Archive for April, 2010
Although the US housing market shows signs of stabilizing, excess inventory and shadow supply could hinder recovery, according to economists at government-sponsored enterprise Fannie Mae (FNM: 0.00 N/A).
Despite "encouraging" recent growth in consumer spending, Fannie said economic growth likely decelerated from an annualized 5.6% in Q409 to 2.7% in Q110. Economists project a 3.1% rate of economic growth for all of 2010, according to the April outlook report by the Fannie Mae economics and mortgage market analysis group (download here).
“Financial conditions are improving as seen by the unwinding of various programs, most notably the [mortgage-backed securities] purchase program which ended in March,” said Fannie Mae chief economist Doug Duncan. "This is strong evidence that the [Federal Reserve] believes the financial sector can stand on its own."
Fannie said new home sales will likely be slow to recover until inventory of existing homes and the foreclosure overhang are worked off. Economists see key indicators for existing home sales — including pending home sales and purchase applications — are showing good signs of a pickup.
Although the first-time homebuyer tax credit failed to markedy boost sales, home sales look poised to increase:
“We estimate that June 2009 was the end of the recession, a good sign that we’re moving forward," Duncan said. "Nevertheless, significant improvements in the labor market and consumer spending will be the big hurdles as we move toward recovery in the housing market and broader economy.”
Despite some positive growth in March labor stats, unemployment will likely remain elevated for some time, Fannie said. Economists project unemployment will decline to 9.4% by year-end, and to 8.5% by the end of 2011.
Housing starts are projected to climb from 595,000 in Q110 to 800,000 in Q410, and to 1.2m by Q411. Total home sales are expected to rise from 5.5m in Q110 to 6m by Q410, and to 6.8m by year-end 2011.
At the same time, median new home prices are expected to climb from $207,200 in Q110 to $214,500 by Q410, and to $217,900 by Q411. Fannie projected median existing home prices to rise from $167,200 in Q110 to $168,300 in Q410, and to $171,000 by year-end 2011.
Mortgage rates are likely to increase. Fixed-rate mortgages are projected to gain 43 basis points (bps) in 2010, rising from an average 5% in Q110 to 5.43% in Q410, and gaining another 38bps to end 2011 at an average 5.81%.
Fannie economists also expect quarterly mortgage originations to dip from $321bn in Q110 to $291bn in Q410, before ticking up to as much as $418bn in Q311 and settling year-end 2011 at $387bn. The refinance share of mortgage originations is likely to slip from 65% in Q110 to 36% in Q410. The refi share should uptick slightly in early 2011 before ending the year at 36% in Q411.
Write to Diana Golobay.
Disclosure: The author holds no relevant investment positions.
The Securities and Exchange Commission, after having hit Goldman Sachs Group Inc. with a civil fraud charge, is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors.
The SEC's case against Goldman Friday has exposed an open secret on Wall Street: As the housing market began to wobble a few years back, some big financial firms designed products aimed at allowing key clients, such as hedge funds, to bet on a sharp housing downturn.
Three senators want residents in Florida and Louisiana to get the kind of mortgage help provided to Virginia homeowners whose houses contain Chinese drywall.
Last week Sens. Bill Nelson and George LeMieux of Florida and Sen. Mary Landrieu of Louisiana wrote to Fannie Mae asking for help. In addition, Nelson and Landrieu wrote to Freddie Mac.
Many whose homes were built with the material have moved out, juggling rent and mortgage payments. The drywall makes some homes smell bad and has been found to corrode metals and damage wiring and appliances and is suspected of causing breathing problems and headaches.
In June 2009, major dealers made a commitment to the Federal Reserve Bank of New York to give dealer clients access to clearing for credit default swaps (CDS) in the US by December last year. The December 15 deadline was met by both the Chicago Mercantile Exchange (CME) Group and Ice Trust, the credit derivatives clearing arm of the Atlanta-based Intercontinental Exchange. Both firms are vying to clear CDSs in the US.
What was done in December for CDS was manual and not something that could be operationally sustained on a day-to-day basis
However, work to make central clearing an operational success is still far from complete, suggest market participants. "What was done in December for CDSs was manual and not something that could be operationally sustained on a day-to-day basis," says one source close to the matter.
GMAC Mortgage said it plans to launch a virtual sales network to market its mortgage products. The company, a subsidiary of Fort Washington-based GMAC Residential Capital, said it expects to attract more home buyers to its mortgage lending services by offering a more flexible alternative to traditional branches.
The network will consist of a team of sales managers and loan officers operating on a remote basis in order to quickly enter markets while keeping occupancy costs low.
GMAC said it will initially launch the network in California, North Carolina, South Carolina, Pennsylvania and Arizona. The company is exploring expansion opportunities in other states across the country with a goal of building the team to 200 associates by the end of 2010.
Debt collectors are starting to hound people who lost their homes to foreclosures or short sales over their second mortgages.
In California, a foreclosure generally wipes out the borrowers' obligation on the main mortgage but not necessarily on other home loans.
"We've seen a lot of folks coming to us, saying, 'I was foreclosed on, now these people say I owe $150,000 for my second loan; I thought everything was going to go away, what do I do now?' " said Noah Zinner, an attorney with Housing & Economic Rights Advocates in Oakland.
Some experts think the trend will accelerate, causing foreclosure pain to linger.
Repossessions in UK subprime residential mortgage-backed securities (RMBS) declined to 1.48% of the out-standing balance in February 2010, a level last recorded in August 2005, according to Moody’s Investors Service.
Arrears in the month also fell to 19.2% from a peak of 21% in June 2009. Most series recorded falling arrears but those in transactions issued by Preferred and Money Partners rose.
The redemption rate continued to fall. It was 9.4% this February, less than half the figure recorded in the same month in 2009 and a third of that seen in February 2008.
