Archive for February, 2010
One of Freddie Mac's key priorities – as defined by our regulator and conservator, the Federal Housing Finance Agency – is providing constant, stable support to the housing market.
Throughout the housing crisis, we've continued to supply an ongoing stream of funding for mortgages, every day, in all geographic markets. In fact, Freddie Mac and Fannie Mae together funded almost three quarters of all mortgage loans originated last year.
And we've done this at a time when most other sources of liquidity have dried up. Even when private label investors abandoned the market, Freddie Mac continued to serve our mission on behalf of homeowners and renters across the nation.
The already gloomy conditions of states' economies are set to worsen, according to preliminary survey findings from the National Governors Association released on Saturday.
"The situation is fairly poor for a lot of states around the country. In fact, most states," Vermont Governor Jim Douglas, who is chairman of the association, said at a press conference at its annual meeting.
"What we're finding out from a fiscal standpoint is that the worst is yet to come," Douglas said.
When Ben Bernanke makes his pilgrimage to Capitol Hill Wednesday to present the Federal Reserve’s semi-annual monetary policy report to Congress, he will have one new strike against him: the increase in the discount rate. If he plays his cards right, he can turn a liability into an asset — especially if he follows a few basic pointers, which I’ll get to in a minute.
Last week, the Fed raised the discount rate by 0.25 point to 0.75 percent and said the term of these direct loans to banks will revert to overnight next month from 28 days now. It left the benchmark overnight rate at 0 percent to 0.25 percent and invoked the “extended period” clause to assure markets that rate isn’t going up anytime soon.
Before the crisis, the discount rate stood 100 basis points more than the federal funds rate, a reminder that borrowing at the Fed window is a privilege, albeit at a price. During the crisis, the Fed adopted a “come one, come all” policy, knowing access to Fed credit was essential to banks’ provision of private credit.
The new president climbed aboard Air Force One a year ago for a trip to Phoenix to reveal his strategy for attacking the housing crisis. It was a signal moment in the buoyant early days of Barack Obama's administration.
The plan, Obama told a cheering audience, would keep as many as 9 million people in their homes by lowering their monthly mortgage payments. The program wouldn't save every home, Obama cautioned, but few people paid attention. Not with Treasury Secretary Timothy Geithner saying things like, "You'll start to see the effects quite quickly."
Ambition, though, got far ahead of reality.
The numbers show a program that is failing to deliver, at least at this point.
I was a good little boy and did everything I was supposed to do. I went to college and graduate school. I took a job with mediocre pay but good stability. I kept my nose to the grindstone, saved a little, avoided credit-card debt and about five or six years ago I took out a low, fixed-rate, 30-year mortgage for a reasonably priced house in the suburbs of Atlanta.
“Owning is better than renting,” said the wisdom of the time. So my wife and I put down $12,000 for this three-bedroom, mid-century ranch with a fig tree, pecan trees and grapes growing out back. Cherry tomatoes also grew wild all summer long. My commute into the city was long, but there was plenty of space for a growing family. We even planted a garden. Peppers. Heirloom tomatoes. Corn. Idyllic, no?
Corporacion Geo SAB, the Mexican housing company whose shares more than doubled last year, may rise to a three-year high in 2010 as banks boost mortgage lending and the government backs more loans, Credit Suisse Group AG says.
Geo shares will climb 26 percent to 46 pesos by year-end from a Feb. 19 close of 36.51 pesos, as profit rises 28 percent to 1.93 billion pesos ($150 million) and sales increase more than 10 percent, said Alan Solis, an analyst at Credit Suisse in Mexico City who rates the stock “outperform.”
“Geo is gaining market share,” Solis said. The builder is benefiting from the government-subsidized mortgages that make up more than 60 percent of home loans in Mexico, he said.
A look at stories across HousingWire’s weekend desk…with more coverage to come on bigger issues:
The Wall Street Journal reported on Sunday that mortgage securitization giant Fannie Mae (FNM: 0.00 N/A) has pledged its support to New York-based warehouse lender Guggenheim Partners.
Fannie agreed to purchase qualifying mortgages originated by Guggenheim's mortgage banking clients — small lenders with warehouse lines funded by Guggenheim. This arrangement is designed to encourage Guggenheim to fund warehouse loans, which should in turn provide more capital to smaller lenders that originate mortgage loans.
The agreement comes as the recent announcement by both government-sponsored enterprises (GSEs) — Fannie and Freddie Mac (FRE: 0.00 N/A) — of delinquent loan buyouts continues to weigh on the minds of mortgage-backed securities investors, according to weekly commentary by Barclays Capital (BarCap). Analysts believe pressure on the spread of MBS bond yields to treasurys will be offset by a diminishing amount of tradable float caused by the Federal Reserve's purchases — and now GSE buyouts.
"As the Fed’s scheduled exit from the mortgage market nears, the market has been bracing for increased widening pressure on spreads," analysts said. "However, the reduction of a significant amount of tradable float by the Fed has helped rolls perform well, keeping valuations tight."
BarCap noted that, in the wake of this week’s announcement, the amount of tradable float could be reduced even more.
"For example, about $200bn of loans are likely to be repurchased over the next few months," analysts said. "Additionally, buyout cash flows should be concentrated in higher coupons, thus affecting par coupons far less. And as many investors will want to re-invest pay-downs, they will be forced to go down in coupon, further supporting the current coupon basis."
BarCap saw "mild underperformance" across most of the coupon stack:
In weekly commentary on commercial MBS (or CMBS), BarCap analysts noted the Fed received requests for $1.26bn of loans to buy legacy CMBS through the Term Asset-Backed Securities Loan Facility (TALF). Although it marked "the lowest volume since the inception of the program," (illustrated below) analysts said an extension of the facility is unlikely.
Regulators shut down four depository institutions, naming as receiver the Federal Deposit Insurance Corp. (FDIC). The weekly closures — which are estimated to cost the FDIC nearly $1.07bn — bring total bank failures so far in 2010 to 20.
It was the first round of failures since February 5.
The Office of Thrift Supervision (OTS) shuttered La Jolla Bank. OneWest Bank assumes all $2.8bn of deposits and essentially all $3.6bn of the failed bank's assets. The closure is expected to cost the FDIC's Deposit Insurance Fund (DIF) $882.3m.
The Illinois Department of Financial Professional Regulation – Division of Banking shut down George Washington Savings Bank. FirstMerit Bank assumes essentially all $412.8m of assets, and it paid a 0.31% premium to the FDIC to acquire the failed bank's $397m of deposits. The failure is expected to cost the DIF $141.4m.
The Florida Office of Financial Regulation shuttered Marco Community Bank. Mutual of Omaha Bank takes on esentially all of the failed bank's $119.6m, and paid the FDIC a 1.5% premium to assume all $117.1m of deposits. The failure is expected to cost the FDIC's DIF $38.1m.
The Office of the Comptroller of the Currency (OCC) shut down La Coste Naitonal Bank. Community National Bank will purchase essentially all $53.9m of assets, and will pay the FDIC a 0.51% premium to acquire the failed bank's $49.3m of deposits. The failure is estimated to cost the DIF $3.7m.
Write to Diana Golobay.
Disclosure: The author holds no relevant investment positions.
Consumer prices in the U.S. are barely rising, a boon to shoppers for everything from computers to clothing and a big reason that the Federal Reserve is willing to keep interest rates exceptionally low a while longer.
Because of a spurt in energy prices, the consumer-price index rose 0.2% in January and has climbed 2.6% over the past 12 months, the Labor Department said Friday.
But stripping out volatile food and energy prices, as policy makers do to gauge underlying trends, consumer prices actually fell by 0.1% in January, the first time that has happened since 1982. That so-called core-inflation measure was up a meager 1.6% in the past 12 months.
