Archive for September, 2011
Consumer advocate and former White House official Elizabeth Warren will announce on Wednesday that she is running for the United States Senate seat currently held by Scott Brown (R-Mass.), a close source tells The Huffington Post.
The announcement will not come as a surprise, as Warren has spent the last few weeks traveling across Massachusetts and speaking at several high-profile political events as part of a statewide listening tour. Still, her formal entrance into the race is likely to be cheered by progressives and national Democrats alike, as Warren is both beloved by the base and represents one of the party's best chances to unseat Brown.
Default recidivism rates on jumbo and alt-A mortgage loans tracked at similar levels when comparing the first quarter of 2010 to the second quarter of 2011, according to a new report from Bank of America Merrill Lynch (BAC: 7.225 -1.03%).
According to the analysis, the highest levels of recidivism come from mortgages refinanced in 2008, especially in the second half of the year. For both the third and fourth quarter of the year, more than half of the loans redefault after a year. Merrill Lynch defines a mortgage as a redefault when payments are missed for more than 60 days.
Recidivism decreased for loans originated sooner, so the redefault rates will invariably rise as time progresses, though potentially to lesser degree. JP Morgan is also the mortgage servicer with the highest level of recidivism rate among jumbos (click breakdown chart below).
However, any lack of improvement on jumbo loans in terms of recidivism rates on defaulted loans may create a disincentive for the private mortgage market to jump into the segment, especially as conforming loan limits are dropping.
The conforming loan limit currently allows homeowners with mortgages as high as $729,750 to obtain financing guaranteed by Fannie Mae, Freddie Mac and the Federal Housing Administration. The temporary ceiling on that limit expires Oct. 1, which will push the limit back to $625,500.
Legislation is pending on Capitol Hill that could extend the limit past the expiration date to ensure the jumbo mortgage market has the ability to obtain financing for new mortgages and refinancings.
On the other hand, the subprime re-default rate improved somewhat when comparing the first half of 2011 to last year.
"We think this is partly due to both fewer modifications and servicers taking more care with servicing procedures following discoveries of robo-signing at the end of 2010," Merrill Lynch wrote in its report.
Write to Kerri Panchuk.
The menu in the canteen at HousingWire lists a special breakfast offer. Now, for only $1.39 (plus tax), any member of our staff can get a full breakfast of one biscuit smothered in gravy.
This is very likely the largest indicator that I've seen that shows the economic recovery is likely to get worse before it gets better.
The notion that Americans need more bargains is nothing new.
As James Sweeney, an analyst for the global fixed income division of Credit Suisse (CS: 26.64 -0.26%) put it, "deleveraging has become a household word."
And now that it is a household world, we can expect an ongoing trend. Americans are going to continue to deleverage. The economy cannot be willed into gear via increased consumption simply because Americans have no choice but to spend less and less and less.
"Declining U.S. debt is a consequence of bad housing loans made from 2004 to 2007, not voluntary deleveraging," Sweeney said. "The situation is far from ubiquitous: The U.S. household sector as a whole can handle its debt. It might even be underleveraged."
Come again? Deleveraging Americans may be underleveraged?
What Sweeney suggests is a return to higher levels of borrowing for the next decade to serve as an economic stimulus.
It's a simple notion, but one Americans will be unwilling to capitalize upon.
For one, consider the negative headline risk facing the nation. The American head of credit research at Société Générale, Roger Horn, recently revised expectations for the nation's gross domestic product for the next two years.
GDP growth for 2011 is now forecast at 1.6%, down from Horn's team original estimate of 2.7%. SocGen also recently lowered its 2012 GDP growth forecast to 1.8% from 3.1%.
Not pretty.
Capital Economics counters the spend-to-recover argument easily in its outlook report for the U.S.
"Lower borrowing costs won't boost consumption much when the price of credit is not the problem," analysts at the Toronto-based firm said.
"Instead, the previous sharp fall in equity prices, the continued decline in house prices and the still high unemployment rate have significantly reduced the ability and willingness of households to borrow," according to Capital Economics.
What's missing is housing policy that appreciates why the average American wants to pay $1.39 cash for a biscuit and gravy breakfast, as opposed to putting it on a credit card. There is a clear lack of incentives for the public to do anything but retrench.
There are no caps on landlords raising rents. There appears to be little chance of a tax break. Contention over the debt ceiling created political risk for any further stimulus package. House prices edge lower, wages are soft, jobs growth nonexistent.
And as more regulations come into force, the lending environment for consumers is likely to grow even more restricted over the next years. There will be an end to the misery one day, to be sure.
But this day will come sooner if the markets are allowed to operate in a regulatory environment growing less restrictive, not more.
Did Dodd-Frank serve to extend economic hardships for Americans? We could answer that if anyone with political will in Washington will join us for a biscuit.
Write to Jacob Gaffney.
Follow him on Twitter @jacobgaffney.
Tags: Capital Economics, Credit Suisse, debt, GDP, jobs, mortgages, Société Générale
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