Archive for June, 2009
In attempt to further the success of President Obama's Making Home Affordable Program, Freddie Mac (FRE: 0.00 N/A) today announced a number of changes to its refinance offering under the program.
Obama's program aims to provide broader access to affordable and sustainable mortgages through expanded refinancing opportunities.
Freddie Mac's Relief Refinance Mortgage is designed particularly to assist borrowers who are current on their mortgage payments but who would benefit from refinancing into mortgages with terms that better position them for long-term homeownership.
Under previous regulations, borrowers had to work out a refinance with the lender who currently services their mortgage.The changes revealed today will allow borrowers to refinance a Freddie-Mac-owned or guaranteed mortgage with any lender affiliated with the GSE.
"We are responding to consumers' desires to have more refinancing options," said Freddie Mac executive vice president Don Bisenius. "As an added benefit, we are expanding the program and providing greater flexibility in financing closing costs."
Freddie Mac also said it's increasing the amount of closing costs that can be rolled into the new refinance mortgage, allowing the lesser of 4% of the new refinance mortgage amount or $5,000 of closing costs, financing costs and escrows to be included.
Write to Kelly Curran.
A mortgage banking company aims to provide mortgage protection to certain unemployed homebuyers in Washington, Oregon and Arizona.
Cobalt Mortgage teamed-up with Rainy Day Foundation to establish Payment Assurance Plan. The plan provides mortgage protection, education and financial counseling for qualified homebuyers, up to $1,800 for up to six months.
"We are hopeful that with the Payment Assurance Plan we can help prospective homeowners have the added confidence needed to take advantage of, in our opinion, a very unique opportunity to purchase a home today," said Keith Tibbles, president at Cobalt.
The companies say the homebuyers are not required to pay back the money allocated on their behalf.
The initiative isn't currently a large-scale one, per se, but it's help for homebuyers nonetheless. Cobalt anticipates providing assistance to around 75 homebuyers in its first month.
Write to Kelly Curran.
With the full extent of the housing bubble plainly in hindsight and the worst of it still unwinding in the economy, at least one Federal Reserve bank governor is speaking out against the use of monetary policy to cure the economy's investment bubbles.
Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, in a panel today raised questions about the Keynesian "paradigm" of activist policy and potential inflation.
The Keynesian school of economics supposes the necessary public sector responses to woes brought about by private sector activities should involve either monetary policy by the central bank or fiscal policy by the government. The theory, despite the criticism that it risks inflation at the expense of stimulating an economy out of depression, is widely embraced by economists while the practice is in evidence at the Fed.
The Fed's own role in the process, monetary policy or forcing rates down, is in fact the very thing Yellen questions in remarks today. While the theory should work in ideal circumstances, "the normal monetary transmission mechanism has been hobbled by dysfunctional money and credit markets," Yellen warns.
The extent of the housing bubble's inflation, for example, has meant the market has further to fall in recovery, making efforts at the Fed to turn things around next to impossible.
Yellen asks: "The role of the house price bubble in precipitating the current financial crisis places new urgency on a long-standing question: Should central banks attempt to deflate asset price bubbles before they grow large enough to cause big problems?"
It would mark a substantial turnaround from reactionary policy to proactive, preventative policy, but Yellen says in some situations the aggressive action is necessary. "[W]e have vivid proof that markets sometimes don't work, and that the unwinding of a bubble can dramatically harm economic performance and threaten financial stability."
In response to the growing housing bubble, for example, the Fed should have reversed monetary policy and raised rates to keep the bubble from inflating. According to Yellen, higher short-term rates would likely have pushed mortgage rates up and reigned in demand for housing, slowing the pace of house price increases.
"[T]ighter monetary policy may be associated with reduced leverage and slower credit growth, especially in securitized markets," Yellen says. "Thus, monetary policy that leans against bubble expansion may also enhance financial stability by slowing credit booms and lowering overall leverage."
It is not, however, a cure-all, as Yellen says dealing with bubbles can oftentimes reveal just how little is known about the particular price bubble.
"I would not advocate making it a regular practice to lean against asset price bubbles," Yellen adds. "But, in my view, recent painful experience strengthens the case for using such policies, especially when a credit boom is the driving factor."
Write to Diana Golobay.
Seventy-six percent of homeowners who underwent government-established counseling remained in their homes as of February 2009, according to a congressional report from Neighborworks America.
The government's National Foreclosure Mitigation Counseling program, originally created in December 2007 to address the subprime foreclosure crisis, said this week it has now counseled 400,000 families facing foreclosure as of month-end March — effectively helping 76% avoid a completed foreclosure.
The resounding message for troubled borrowers is still: Seek assistance early, as the chances of avoiding foreclosure are much higher.
Of those counseled borrowers whose mortgages were three to four months delinquent at the time of counseling, 27% either had a foreclosure started or completed on their home.
However, over twice that volume — 60% — of borrowers with mortgages past four months delinquent at intake experienced a foreclosure proceeding.
“This report shows that those that seek counseling early have a better likelihood of not being foreclosed and those that are early have a better chance of getting a payment plan and loan modification,” says Doug Robinson, a spokesman for the NeighborWorks.
The report comes at a time of soaring foreclosures. The Mortgage Banker's Association said in late May, foreclosure activity hit an all-time high in Q109. Of all US mortgages, 3.85% were somewhere in the foreclosure process at the end of Q109, compared to 3.3% at year-end 2008.
The report found the largest reason for increasing foreclosures today is loss of income — naturally, as unemployment mounts.
Repayment plans are most often still the answer from servicers to homeowners, according to the report. Although, Robinson says loan modifications and principal reductions are actually more effective at keeping people in their homes.
In assessing the program's challenges, Neighborworks found servicers response time to counselors is still somewhat lengthy at about 45-60 days.
Write to Kelly Curran.
Nearly one in four US homes for sale today have had at least one price reduction, as sellers come to grips with the reality of a weakening economy and a housing market still groping along toward bottom.
Total reductions currently mount $27bn dollars, said Truila.com today.
Major metropolitan areas are feeling much of the pain. Of the top 50 most populated cities, 33 have seen 25% or more of listed homes reduced from their original asking price, higher than the 23.6% national average. Some cities have seen over 30% of homes reduced, including Jacksonville, Fla., Tucson, Ariz., Boston and Los Angeles, among others.
And of those homes reduced, the average reduction sits at 10.6% of original asking price — an encouraging sign for buyers, nonetheless.
"Everyone wants to think they are getting the best deal available," said Pete Flint, Trulia co-founder and CEO, who said price reductions are sparking renewed interest in potential buyers.
Luxury buyers might snag some of the best deals, as an average of 14.3% of the original asking price is being slashed off the listing price of homes valued over $2m, compared to only 9.7% being knocked off homes under the $2m price tag.
Foreclosure-stricken neighborhoods, however, are seeing home listing prices drop most drastically, Trulia.com said. Detroit homeowners on average reduce their homes by 23%, while Las Vegas sellers reduce their homes by 16% and Miami cuts prices by 15%.
Write to Kelly Curran.
The Federal Deposit Insurance Corp. (FDIC) is reportedly pushing for a massive overhaul among top executives at Citigroup (C: 30.87 +1.61%) as the bank restructures to raise capital.
FDIC chair Sheila Bair called for efforts from another regulator to lower the US government's own confidential rating of the bank's viability, making room for regulators to more closely control the goings on at Citi, unnamed sources told the Wall Street Journal.
The move would essentially allow the FDIC greater control in shuffling executives at the same time Citi restructures internally to preserve capital. The bank earlier this week told five former executives it would halt severance payments in fear of a compensation flop like that at American International Group (AIG: 25.25 +0.44%), according to the WSJ.
But with reports the administration may soon appoint a pay czar to ensure banks and financial institutions receiving government aid adhere to strict executive compensation rules, the caution may have been unnecessary. A regulator overseeing compensation would essentially do the same job of avoiding bonus-flop situations like that at AIG.
The news that the FDIC may shake up executives comes as Citi faces its last days on the Dow Jones Industrial Average before the scheduled delisting on June 8 due to "a substantial restructuring which will see the government with a large and ongoing stake," Dow Jones editor-in-chief Robert Thomson said Monday.
The bank was recently found to be in need of $5.5bn to meet the government's expectations in the case of more severe economic circumstances. Citi got creative with capital-raising efforts ahead of the test results, with news reports saying it might consider paying larger base salaries to avoid criticism over bonuses and forcing holders of more than $15bn of trust preferred shares to transfer to common stock to raise capital.
Write to Diana Golobay.
The latest buzz around the administration's plans for financial industry regulation overhaul indicates a compensation czar might soon be in order for banks and financial institutions accepting government aid.
The administration may appoint Kenneth Feinburg — who managed compensation to victims of the September 11 attacks — to oversee compensation paid to executives, according to a report filed at the Wall Street Journal.
In today's environment, US workers are facing pay cuts as the national unemployment rate reaches 9.4%.
Meanwhile, non-farm business across the US continues to trim the excess as 787,000 more people were considered unemployed in May, bringing the US unemployment rate to 9.4% from 8.9%, according to the US Bureau of Labor Statistics. A separate measurement of unemployment including workers either discouraged or facing hour cuts — or underemployment — topped a record 16.4% from 15.8%.
The only bright spot in the figures comes in the form of a slowed rate of decline among payrolls. According to unemployment figures released today, non-farm unemployment payroll decreased by 345,000 in May, about half the average monthly decline seen in the past six months, the bureau said.
A slowed rate of layoffs, despite the high total unemployment rate, might help explain the confidence showed by US workers who say their jobs are secure.
A Bankrate Inc. survey also released today showed 70% of survey respondents said they felt secure in their jobs despite the rising joblessness. Of those remaining at their jobs, 54% responded they'd received some sort of pay reduction: pay cut, reduced hours, reduced work days, suspended raises, bonuses or 401K match, or a combination of these.
Despite the cuts, 50% of respondents said they would continue working even if they won the lottery today, indicating at least some sort of job satisfaction, according to Bankrate.
This week, the Labor Statistics Bureau also released revised productivity data for Q109, showing the output per hour of all workers rose 1.8% in the business sector and 1.6% specifically in the non-farm business sector. Whether employees work harder in the shadow of job cuts or are forced to pick up work from laid off co-workers is unclear.
Write to Diana Golobay.
As the Federal Deposit Insurance Corp. prepared to announce a delay to the toxic loan-purchasing program of the Public-Private Investment Program, the Federal Reserve wrapped up a slow week of mortgage-backed securities (MBS) purchases.
The Federal Reserve Bank of New York on Thursday reported gross weekly MBS purchases of $27.68bn in the week ending June 3 after $33.4bn the previous week. The Fed bought $4.95bn from mortgage giant Freddie Mac (FRE: 0.00 N/A), $19.8bn from Fannie Mae (FNM: 0.00 N/A) and $2.93bn from Ginnie Mae.
The Fed's weekly purchases favored 30-year MBS with 4.5% coupons: $9.1bn to settle in June, $8.55bn to settle in July and $2bn in August. Its weekly sales showed the continued week-on-week discrepancy, with no sales occurring in the 4.5% coupon range.
The Fed sold $1bn in 30-year MBS at 5% coupons and $843m in 30-year MBS, all of which settles in July.
Despite the Fed's slow week of $1.84bn in MBS sales — down from last week's $7.86bn — the Fed's balance sheet contracted $8.21bn in the week ending June 3, for a total balance sheet of $2.07trn. The Fed's balance sheet sits up $1.19trn from its year-ago value in the week ended June 4, 2008.
The Fed reported Thursday in a balance sheet summary that it holds $427.61bn of MBS on its books this week, down $3.29bn from a week ago, suggesting some MBS sales might be catching up.
Write to Diana Golobay.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.
Property valuation and collateral risk management service provider Solidifi on Thursday unveiled the newest version of its collateral risk scorecard.
The new loan origination system and underwriting platform, Solidifi Decision, enables lenders and mortgage insurers to manage the collateral policy at an enterprise level. The offering manages the system, from underwriting to portfolio management to collections and recovery.
Solidifi combines data from appraisers and other sources to deliver a comprehensive range of collateral risk solutions. Lenders and insurers that use the system are able to define and manage business rules, manage underwriting policies and ensure adherence to risk guidelines and compliance requirements as well as measure appraiser compliance.
"Solidifi Decision provides a more sophisticated approach to traditional underwriting methods and portfolio analytics," said a leading Solidifi executive, Sharon Castelino, in a press statement Thursday. "It's proactive risk management technology that empowers lenders and mortgage insurers to achieve the balance between identifying collateral risk more efficiently, while approving applications even faster."
Write to Diana Golobay.
While Senate Bill 61, which may provide bankruptcy judges the ability to modify mortgage agreement, remains stuck in committee, the relationship of bankruptcy to mortgage default remains a hot issue.
The "Helping Families Save Their Homes in Bankruptcy Act 2009" aims to protect borrowers who are recently made bankrupt. But what exactly would make a family need to file for this protection in the first place? And what do these families look like?
Help finding an answer may be in a place most of us wouldn't think to look: the August 2009 issue of the American Journal of Medicine. In the medical journal is a research report on the first-ever national random-sample survey of bankruptcy filers. And the results are interesting, to say the least.
Illnesses and medical bills are contributing to a large and increasing share of bankruptcies, according to the survey.
Before the current economic downturn, an American family filed for bankruptcy in the aftermath of illness every 90 seconds; three-quarters of them were insured. Now, more than 60% of all bankruptcies in the United States are driven by medical incidents.
A five-state study in 2001, by way of comparison, found medical problems contributed to 46.2% of all bankruptcies. The current results come from researchers at Cambridge Hospital, Harvard Medical School, Harvard Law School and Ohio University who surveyed a random national sample of 2,314 bankruptcy filers in 2007, abstracted their court records, and interviewed 1,032 of them.
For research purposes, the designated bankruptcies as "medical" based on debtors' stated reasons for filing, income loss due to illness and the magnitude of their medical debts.
Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by a ratio of 49.6%.
The odds that a bankruptcy had a medical cause were 2.38 fold higher in 2007 than in 2001.
According to a release on the study, a number of circumstances propelled many middle-class, insured Americans into bankruptcy. For 92% of the medically bankrupt, high medical bills directly contributed to their bankruptcy. Many families with continuous coverage found themselves under-insured, responsible for thousands of dollars in out-of-pocket costs. Out-of-pocket medical costs averaged $17,943 for all medically bankrupt families: $26,971 for uninsured patients; $17,749 for those with private insurance at the outset; $14,633 for those with Medicaid; $12,021 for those with Medicare; and $6,545 for those with VA/military coverage. For patients who initially had private coverage but lost it, the family's out-of-pocket expenses averaged $22,568.
So what does this mean to housing? Because almost all insurance is linked to employment, a medical event can trigger loss of coverage. Furthermore, today's coverage shows unemployment on the rise, up to 9.4%.
Nationally, a quarter of firms cancel coverage immediately when an employee suffers a disabling illness; another quarter does so within a year. Income loss due to illness was also common, but nearly always coupled with high medical bills.
Writing in the article, Dr. David Himmelstein, states, "The US health care financing system is broken, and not only for the poor and uninsured. Middle class families frequently collapse under the strain of a health care system that treats physical wounds, but often inflicts fiscal ones."
Loss of employment + hefty medical bills = bankruptcy.
And, if some Senators get their way, bankruptcy may soon equal mortgage cramdown.
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