007 to date, over $5 trillion worth of securities have been downgraded, but our concern here is that the pace of downgrades has only accelerated through 2008," she wrote in a research note dated January 6, as quoted in a Reuters story Wednesday.
Sam Jones at FT Alphaville has more on the report, and it's well worth reading.
"We now believe that, at a minimum, capital ratios will be meaningfully lower in the fourth quarter versus post TARP pro forma levels," he quotes from Whitney's research note. "Aside from the greater than $40 billion in writedowns and provisions we expect for the group of bank stocks under our coverage, and earnings pressure related to chronic negative operating leverage, we also expect capital strains to become apparent from ratings change pressures."
In other words: all that TARP money has essentially been used to cushion portfolio losses tied to an increasing pace of downgrades by various rating agencies. As HousingWire readers know well, the agencies have spent much of Q4 slashing ratings on prime mortgage credits, including a wide range of previously AAA-rated securities. That will be felt on the income statement of most banks.
It also explains why so many large banks receiving capital from the Treasury have been hesitant to begin lending it out aggressively; the TARP initiative itself was designed primarily as a banking rescue, with the idea being that such a rescue would benefit customers in the form of unlocking credit. While credit has thawed only somewhat since TARP's inception, if Whitney is correct in her Q4 analysis and projection, we may soon find banks heading back to the well and needed further credit to buttress against losses in their loan and security portfolios.
Whitney's research found that during fiscal Q4 2008, agencies issued $1.84 trillion — yes, trillion — in downgrades, compared to $186 billion one year earlier and $863 billion in Q3 2008.
Stock traded sharply lower as investors digested the report, along with other dour economic news (ADP payroll data found massive layoffs in December); the Down Jones Industrial Average was at 8,857.71, off 1.75 percent, when this story was published.
Write to Paul Jackson at paul.jackson@housingwire.com.
