Archive for February, 2009
The Treasury Department on Wednesday announced the availability of an expanded tax credit for first-time home buyers as part of the Obama Administration's affordability initiatives. The financial stimulus package — the American Recovery and Reinvestment Act of 2009 — includes a provision that will make up to $8,000 available to qualifying taxpayers that buy homes in 2009.
"The expansion of the first-time home buyer tax break as part of the President's recovery agenda gives money to taxpayers when they need it most, while also targeting an important group of buyers," said Treasury secretary Tim Geithner. "We view our economic recovery plan, our financial stability plan and now this homeowner affordability plan as three legs of the same stool — an integrated whole that represents our immediate response to the current crisis."
The new law states that qualifying home buyers may claim up to $8,000 — or $4,000 for married individuals filing separately — on either their 2008 or 2009 tax returns. Unlike the previous law — which required recipients of the tax credit to repay the funds over a number of years without interest — the new homebuyer credit effective with the passage of the act does not have to be repaid.
"First-time home buyers represent a significant portion of existing single-family home sales," Treasury officials said in a media statement. "In 2008, nearly one out of every two homebuyers were buying for the first time, and the expansion in the first-time homebuyer credit will make it easier for first-time home buyers to enter the housing market this year."
Read the Treasury's announcement.
Write to Diana Golobay at diana.golobay@housingwire.com.
In an address to the joint session of Congress late Tuesday, President Barack Obama said his combined stimulus, bank and housing plans, together with the energy, health care and education reforms he will propose in his 2010 budget, will increase employment, stimulate lending and get the U.S. economy out of recession.
He pledged a new level of accountability for banks that receive federal funds under the banking plan and promised CEOs and bank executives will no longer be able to engage in lavish spending where taxpayer dollars are concerned. Obama acknowledged in his address that "this plan will require significant resources from the federal government — and yes, probably more than we've already set aside" in the $700 billion Troubled Asset Relief Program.
"And to ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system," Obama said. "It is time to put in place tough, new common-sense rules of the road so that our financial market rewards drive and innovation, and punishes short-cuts and abuse." He also urged Congress to "take charge of our future" and consider the budget he will release that addresses the "inherited" trillion-dollar deficit, financial crisis and costly recession.
And while he acknowledged the economy's problems did not begin overnight with the housing market collapse, Obama pointed out that the repercussions of the housing bubble and loose lending standards that came out of it are far-reaching. "Too many bad loans from the housing crisis have made their way onto the books of too many banks," he said. "With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending…[o]ur economy suffers even more, and credit dries up even further."
To counter the effects of the crisis, Obama rallied the passage of the sweeping $787 billion financial stimulus package and a foreclosure prevention plan that combines homeowner incentives with refinancing strategies to save the qualifying family nearly $2,000 yearly on mortgage payments, according to Obama's remarks Tuesday. But he continues to "clean up the credit crisis" and get Americans working and get the economy back on its feet again, starting with a new budget that will propose health care, education and energy reforms — as well as increased troops in Afghanistan — while cutting unnessential government programs. "…I pledged to cut the deficit in half by the end of my first term in office," Obama said. "My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs…. We have already identified two trillion dollars in savings over the next decade."
Obama urged Congressional Democrats and Republicans to "sacrifice some worthy priorities" and come together on deciding the national budget. "We will rebuild, we will recover, and the United States of America will emerge stronger than before," he said.
Write to Diana Golobay at diana.golobay@housingwire.com.
Existing-home sales tumbled in January, according to the National Association of Realtors, as buyers were likely waiting to see how details of the economic stimulus package would pan out. Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 5.3 percent month-over-month to a seasonally adjusted annual rate of 4.49 million units, compared to 4.74 million units in December and 4.91 million units in January 2008.
Lawrence Yun, NAR chief economist, said there was understandable hesitation by some homebuyers. “Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of housing stimulus,” he said.
Single-family home sales in January fell 4.7 percent to 4.05 million, according to NAR, while existing condominium and co-op sales dropped 10.2 percent to 440,000 units in January — from 490,000 units in December.
NAR estimates the impact of the stimulus package and lower interest rates on the housing market to be about 900,000 additional home sales in 2009 compared to conditions before the stimulus package. Inventory is expected to fall below an 8-month supply by the year-end, which would be consistent with home price stabilization, NAR said.
Inventories in January plunged 2.7 percent, hitting a two-year low of 3.60 million existing home sales available for sale, which represents a 9.6-month supply at the current sales pace. Because sales were down, said NAR, the January supply is up from a 9.4-month supply in December.
The national median existing-home price for all housing types was $170,300 in January, according to NAR's report, down 14.8 percent from a year earlier when the median was $199,800. A high prevalence of distressed home sales, and of those in lower price ranges, has skewed the median price to be markedly lower than under normal market conditions, said NAR in a press statement.
About a quarter of all inventory is listed as being distressed, but NAR estimates that distressed sales – foreclosed or those requiring a lender-mediated short sale – comprised about 45 percent of all sales in January. “Home buyers are evidently competing for homes with deep discounts,” Yun said.
Significant local market variations continued in January. “A majority of markets experienced sales declines of more than 20 percent from a year ago, but some markets appeared to have reached the tipping point of accelerating home buying,” Yun said. “For example, home sales in Las Vegas have more than doubled with some reports of multiple bids.”
Regionally, existing-home sales in the Northeast dropped 14.7 percent to an annual pace of 640,000 in January, 23.8 percent lower than January 2008. Sales in the Midwest fell 5.7 percent in January to a level of 1.00 million — 16.7 percent below a year ago. In the South, existing-home sales declined 5.7 percent to an annual pace of 1.64 million in January, and in the West, existing home sales were unchanged at an annual rate of 1.20 million in January — 29.0 percent stronger than a year ago.
Despite near across-the-board drops in January's existing home sales, Yun believes the housing market will soon get a lift from favorable buying conditions – not only from improved affordability, but also from the stimulus of an $8,000 first-time home buyer tax credit, and higher conforming loan limits, he said.
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.
Raw mortgage application volume slipped 15.1 percent for the week ending Feb. 20, according to a weekly survey released Wednesday by the Mortgage Bankers Association. The four-week moving average — a solid indicator of seasonal trends — showed a slight 0.4 percent increase, suggesting an overall static trend. The MBA, which also studies weekly trends in mortgage interest rates, reported that 30- and 15-year fixed rates increased from levels that have lingered at historic lows. As rates inch upward, and despite President Barack Obama's $75 billion mortgage rescue plan complete with a homeowner incentive up to $5,000, confidence appears to be retreating from the application market.
The refinance application index decreased 19.1 percent for the week, bringing refinance as a share of total mortgage activity down to 69.7 percent from 74.2 percent a week earlier, although the four-week moving refinance average inched upward 1.7 percent, according to the MBA's data. While weekly refinance application activity weakened, refinance activity overall is edging back toward a recent surge in popularity.
The seasonally adjusted purchase index slipped down 2.6 percent for the week — while the four-week moving average slipped 4.2 percent — hinting at continued consumer hesitance to enter the buyer's market. The conventional purchase index decreased 4.4 percent while the government purchase index — think FHA activity — increased 0.8 percent, according to the data.
A separate survey conducted by Mortgage Maxx LLC found that mortgage application activity adjusted for multiple submissions showed overall household activity in the application process rose 9.7 percent in the week ending Feb. 20. Household activity in California alone rose 15.1 percent, according to the MAXcal, which isolates data from the state. Combined with the MBA's seasonally adjusted findings, the Mortgage Application Index — or MAX — suggests an influx in households submitted fewer applications this week.
The MAX publisher Paul Descloux, in his commentary on the index, cautioned against undue optimism that household activity is increasing. "Next week's index may indeed continue to fade" without the seasonal adjustment for President's Day, he wrote.
Visit www.mbaa.org and www.mortgagemaxx.us for further details.
Write to Diana Golobay at diana.golobay@housingwire.com.
House Committee on Financial Services Democrats, including Barney Frank, issued a letter Tuesday to the CEO of Chicago-based Northern Trust Corp. (NTRS: 41.67 +1.44%), asking for a return of some of the $1,576,000,000 in TARP funds granted to the bank on Nov. 14. "We are dismayed and angered to learn that Northern Trust recently spent millions of dollars on a PGA golf tournament sponsorship and associated parties at the same time it has taken over $1.5 billion in federal stabilization funding under the Troubled Asset Relief Program," the letter read, in part. The Committee's statements call into question Northern Trust's sponsorship of the tournament at the Riviera Country Club, the hosting of its clients and employees at hotels like Beverly Wilshire and Ritz Carlton, and its giving away of Tiffany souvenirs.
"At a time when millions of homeowners are facing foreclosure, businesses and consumers are in dire need of credit, and the government is trying to keep financial institutions — including yours — alive with billions in taxpayer funds, this behavior demonstrates extraordinary levels of irresponsibility and arrogance," the letter read. "We insist that you immediately return to the federal government the equivalent of what Northern Trust frittered away on these lavish events. Federal taxpayers should not and will not stand for such abuses, and we will insist that any future Treasury support for Northern Trust be conditioned on a thorough reform of your company’s policies and practices."
The Committee's letter did not acknowledge former Treasury Department secretary Henry Paulson's frequent statements that TARP funds through the Capital Purchase Program were intended for health banks, not just ones that needed to be kept "alive with…taxpayer funds." And Northern Trust, in its official statement on the letter, was quick to reiterate its health as a financial institution apart from TARP funds and stated that no taxpayer money was used for the tournament or any other marketing or operating expenses. "Northern Trust did not seek the government’s investment, but agreed to the government’s goal of gaining the participation of all major banks in the United States," and also agreed to pay the government $78.8 million on an annual basis as a return on taxpayers' investment, officials at the company said.
"Sponsoring the Northern Trust Open and related events is part of a business decision regarding an annual event to show appreciation for clients," officials said. "…This is the second year Northern Trust is sponsoring the Open as part of a five-year contract. The contract was signed in the fall of 2007 — a year before the U.S. government's Capital Purchase Program existed."
Write to Diana Golobay at diana.golobay@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.
The Treasury Department on Tuesday released details surrounding the injection of $365.4 million in capital into another 23 financial institutions across the nation, bringing the total investments made through the Capital Purchase Program to $196.36 billion. All but three of the institutions that participated Friday were privately-held firms; 55.2 percent of the funds distributed that day were given to private firms. One Arkansas-based firm participated, as did a bank based in Alabama, four based in California and one out of Florida. Three Georgia-based firms participated, as well as two from Illinois, one from Indiana, one from Minnesota and one from Missouri. Two firms based in Mississippi received capital infusions, as did one in New Hampshire, two in Pennsylvania, one in Texas and one in Wisconsin.
The second Wyoming-based bank to participate in the CPP — Buffalo, Wyo.-based Crazy Woman Creek Bancorp. Inc. — received $3.1 million. The smallest transaction of the day was the $2.06 million infusion given to Market Bancorporation Inc. out of New Market, Minn., while the largest investment — $116 million — was made in Munice, Ind.-based First Merchants Corp. (FRME: 9.77 +5.85%).
The Treasury had on Feb. 13 invested $429.07 million in 29 firms; it also made its first investment in a Wyoming-based firm, privately-held Financial Security Corp. On Feb. 6 it injected $238.55 million in capital into 28 firms. The Treasury made its first investment in an Alaska-based firm on Feb. 6; it also made the smallest investment transaction on that date, when it injected $310,000 into Harper, Kan.-based The Freeport State Bank, a privately-traded firm. On Feb. 17, the Treasury completed another $4 billion investment in General Motors Corp. (GM: 24.37 -1.42%) through the Automotive Industry Financing Program, which had previously been scheduled for that day before the company submitted to the government its restructuring plan, which called for some $16.6 billion in additional government aid.
All told, the TARP had dispensed — and promised — a total $326.15 billion as of Friday through its various programs, including the Targeted Investment Program, the Systemically Significant Failing Institutions program, the Asset Guarantee Program and the Treasury's $20 billion share of the Fed's Term Asset Backed Securities Lending Facility, which was announced but not yet funded. HousingWire recently looked into the specifics of the TARP's many investments, which will be featured in the upcoming March issue of the magazine, set to hit mailboxes next week. Don't forget to subscribe.
Visit www.ustreas.gov for further details on the TARP.
Write to Diana Golobay at diana.golobay@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.
The California Legislature, as part of the recently-passed budget package, approved Friday, legislation SB2X-7 and AB2X-7, which provide for a 90-day foreclosure moratorium.
The bill, introduced by Sen. Ellen Corbet (D-San Leandro), covers owner-occupied homes where the first loan was recorded between Jan. 1, 2003 and Jan. 1, 2008. "Many people in our communities are facing the terrible specter of foreclosure," Corbett said, according to the San Francisco Chronicle. "I'm just trying to find a way to help."
The bills do, however, allow servicers to be exempt from the moratorium if they have an approved loan modification program in place that meets a combination of criteria — a deferral of a portion of the loan's principal, for example, or lowered interest rates for at least five years or an extension of the loan terms.
A law passed in California in 2008 increased the required time period from first notification to final sale by 30 days to a total of 141 days — which many argue just delayed the inevitable.
Critics of the bill, typically bankers, say a moratorium is unnecessary, as they believe more time isn't the silver bullet to every troubled loan. A letter from the California Bankers Association, speaking out against the legislation, said a moratorium will just create uncertainty, postpone economic recovery and suppress home sales.
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.
The Conference Board Consumer Confidence Index, which decreased slightly in January, fell to an all-time low in February. The Index now stands at 25.0, down from 37.4 in January.
The Present Situation Index and Expectations Index also deteriorated, dropping to 21.2 from 29.7 last month, and to 27.5 from 42.5, respectively.
"The decline in the Present Situation Index, driven by worsening business conditions and a rapidly deteriorating job market, suggests that overall economic conditions have weakened even further this quarter," said Lynn Franco, director of The Conference Board Consumer Research Center. "Looking ahead, increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever."
Franco said inflation expectations, which had been easing over the past several months, have also picked up. All in all, not only do consumers feel overall economic conditions have grown more dire, but the index shows they anticipate no improvement in conditions over the next six months.
Consumers' appraisal of overall current conditions, which was already bleak, worsened further. Those claiming business conditions are "bad" rose to 51.1 percent from 47.9 percent, while those saying business conditions are "good" edged up to 6.8 percent from 6.5 percent last month. Consumers' assessment of the labor market turned considerably more pessimistic in February. Those saying jobs are "hard to get" increased to 47.8 percent from 41.1 percent in January, while those stating jobs are "plentiful" fell to 4.4 percent from 7.1 percent.
Consumers' short-term outlook turned more negative. Consumers anticipating business conditions will worsen over the next six months increased to 40.5 percent from 31.1 percent, while those expecting conditions to improve declined to 8.7 percent from 12.8 percent in January.
The employment outlook was also much grimmer. The percentage of consumers expecting fewer jobs in the months ahead increased to 47.3 percent from 36.9 percent, while those expecting more jobs declined to 7.1 percent from 9.1 percent. The proportion of consumers expecting an increase in their incomes declined to 7.6 percent from 10.3 percent.
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.
The government as of market close Friday had lost 54.9 percent — or $107.7 billion — of an original $195.5 billion in capital investments through the Troubled Asset Relief Program, according to data released Monday by business ethics think-tank Ethisphere Institute.
The Ethisphere TARP Index tracks the government's loss-on-investment based on the idea that as stocks of publicly-traded TARP fund recipients lose value, so too does the government lose a portion of the investment made in the financial sector. "Through the Index, Ethisphere hopes to encourage participating companies to promote transparency, accountability and ethical business practices related to the TARP funds," officials said in a press statement regarding the index.
Top performers on an absolute basis include Morgan Stanley (MS: 18.56 +2.26%) with a gain of about $700 million, or 7 percent, BB&T Corp. (MSDXP: 26.9501 -2.28%) with a gain of $64 million, or 2 percent, and 1st Source Corp. (SRCE: 25.06 +0.12%) with a gain of $17.5 million, or 15.7 percent, according to the index. The announcement from Ethisphere came after stocks slipped down to mid-'90s levels at market close Friday.
"Fears of the U.S. government nationalizing a number of banks caused the Dow [Jones] to drop to its lowest point in six years, led by many of the financial institutions in the TARP Index," said Stefan Linssen, a lead research analyst behind the index. "The decline ended when the Obama administration announced it has no plans to nationalize the banking system and reports emerged that the U.S. Treasury will provide more details on how it's going to handle the financial crisis next week."
Although investor fears of banking sector nationalization pulled down stocks of both Citigroup Inc. (C: 30.87 +1.61%) and Bank of America Corp. (BAC: 7.29 -0.14%) on Friday, both banks were up in early trading Monday amid reports the government was only seeking to take a massive public share stake in Citi while White House press statements repeated the mantra that banks should remain in private hands. American International Group Inc. (AIG: 25.25 +0.44%) Monday acknowledged that the company was in discussions with the government "to evaluate potential new alternatives for addressing AIG's financial challenges," — but not necessarily seeking additional funds — stoking fears that large financial institutions receiving what Ethisphere labels "calamity investments" cannot be maintained apart from government intervention.
Write to Diana Golobay at diana.golobay@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.
Federal Reserve Board chairman Ben Bernanke said before Congress Tuesday, the Obama administration was on the right track with its approach to troubled banks. "Over time these initiatives should further stabilize our financial institutions and markets, improving confidence and helping to restore the flow of credit needed to promote economic recovery," he said.
According to Bernanke, Bank stability is where an end to the recession will begin. "If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability–and only if that is the case, in my view–there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," he said.
The outlook for economic activity is uncertain and risks are imminent, Bernanke said. Risk will arise from the global nature of the slowdown, which could adversely affect U.S. exports and financial conditions to an even greater degree than currently expected, he explained. Another risk will derive from the destructive power of the so-called adverse feedback loop, in which weakening economic and financial conditions become mutually reinforcing. Bernanke said to break that adverse feedback loop, it is essential that the nation continues to complement fiscal stimulus with strong government action to stabilize financial institutions.
But, "If financial conditions improve, the economy will be increasingly supported by fiscal and monetary stimulus, the salutary effects of the steep decline in energy prices since last summer, and the better alignment of business inventories and final sales, as well as the increased availability of credit."
At the time of the last Monetary Policy Report, the nation faced high inflation and rising unemployment. Since then, however, inflation pressures have receded while the rise in the unemployment rate has surged and financial conditions have deteriorated. "In light of these developments, the Federal Reserve is committed to using all available tools to stimulate economic activity and to improve financial market functioning," Bernanke said.
The administration will begin Wednesday a new series of "stress tests" for the nation's major banks. If regulators find the banks do not have sufficient capital, the government could demand a larger ownership stake in these institutions.
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.
