Archive for February, 2009
Regulators' outlook on the economy and the housing market recovery is bleak across the board, according to statements released Wednesday. The Federal Open Market Committee saw "that credit markets still were not working well," according to the quarterly Summary of Economic Projections along that was released Wednesday along with the minutes from the Jan. 27 through 28 meeting and Jan. 16 conference call.
The FOMC said the Federal Reserve will have to scale back liquidity programs and reduce the size of its balance sheet to avoid increased inflation when the economy shows signs of recovering. "Many participants noted some risk of a protracted period of excessively low inflation, especially if inflation expectations were to move down in response to lower actual inflation and increasing economic slack, and a few even saw some risk of deflation," according to a press release on the meeting.
"Participants saw no indication that the housing sector was beginning to stabilize," the FOMC said. "Though sales of existing homes appeared to have flattened out, a large fraction of those transactions seemed to have resulted from foreclosures or other forced sales; moreover, new home sales, housing starts, and permits all continued to decline steeply. Lower house prices and mortgage rates had increased housing affordability, but concerns that house prices may fall further appeared to be holding back potential buyers."
Despite the weak economic outlook, FOMC members' long-run projections saw a 2.5 to 2.7 percent growth in real gross domestic output, 4.8 to 5 percent unemployment and inflation of 1.7 to 2 percent. The FOMC unsurprisingly kept the federal funds rate at a range of zero to 0.25 percent.
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.
Raw application volume jumped 45.7 percent for the week ending Feb. 13, according to the weekly survey released Wednesday by the Mortgage Bankers Association. The four-week moving average is down 9.6 percent, however, showing an application market that remains seasonally weak overall. Confidence crept back into refinance; the refinance volume index increased 64.3 percent from the week-ago level. Refi applications rose to 74.2 percent of total application activity from 66.7 percent the week before, according to the MBA's data.
The purchase index increased 9.1 percent; the conventional purchase index rose 10.9 percent while the government purchase index rose 5.5 percent. Interest rates on 15- and 30-year fixed rate mortgages slipped slightly in the week, according to figures published by the MBA. A slight downward slide in mortgage rates may have rekindled some of the refinance popularity seen in recent weeks.
A separate survey conducted by Mortgage Maxx LLC found that household activity decreased 0.6 percent for the week ending Feb. 13. The MAX, as the index is called, adjusts raw application data for multiple applications submitted by a single household. The MAX, combined with the MBA's data, would suggest that, while an insubstantial fraction of households exited the application market, those households showed an increased optimism in the origination market and therefore submitted more applications. The MAXcal, which isolates data from California households, rose 2.8 percent the same week, suggesting households in the state were more optimistic than households across the nation.
"With US treasuries trending lower of late, and the Fed’s MBS purchases yielding no significant breakthrough in mortgage affordability, application activity remains well below year ago levels," wrote MAX publisher Paul Descloux in his commentary on the indices.
Visit www.mbaa.org and www.mortgagemaxx.us for further details.
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 the first monthly bank lending survey, which showed that 20 major financial institutions that received TARP funds had fallen in mortgage origination across the board in December since the TARP began distributing bailout funds through the Capital Purchase Program in October. Many of the institutions reported increases in originations in the month-over-month period from November to December, "fueled by falling mortgage interest rates," according to the Treasury. However, those gains in origination were erased by the initial declines in origination activity reported by many of the institutions in the October-to-November period.
The Treasury media statement announcing the survey downplayed the weaker originations since TARP began by pointing out that unemployment rose to 7.2 percent from 6.5 percent and 1.5 million jobs were shed as real GDP fell 3.8 percent during that same time period. "Despite the negative effects of the economic downturn and unprecedented financial markets crisis, the first survey of the top 20 recipients of government investment through the Capital Purchase Program (CPP) found that banks continued to originate, refinance and renew loans from the beginning of the program in October through December 2008," Treasury officials said in the statement.
But a look into the figures reported by some of the top banks illustrates just how much origination has fallen since TARP began. For Bank of New York Mellon Corp. (BK: 20.23 +1.15%), total first mortgage originations decreased to $69 million in December from $89 million in October, with refinance loans having decreased to $25 million from $37 million and new home purchases having decreased to $44 million from $52 million. For BB&T Corp. (BBT: 26.95 -0.33%), the story was much the same, but on a larger scale: Total first mortgage originations decreased to $1.25 billion from $1.43 billion in October. Refis decreased to $666 million from $672 million and new home purchases decreased to $582 million from $754 million in October.
Citigroup Inc.'s (C: 30.87 +1.61%) total first mortgage origination dropped to $5.55 billion from $6.94 billion in October; refi mortgages fell to $858 million from $1.7 billion while new home purchases fell to $489 million from $1.14 billion in October. JP Morgan Chase & Co. (JPM: 37.21 -0.75%) reported total first mortgage originations dropped to $8.6 billion from $10.74 billion in October, with refi volume dropping to $4.3 billion from $5.35 billion and new home purchases falling to $4.26 billion from $5.39 billion in October.
SunTrust Banks Inc. (STI: 20.61 +0.54%) showed total first mortgage originations dropped slightly to $2.63 billion from $2.7 billion in October, while refi volume actually increased to $1.27 billion from $1.1 billion and new home mortgages falling to $1.36 billion from $1.6 billion during the same time frame. Wells Fargo & Co. (WFC: 29.60 +1.89%) also reported substantially weaker first mortgage originations at $15.32 billion from $19.01 billion in October.
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.
President Barack Obama on Wednesday will formally unveil the foreclosure mitigation plan. Before the announcement, his administration as well as the Treasury Department released some details regarding the much-anticipated plan, which will cost $75 billion — $50 billion of which will come from the Troubled Asset Relief Program. The Treasury also said it is increasing its preferred stock purchase agreements with the GSEs to $200 billion each from the original $100 billion level.
The Homeowner Affordability and Stability Plan targets an estimated 5 million at-risk homeowners with loans owned or guaranteed by Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A). The modifications will consist of refinances designed to increase affordability of mortgage payments. "We must stem the spread of foreclosures and falling home values for all Americans, and do everything we can to help responsible homeowners stay in their homes," Obama said Tuesday before signing the $787 billion American Recovery and Reinvestment Act.
"The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment," White House officials said in a media statement.
The plan will allow eligible borrower that are current on their mortgages — but whose homes have declined in value — to refinance into lower interest rates on a 30- or 15-year mortgage with Fannie or Freddie, whichever GSE holds the loan. The program is eligible for loans where the new first mortgage including refinance costs will not exceed 105 percent of the current market value of the property. It will apply to first mortgages that meet the LTV ratio after refi, regardless of whether there's a second loan on the property, but the lender holding the second mortgage must agree to remain in the second position.
The program is slated to start March 4, when further eligibility details will be announced. The program will be limited only loans held or securitized by Fannie or Freddie. It will not involve modifications with principle forgiveness or forbearance on loans held by the GSEs. Several factors that determine eligibility are a monthly mortgage payment more than 31 percent of monthly gross income, occupancy of the home in question as a primary residence, and a loan amount that is within current Fannie and Freddie loan limits. It also applies to borrower that have not yet fallen behind but are at risk of becoming delinquent.
The program also offers incentives for lenders to modify mortgages of anywhere from 3 to 4 million borrowers behind on payments and at risk for foreclosure. It states that a servicer will receive $1,000 for each modification, plus additional funds for each month the borrower remains current on payments. It also offers a financial incentive for borrowers to "work hard to retain homeownership," in the form of a payment up to $5,000 directly on the borrower's mortgage debt. The payment will accrue on a monthly basis for borrowers that pay on time for five years and will be applied to the borrower's debt at the end of that period.
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.
Through credit easing efforts — cutting the federal funds rate effectively to zero, purchasing commercial paper and buying up to $500 billion in agency MBS — the Federal Reserve has doubled its balance sheet in the past year to just under $2 trillion, Bernanke said at a press conference Wednesday. The swelled balance sheets don't have to signal negative implications like inflation, and even indicate increased interest income "to the benefit of the federal budget," as the Fed's assets pay interest, he said.
"Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve will ultimately stoke inflation," Bernanke said. But the fact that banks are holding so tightly to some new reserves combined with an overall weak global economy cause the Fed to see "little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time," he said. Inflation may be so low, in fact, that the pressures border on deflation.
The Fed has said in the past that inflationary pressures have hovered at uncomfortably low efforts. On Wednesday Bernanke acknowledged the Fed will eventually have to begin raising the federal funds rate to moderate growth in the money supply. Credit-easing programs will also have to be relaxed to let the Fed's balance sheets shrink. Only then will the Fed be able to "return to its traditional means of making monetary policy–namely, by setting a target for the federal funds rate," Bernanke said.
Federal Reserve Bank of St. Louis president James Bullard, in a speech given Tuesday at the New York Association for Business Economics, would seem to agree with Bernanke that the de-inflationary pressures risk possible deflation. But Bullard urged Fed action immediately to reverse Bernanke's "credit easing" methods and introduce "quantitative" measures starting at the monetary base.
"To avoid the risk of deflation, it is important that the Fed provide a credible nominal anchor for the economy," Bullard said. "One way to do so is to set quantitative targets for monetary policy, beginning with the growth rate of the monetary base." A failure to do so may lead to deflationary effects over the next few years that could drive to higher real interest rates and an unnecessary burden on the U.S. economy and American borrowers in particular, according to Bullard.
"Ongoing deflation in the United States might be particularly pernicious," he said. "Household mortgages are long-term nominal contracts. Sustained deflation increases the real debt burden of leveraged homeowners and can erode their equity. With sustained deflation, the foreclosure experience that we have seen in the subprime market could generalize to a wider spectrum of homeownership."
Write to Diana Golobay at diana.golobay@housingwire.com.
General Motors Corp. (GM: 24.37 -1.42%) and Chrysler Holding LLC submitted their restructuring plans to the government Tuesday but came to the table with another request: an additional $21.6 billion in government aid. As of the additional $4 billion that had already been scheduled for distribution to GM Tuesday, the company has received a total $14.3 billion through the Treasury Department's Troubled Asset Relief Program. In the restructuring plan submitted Tuesday, GM requested another $16.6 billion for a total government investment of little more than $30 billion.
Chrysler is requesting a total $5 billion from the government on top of the $4 granted in December. The company also requested government approval of a strategic alliance with European manufacturer Fiat, which would acquire a substantial ownership in Chrysler and combine the strength of U.S. operations. "Unusually severe and swift industry decline in demand for new vehicles has created [a] shortage of cash from sales," Chrysler officials said in the restructuring plan presentation. "Money is needed urgently to maintain current operations. Rejection of [the] request would result in insolvency and potentially adverse ripple effects throughout the auto industry and U.S. economy."
GM said under its restructuring plan, there would be "considerable sacrifices from all stakeholders" as well as significant reductions in compensation for top executives. Chrysler officials said they believed the company could stand along with a strong balance sheet (meaning more government funds) pursued strategic partnerships like the one with Fiat and consolidation efforts. If a combination of these efforts fails, Chrysler said only then it would consider bankruptcy.
The task now passes to the panel set up by President Barack Obama to oversee the automakers' restructuring efforts (in lieu of the "car czar" method). "[National Economic Council] director [Larry] Summers and I will be convening the President's Task Force on Autos later this week to analyze the companies' plans and to solicit the full range of input from across the Administration on the restructuring necessary for these companies to achieve viability," Treasury secretary Tim Geithner said in an official statement Tuesday.
Read GM's restructuring plan.
Read Chrysler's restructuring plan.
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.
Housing starts dropped 16.8 percent from the previous month to a seasonally-adjusted annual rate of 466,000 in January, according to data published Wednesday by the U.S. Commerce Department. Starts are down 56.2 percent for the year since January 2008. Building permits fell 4.8 percent for the month to a seasonally-adjusted 521,000 rate, according to the data.
The number of single-family unit starts dropped more than 50 percent in the Northeast since December, to 23,000 in January. Single-family unit starts were down from 59,000 to 47,000 in the Midwest. Singe-family units in the South were also down to 194,000 from 205,000 in the month. The West was the only region that saw a slight bounce in singe-family units; starts increased to 83,000 from 81,000.
The continued weak starts in January likely fueled weak builder sentiment in February. Builder sentiment remained at a historic low in the month, according to a survey released Tuesday by the National Association of Home Builders. The index rose a single point to nine on a scale of 100, "virtually unchanged" from the previous month, indicating only a fraction of home builders views the current sales conditions as good.
The NAHB expressed some optimism on the heels of the passage of the economic stimulus, citing as examples of potential industry growth: the $8,000 first-time home buyer tax credit, an extension of the 2008 FHA, Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) loan limits for high-cost areas, and other tax relief provisions regarding energy-efficient and low-income housing projects.
“Home builders are especially concerned about the continually rising number of foreclosures and short sales, which are flooding the market with excess inventory and undermining overall home values,” noted chief economist David Crowe. “…We are therefore looking forward to working with the Treasury Department as details of its plan to address the urgent foreclosure problem emerge.”
President Barack Obama on Wednesday announced a foreclosure mitigation plan half again as large as the $50 billion one rumored in recent weeks. A combination of TARP money and funds raised from the Treasury's announcement of increased investment in the GSEs will back the program, which will begin March 4 and which targets up to 9 million borrowers at risk for foreclosure with refinance and modification options.
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.
President Barack Obama on Tuesday signed into law the American Recovery and Reinvestment Act in Denver, Colo. "What I am signing is a balanced plan with a mix of tax cuts and investments," he said in his pre-signing remarks. "It is a plan that’s been put together without earmarks or the usual pork barrel spending. And it is a plan that will be implemented with an unprecedented level of transparency and accountability."
The President touted the launch of Recovery.gov, a Web site created specifically to track the spending of government funds through the act. According to the site, the act will involve $288 billion in tax relief, $144 billion in state and local fiscal relief, $111 billion in infrastructure and science programs, $81 billion toward "protecting the vulnerable," $59 billion for health care, $53 billion for education and training, $43 billion for energy and $8 billion allocated in an "other" category.
At the time this story was published, few details had been published on the distribution of funds within these broader categories, but White House officials said on the site that details would be posted as they became available and as funds make their way into the hands of the departments they are intended for. The President in his remarks on the Act consistently named transparency as a driving objective behind the stimulus, which he said will save or create 3.5 million jobs, spark long-term economic growth and provide tax relief for middle-class hard-working Americans.
"We must stem the spread of foreclosures and falling home values for all Americans, and do everything we can to help responsible homeowners stay in their homes — something I'll talk more about [Wednesday]," Obama said.
Read the Act.
Write to Diana Golobay at diana.golobay@housingwire.com.
Homeowners at risk for foreclosure may receive a belated TARP gift Wednesday afternoon: a partially-subsidized mortgage payment, with best wishes, from Uncle Sam. The homeowner relief plan — or foreclosure prevention plan — is scheduled to be released by President Barack Obama in detail Wednesday after months of public criticism that the Treasury Department's Troubled Asset Relief Program had strayed too far from its original goal and had forgotten the everyday homeowners in need of aid.
The plan, which will be funded with at least $50 billion of the remaining TARP funds, is said to target borrowers not yet in arrears but at risk of becoming so. Unnamed sources late last week told Reuters the plan involves a reappraisal of homes for value and affordability, as part of an examination of homeowners to determine eligibility for the subsidy program. Sources also told Reuters that homeowners would not need to prove hardship to qualify for the program, which would subsidize lenders that lower monthly payments to within 31 percent of a borrower's net income.
If the subsidized payment and reappraisal make it into the mortgage relief plan that will be unveiled Wednesday, it would mark a stark turnaround from popular loan modification programs that chase after foreclosures rather than stepping out in front of them and catching troubled borrowers before they ever set foot near the foreclosure process. It would also mean the Treasury would finally be addressing the housing crisis where it happens — in the budget of the homeowner current on payments but that has lost a job, whose mortgage payment has increased or who simply purchased more home than they could afford — after months of the TARP's trickle-down operations in the broader financial markets that, so far, has had little bearing on the everyday homeowner.
Buzz about Wednesday's announcement comes as Obama is scheduled to sign the $787 billion economic stimulus package on Tuesday in Colorado. The bill passed a Congress vote late Friday and, as expected, focuses heavily on government spending initiatives to stimulate job growth, as well as a handful of tax breaks, including an $8,000 tax credit to all first-time home buyers that purchase before year-end.
Write to Diana Golobay at diana.golobay@housingwire.com.
Moody's Investors Service announced on Friday sweeping downgrades among top U.S. mortgage insurers as delinquencies and foreclosures remain at historic high levels and the capital of these institutions is challenged. Moody's downgraded PMI Mortgage Insurance Co. to Ba3 from A3, demonstrating a belief at the rating agency that "the franchise value among mortgage insurers generally has deteriorated in recent months, placing additional pressure" on the ratings of these companies, Moody's said.
Moody's also slashed Radian Group Inc.'s (RDN: 2.66 +2.70%) primary mortgage insurance subsidiaries to Ba3 from A2. "Radian's risk-adjusted capital adequacy remains under significant pressure in light of large incurred losses to date and rapidly escalating delinquency counts, as well as the meaningful uncertainty regarding the ultimate severity and duration of the current down cycle in housing fundamentals, and the resulting impact on ultimate claims," analysts at Moody's said in a press statement regarding the downgrade.
Mortgage Guaranty Insurance Corp. (MGIC) also suffered a downgrade to Ba2 from A1 on the heels of a drop in new business volume as the company conserves capital, according to Moody's. The agency also predicted that "without additional capital injections in the near term, it is possible that [MGIC] could breach maximum statutory risk to capital guidelines over the next twelve to eighteen months, which may impact the company's ability to write new business in the absence of regulatory forbearance," analysts said in the press statement.
Genworth Mortgage Insurance Corp.'s downgrade to Baa2 from Aa3 also came Friday after parent company Genworth Financial Inc. (GNW: 7.83 +0.38%) reported in early February total company loss of $321 million — or 74 cents per share — in the fourth quarter. Moody's analysts expressed some concern for the company's losses, saying "were losses to be in excess of current expectations, the company could breach maximum statutory risk to capital guidelines within the next two years…."
United Guaranty Residential Co. — and its subsidiary United Guaranty Mortgage Indemnity Company, which together are the main mortgage insurance companies of American International Group (AIG: 25.25 +0.44%) — also experienced a downgrade to A3 from Aa3. Moody's said although it still considers the capital adequacy as befitting an Aa rating category, the downgrade "considers other factors such as the diminished franchise value and the likelihood of sustained losses for several years and the support provided by AIG."
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.
