Politics


S&P Lowers Fannie, Freddie Credit Rating-Daily Real Estate News | Tuesday, August 09, 2011

Standard & Poor’s downgraded the credit rating of lenders backed by the federal

government on the heels of the first-ever lowering of the U.S.’s credit rating.

Fannie Mae, Freddie Mac, and other government-backed lenders were lowered one step from AAA to AA+, S&P reported in a statement issued Monday. Some analysts say the downgrade may force home buyers to pay higher mortgage rates.

“The downgrades of Fannie Mae and Freddie Mac reflect their direct reliance on the U.S. government,” S&P said in a statement. “Fannie Mae and Freddie Mac were placed into conservatorship in September 2008 and their ability to fund operations relies heavily on the U.S. government.”

The GSEs own or guarantee more than half of U.S. mortgage debt.

Freddie Mac said that the lower debt rating will cause “major disruptions” in its home-lending by possibly reducing the supply of mortgages it can purchase. It said in a Securities and Exchange Commission filing that the lower rating could hamper home prices and even lead to more home-loan defaults on mortgages it guarantees.

Meanwhile, the Federal Housing Finance Agency on Monday assured investors that securities issued by GSEs are sound. “The government commitment to ensure Fannie Mae and Freddie Mac have sufficient capital to meet their obligations, as provided for in the Treasury’s senior preferred stock purchase agreement with each enterprise, remains unaffected by the Standard & Poor’s action,” said Edward DeMarco, FHFA acting director.

Some analysts and lenders have said they don’t see the fallout from the S&P downgrade on the U.S. and other banks as having such a widespread affect. “It’s likely that once the storm passes, you’ll get an increase in mortgage rates because of this, but it won’t be significant,” says Anika Khan, a housing economist at Wells Fargo.

S&P also announced on Monday that it had lowered its credit ratings for 10 of 12 federal home loan banks and federal farm credit banks from AAA to AA+.

Source: “S&P Lowers Fannie, Freddie Citing Reliance on Government,” Bloomberg (Aug. 8, 2011); “S&P Downgrades Fannie and Freddie, Farm Lenders and Bank Debt Backed by U.S. Government,” Associated Press (Aug. 8, 2011); Freddie Mac Reports $4.7B Loss, Says S&P Downgrade Will Disrupt Mortgage Market,” Associated Press (Aug. 8, 2011); and “FHFA Assures Investors After Fannie, Freddie Downgrade,” HousingWire (Aug. 8. 2011)

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Will the S&P Downgrade Affect Interest Rates?

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)

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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

 

Loan-Limit Deadline Looms

Practitioners are speaking out against proposals in Congress that could potentially devastate sales.

 

July 2011 | By Robert Freedman

 

 

 

 

Vacaville, Calif., is a middle-class outpost on the outskirts of pricey San Francisco and nearby East Bay communities like Walnut Creek. In some parts of the city, homes sell for about $300,000, says local practitioner Jeannette Way, CRS, of Gateway Realty. The vast majority of buyers—up to 90 percent, Way estimates—rely on financing backed by the Federal Housing Administration because the conventional lending market simply isn’t there.But now even FHA lending is at risk because of a proposal floating in the U.S. House of Representatives to change the formula with which loan limits are calculated. It would reset the maximum loan values and could remove the “floor” that keeps FHA limits from dropping to unrealistically low levels—in the case of Vacaville, limits could fall to about $170,000.

“You might as well just wipe the industry away,” says Way, CRS, who also serves as 2011 chair of the NATIONAL ASSOCIATION OF REALTORS®’ Federal Housing Policy Committee. “It just won’t be there anymore.”

Lawmakers are deep into talks about changing limits not just for FHA loans but also for Fannie Mae and Freddie Mac’s conventional conforming loans. Talks are happening now because the current limits expire on Sept. 30, the end of the federal fiscal year.

NAR estimates that reverting to the lower FHA limits on Oct. 1 will impact 612 counties in 40 states and the District of Columbia, with an average loan limit reduction of more than $50,000.

Concern in Moderate Markets, Too

In Plymouth, Mich., not far from Detroit, the area would take a hit similar to what’s expected in Vacaville. “The housing market here would come to a standstill and I’d have to find a new job,” says Claire Williams, ABR, GRI, a practitioner with Remerica Hometown One and 2011 vice chair of the Federal Housing Policy Committee.

In parts of Wayne County, homes cost around $200,000, Williams says. But if the proposal circulating in the House becomes law, the maximum FHA loan amount throughout the county, which includes Detroit, would drop to less than $66,000.

NAR President Ron Phipps has made clear that Realtors® would fight such a drastic drop. “Our housing recovery remains fragile at best,” he said in testimony before the House Financial Services housing subcommittee in May. “Changing the loan limits at this critical time will only restrain liquidity and hamper the recovery.”

Since 2008, the floor has been $271,050 for FHA loans and $417,000 for the government-sponsored enterprises Fannie and Freddie. For expensive areas like San Francisco, loans can go up to $729,750 under the FHA and the GSEs.

It’s the FHA floor of $271,050 that would go away under the House proposal. Loans would be limited to 125 percent of the area median home price, so if the median home price is $175,000, the highest loan the FHA would guarantee would be $218,750. But it gets more complicated than that, because the floor would be calculated based on county rather than metropolitan statistical area.

“Counties across the country would see their loan limits reduced by tens of thousands of dollars,” says Barry Rutenberg, a home builder from Gainesville, Fla., who testified at the same House housing subcommittee hearing as President Phipps.

A Push to Keep Limits As Is

NAR has been fighting for months to retain the existing $417,000 loan limit for Fannie and Freddie loans and the $271,050 limit for FHA loans, along with the higher limits for expensive areas. These limits were enacted two years ago, and were critical in helping to stem the home sales crisis, lawmakers have said. NAR and other groups have rallied around bipartisan legislation written by Reps. Brad Sherman (R-Calif.) and Gary Miller (D-Calif.) to make these limits permanent.

Despite bipartisan support for maintaining stable loan limits, keeping limits where they are will be an uphill battle because of the country’s pressing budget concerns, NAR analysts say. To allay those concerns, industry analysts and academics have made clear that higher limits by themselves don’t cost the government more money than lower limits. In fact, higher loan sizes have actually helped the FHA insurance fund because on a historical basis they’ve performed better than lower-balance loans, according to an internal 2009 FHA audit.

The Cost of Non-Action

If lawmakers fail to act on the Sherman-Miller legislation, and if they don’t pass the House proposal to lower the limits and remove the FHA floor, loan limits for both the FHA and the GSEs would revert to levels that were set in emergency legislation enacted during the financial crisis.

Under those levels, FHA and GSE limits would drop from 125 percent to 115 percent of the area median home price, although limits couldn’t go below the current floors: $417,000 for Fannie- or Freddie-backed loans and $271,050 for the FHA-backed loans. Limits in expensive areas would drop to $625,500 for the FHA and Fannie and Freddie alike.

That’s clearly far better than the House proposal, but NAR will continue to urge lawmakers to support the Sherman-Miller bill. “If Congress does nothing and loan limits revert to the levels in the emergency bill, that’s a far better outcome than other scenarios, including if the FHA floor is removed,” says Way, “especially given the pressure Congress is under to address the federal deficit. But it will still hurt. At least 40 states will see their limits drop, and thousands of households won’t be able to buy. We have to keep fighting to keep loan limits where they are.”

World Debt Guide:  Owe Dear

The Economist online

Our interactive graphic shows how deeply in hock we all are

THE headlines are all about sovereign debt at the moment. But that is only part of the problem. Debt rose across the rich world during the boom, from consumers maxing out credit cards to financial firms taking on more leverage, and the process of reducing it is still at a very early stage.
The interactive graphic above shows the overall debt levels for a wide range of countries, based on data supplied by the McKinsey Global Institute. In theory there is no maximum level for debt relative to GDP, but Ireland and Iceland (not on this map) found the limit in practice when they hit eight-to-ten times GDP.

The debt is also broken down by sector. Note the huge size of Britain’s banks relative to its economy, and the high level of Spanish corporate debt. Note, too, Japan’s vast amount of government debt, not yet a problem but an obvious reason for jitters over the longer term.

Japan has the dubious distinction of topping our sovereign-debt vulnerability ranking below, which orders countries based on their primary budget balance, their debt-to-GDP ratio and the relationship between the yield on their debt and economic growth (if the former is larger than the latter, the debt burden is getting steadily worse). Britain does badly, too, although a tough austerity programme and the long duration of its outstanding debt protect it from a loss of confidence. Here’s the table:

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

Will Property Tax Increases Stifle Housing?

Daily Real Estate News | Monday, August 01, 2011

 

Despite property depreciation and high foreclosure rates, more county governments nationwide are either planning or have already approved property tax hikes this year.

U.S. markets moving in this direction include Atlanta, Boston, Chicago, and Tucson, along with 35 different municipalities in Utah. Higher tax payments for cash-strapped homeowners, in turn, may generate more foreclosures, while steeper purchase costs could reduce the pool of qualified buyers.

Source: “Will Property Tax Increases Stifle Housing Further?” RealtyBizNews, Donna Robinson (July 31, 2011)

© Copyright 2011 Information Inc.

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Time to Appeal That Tax Bill?

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