Banking


As part of the Administration’s plan to increase homebuyer use of private mortgage insurance (PMI) on mortgages underwritten or purchased by Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) has proposed changes to shift the risk of loss on mortgage defaults and foreclosures from the U.S. Treasury to the private sector.

The two government sponsored enterprises (GSEs) currently require PMI or Federal Housing Administration (FHA)-provided insurance on some but not all mortgage loans with loan-to-value ratios (LTVs) over 80%. [For more on the comparative costs of PMI and MIP, see the first tuesday Market Chart, FHA, PMI, or neither?]

The FHFA now seeks to make GSE-based financing more comparable to financing independently provided by the private sector, partially in an effort to recoup losses sustained by Fannie and Freddie (and thus the U.S. Treasury) during the Great Recession and financial crisis. Fannie and Freddie have been repeatedly criticized since the collapse of the housing market for their loss-generating business practices and lack of “skin in the game.” [For other recent attempts to encourage private-style lending practices from GSEs, see the May 2011 first tuesday article, Fannie and Freddie show some skin.]

first tuesday take: Political ill will for Fannie and Freddie as they currently exist seems likely to succeed in the long run — either by making the GSEs fully-independent private entities or dissolving them altogether. Neither step, however, can take place successfully unless private mortgage bankers step up to the plate and deliver the loans it is their business function to make.

The federal government needs to quickly take the GSEs out of the lending business – especially by removing their government guarantees. Only then, when the playing field is leveled, will private mortgage bankers see they can achieve profitability through fully-regulated mortgage activity structured to prevent any hazardous competitive advantage in the market.

With luck, we can soon do away with both GSEs once and for all, and in the process be rid of their government-backed guarantees that have so badly misaligned mortgage funding and misallocated personal wealth in the real estate industry. With the removal of these agencies, and the simultaneous elimination of harmful mortgage interest tax deductions, it will finally be possible to achieve long-term stability in sales volume and prices. [For more on the flaws of mortgage tax deductions, see the June 2011 first tuesday article, Subsidizing the American dream.]

RE: “FHFA changes may boost private mortgage insurance”, from Housingwire.com

 

 

 

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10 YR Treasury 2.027 (time of CMG Rate Sheet Release)
Open is about 4 tix worse from yesterday. Approximately 0.174 worse in rebate on rate sheet.

Growing concern that Greece’s leaders are divided as to how to handle their current financial crisis has lead most US stocks to go down. The Netherlands and Germany are leading a drive to include more private-sector involvement in the next austerity package for Greece. “Europe is the issue that is first and foremost in everyone’s mind, so any news that comes out on that does have a strong impact on the market,” Peter Jankovskis, of Oakbrook Investments in Lisle, Illinois. “Any weakness there is going to be a drag worldwide.”

As a further sign that consumer spending has taken a turn for the worst, the world’s largest consumer electronics chain, Best Buy, is planning on slashing its holiday hiring by about half of what it was last year. This is a poor indicator both for the economy and is real bad news for the unemployed. Best Buy hired 29,000 seasonal employees last year, and anticipates hiring only 15,000 this year. “Our plan isn’t built or predicated upon a meaningful move in the economic environment,” said Brian Dunn, CEO of Best Buy, “The consumer is being really careful about where he or she is spending the dollars, and I think that will continue through the holidays.”

US home mortgage applications rose last week, showing that refinance demand is going up as rates are going down. Refi applications, according to the Mortgage Bankers Association’s seasonally adjusted index, went up 11.2 percent and purchase applications rose 2.6 percent. “Mortgage rates declined last week, at least partially in response to the Fed’s announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.

Market Summary

At 12:32 PM ET: Although the major indexes are mixed in trading today, most stocks are lower on the NYSE where declining issues lead advancing issues by 2.0 to 1. Among individual stocks, the top percentage gainers in the S.&P. 500 are Jabil Circuit, Inc. and Amazon.com Inc. http://markets.on.nytimes.com/research/markets/usmarkets/usmarkets.asp

Will the S&P Downgrade Affect Interest Rates?

Daily Real Estate News | Monday, August 08, 2011

 

Standard & Poor downgraded the U.S.’s credit rating on Friday, despite Congress reaching a deal in the final hours on the debt ceiling crisis last week. And now many of your customers may be asking: What does this mean for interest rates?“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

Watch this video with NAR Chief Economist Lawrence Yun for more information.

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

Source: “5 Ways the Downgrade in the U.S. Credit Rating Affects You,” The Washington Post (Aug. 8, 2011); Questions and Answers on Standard & Poor’s Downgrading of U.S. Federal Debt,” Associated Press (Aug. 6, 2011); and S&P Downgrade Will Shake Consumer and Business Confidence at a Fragile Time, Economists Say,” Associated Press (Aug. 6, 2011)

Read More

Real Estate OK in Debt Deal But Risks Remain

Commodity prices

Good news bears

Aug 8th 2011, 13:39 by The Economist online

A fall in commodity prices offers some cheer among the market gloom

THE equity markets may be suffering again as investors worry about sovereign debts and a slowing global economy. But the sell-off has also extended into the commodity market, particularly in oil: West Texas intermediate is trading at around $84 a barrel. This is a bearish story that is good news for western consumers. High raw-materials prices acted as a tax rise in the first half of the year; now they are falling the effect will be akin to a tax cut. There is just one caveat. The working assumption is that the recent sharp fall in the oil prices is caused by concerns about a slowing US economy; if it is really due to a sharp slowdown in emerging markets as well, equity markets will really have cause to worry.

Readers’ comments

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Welcome back to Earth !

BRL, you better find a parachute for you…

Deflation, your time has finally come, after 2.5 years of delay

We called it:
http://seekingalpha.com/article/285619-the-debt-downgrade-and-the-summer…

We’re outperforming today as we did all of last week.

I remember in 2008 petroleum peaked in May for their highest price in history. The cause was never explained.

This price exceeded 2004 levels when the Gulf refineries were smashed by a series of Hurricanes notable Katrina and Rita. The prices exceeded the outbreaks of Gulf War 1 and 2 with Iraq and even the 9/11 attacks. The price of oil exceeded Supertankers being attacked by terrorist teams, Iran mining the critical choke point of the Strait of Hormuz where 40% of World travels, Putin’s energy cut offs, or raging piracy off the Somalian coasts.

I want to propose an actor and a plot. Follow the Money. Who has the Wealth and Power and the Means and Motive? The world’s largest exporter of oil is Saudi Arabia.

And in 2008 they saw an opportunity to influence the election of the most powerful office in the world. The Saudis grew tired of Bush and the Republicans. And the Republican Presidential Candidate McCain seem to want to open up a third war front on Iran. The other candidate was named Hussein and may prove to be a tribal brother.

And when your only tool is a hammer, every thing looks like a nail. By reducing oil imports by 5%, the Saudis can affect oil prices world wide instantly and to astonishing effect. The Saudis used their control over oil supply to jigger a shortage, which lead to price spikes 6 months before the election and precipitated the American Great Recession of 2008. John McCain argued their was no recession under Republican leadership and was soundly trounced in the election.

But this Recession snowballed into the Nov 2008 banking crisis, Lehman Bros downfall, the mortgage crisis, AIG insurance crisis, Automaker bankruptcy and the unemployment morass. All because of oil spikes.

An incumbent President’s greatest opponent is the state of the economy in an election year. And the Saudis are again using their hammer this time to LOWER the price of oil to brighten the American economy and re-elect President Obama. We are puppets on a string.

Unfortunately, the law of unintended consequence, the Recession they brought on in 2008 is still around and may be into a double dip. The Saudis are at it again doing their best to suppress the price of oil to promote a recovery.

Surprise, Money is Power! And Economic issues can influence Politics. Strange things happen in election years. Yes, even foreign actors can also pull some stringshmTzic3YT/

Your assertion that the Saudis influenced oil price to rout the Republicans in American presidential election is clever, but simply UNTRUE. The Saudis, or more accurately King Abdullah and the House of Saud, most likely WANTED warmongering hawks in the White House again, so that the US could wipe Iran and its nuclear programmes off the map. Wikileaks showed that King Abdullah, while posturing as an Islamic patriot who wanted the US to moderate its Mideast policies, privately encouraged GWB to attack Iran. This explains the confusion and the disorderliness with which the Saudi diplomatic corps to Washington D.C. have been conducting themselves vis-a-vis the Iranian issue.

And in this day and age, it is unwise to assume that the power to set the price of oil is centralized in Riyadh, Caracas or whatever. Thousands of traders tinker with the price of crude, and other governments can simply flood the market with their strategic oil reserves to drive the price down.

On this blog we publish a new chart or map every working day, highlight our interactive-data features and provide links to interesting sources of data around the we

 

Mortgage Rates Hit Record Lows Amid Signs of Weakening Economy

MCLEAN, Va., Aug. 4, 2011 /PRNewswire/ — Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing mortgage rates dropping sharply amid falling bond yields and signs of a weaker than expected economy. The 30-year fixed averaged 4.39 percent, its lowest level for 2011. The 15-year fixed and 5-year ARM set new historical record lows averaging 3.54 percent and 3.18 percent, respectively.

News Facts

  • 30-year fixed-rate mortgage (FRM) averaged 4.39 percent with an average 0.8 point for the week ending August 4, 2011, down from last week when it averaged 4.55 percent. Last year at this time, the 30-year FRM averaged 4.49 percent.
  • 15-year FRM this week averaged 3.54 percent with an average 0.7 point, down from last week when it also averaged 3.66 percent. A year ago at this time, the 15-year FRM averaged 3.95 percent.
  • 1-year Treasury-indexed ARM averaged 3.02 percent this week with an average 0.5 point, up from last week when it averaged 2.95 percent. At this time last year, the 1-year ARM averaged 3.55 percent.

Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage. Visit the following links for Regional and National Mortgage Rate Details and Definitions.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

  • “Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows. The economy grew 1.3 percent in the second quarter, which was below the market consensus forecast, and first quarter growth was cut to less than a quarter of what was originally reported. In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009. Moreover, consumer spending fell 0.2 percent in June, representing the first decline since September 2009.
  • “On a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year. The CoreLogic® National House Price Index rose for the third straight month in June (not seasonally adjusted) and was the first three-month gain since June 2010. Finally, pending existing home sales rose for a second consecutive month in June and was up nearly 20 percent from June 2010 when the housing tax credits expired.”

Get the latest information from Freddie Mac’s Office of the Chief Economist on Twitter: @FreddieMac

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

SOURCE Freddie Mac

The Fed’s plan of attack

By Kelli Galippo • Jul 21st, 2011 • Category: real estate newsflash

The Federal Reserve (Fed) is ready to dole out additional stimulus if need be ― that includes another round of Treasury bond buying (quantitative easing) or lowering interest rates. In the Fed’s biannual economic report to Congress, they indicated such measures will only be taken if the economy does not significantly improve or if deflation becomes a danger.

Fed representatives believe the second half of 2011 will show signs of an improving economy – more jobs and more sales. In the event they are wrong, stimulus measures are ready to be employed.

first tuesday take: The Fed’s responsibilities are threefold: dispense enough money into circulation, keep the labor market stable and maintain inflation at 2-3%. The efforts thus far to produce a growing jobs market (and thus improve real estate sales of all types) by injecting funds into the banking system through Treasury bond (T-bond) buying have proven less effective than they anticipated.

To complicate matters, 2008 legislation authorized the Fed to pay interest on bank reserves and that return has given lenders incentive to hoard their funds by placing them with the Fed rather than make loans. [For more information regarding the Fed’s purchase of Treasury bonds, see the October 2010 first tuesday article, The Fed purchases Treasuries, fends off deflation and the July 2011 first tuesday article, The Fed’s monetary policy, straight from the horse’s mouth.]

Will another round of Fed T-bond buying get lenders moving? It depends on how confident lenders feel about their pool of potential borrowers compared to the Fed. In the meantime, the Fed must continue monitoring the economy and be prepared to adjust their battle plan accordingly. Dropping interest payments on those 1.8 trillion in bank reserves on deposit with the Fed would quickly get lenders lending. [For more information regarding the Fed’s policies, see the June 2011 first tuesday article, Suspect behavior, why and how the Fed creates a recession.]

Re: “Federal Reserve chief hints at stimulus plan” from Mercury News

– ft

Debt Fears Send Mortgage Rates Inching Up

Daily Real Estate News | Friday, July 29, 2011

 

The 30-year fixed-rate mortgage, a popular choice among home buyers, was up slightly this week amid growing concerns over a possible U.S. debt default next week, which has already been casting fears across financial markets. If the U.S. debt does default on its obligations, analysts say it could send mortgage rates soaring.

“Industry analysts have made it clear that if the United States defaults and the national debt is downgraded, mortgage rates could spike immediately,” Bankrate said in a mortgage rate report. “But the uncertainty over what Congress will decide over the next few days has already started to shake the mortgage world, as investors question if it’s still safe to invest in U.S. bonds.”

Bankrate.com reported the 30-year fixed-rate mortgage rising to 4.74 percent this week from 4.68 percent the previous week. The 15-year fixed-rate mortgage increased only slightly to 3.83 percent from 3.82 percent last week.

However, Freddie Mac reported less change among mortgage rates in its weekly report. Freddie Mac reported the following rates for the week ending July 28:

  • 30-year fixed-rate mortgages: averaged 4.55 percent, up from last week’s 4.52 percent. Last year at this time, 30-year rates averaged 4.54 percent.
  • 15-year fixed-rate mortgages:averaged 3.66 percent, which is the same as last. A year ago, the 15-year rate mortgage averaged 4 percent.
  • 5-year adjustable-rate mortgages:averaged 3.25 percent this week, down slightly from last week’s 3.27 percent average. Last year at this time, the 5-year ARM averaged 3.76 percent.
  • 1-year ARM: averaged 2.95 percent, which is down from last week’s 2.97 percent average. A year ago, the 1-year ARM averaged 3.64 percent.

Source: “Fixed-Rate Mortgages Edge Up on Debt Ceiling Fears,” HousingWire (July 28, 2011) and “30-Year Fixed-Rate Mortgage Follows Treasury Yields Higher,” Freddie Mac (July 28, 2011)

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