***Smart Financial Weekly Mortgage Update November 13, 2009***
Interest Rates
This week Fed members were out saying that with the recovery likely to be weak expect the Fed to keep rates (short term rates) low. Typically the Fed starts raising rates about 12-18 months after unemployment peaks although some economists expect the Fed to start increasing rates next summer. Mortgage rates continued to be stable at around 5.00%.
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Note that actual market rates vary geographically and by lender, credit score and Loan to Value.
Source: Federal Reserve Statistical H.15.
Mortgage Industry Update
· The reserves for FHA have shrunk to .53% which is well below the legal minimum set by the government at 2.00%. One year ago FHA reserves were at 3%. While there is some dispute about what happens next clearly the data points to assistance from the government at some point. However, Housing Secretary Donovan still does not believe a bailout will be needed. Hey, Mr. Secretary, what about that 14.42% delinquency at the end of the second quarter? By the way, the new Risk Executive at FHA is working on guideline changes to minimize future risk to FHA. He also has been quoted as saying that FHA should NOT be financing 30% of home purchases in the country.
· The Treasury released its report on the progress of the home loan modification program this week. Thru October 650,994 3 month Trial modifications have been started. Saxon Mortgage Services continues to have the highest percentage of starts with 44% followed by Citi at 40%, GMAC at 35% and Wells Fargo at 29%. Bank of America is at 14%. 72 servicers are in the program and have received $27 billion in TARP funds for the program.
· Wells Fargo announced this week that it is increasing its minimum score on FHA loans from 620 to 640 effective November 16th.
Good News
· The NAR report for third quarter showed national median home price up 7% from previous quarter to $177,900.
· Fewer homeowners are upside down on their homes according to Zillow.com. In the third quarter 21% of homeowners were upside down compared to 23% in the previous quarter.
Statistics of Interest/Concern
· Fannie Mae received a capital injection from the government of $15 billion this week and Freddie Mac received $5 billion dollars. They both also warned that they could face additional losses from the weakening of mortgage insurance companies. Last Monday Moody’s S&P warned of downgrades for seven mortgage insurers and actually downgraded MGIC the largest mortgage insurer for both Fannie and Freddie. As a side note Freddie Mac said its exposure to the failure (bankruptcy) of Taylor Bean a huge mortgage originator could be $500 million.
· Consumer sentiment declined in October to 66 according to Reuters/University of Michigan survey. Forecast was for 71.
· According to Jay Butler at ASU there were 3815 sales of foreclosed homes in October which was 38% of sales up from September when foreclosures were 32% of sales. Also, he points out that 6140 of October sales “had previously been in foreclosure”. The median price home in Phoenix for October was $140,000 with the median price of a foreclosure sale at $153,450.
Foreclosure Headlines
· The foreclosure rate in October declined by 3% from September but there were still 332,292 foreclosure notices recorded up 18.9% from a year ago according to RealtyTrac. Nevada led the nation with 1/80 homes in foreclosure, California was second with 1/156 and Arizona was fourth with 1/200.
· A company called Lender Processing Services said this week that 22% of all mortgages in Florida were in a non current status (either delinquent of foreclosure).
Job Market Headlines
· Initial weekly jobless claims came in at 502,000 below forecast of 510,000.
· Continuing jobless claims were 5.63 million down 139,000 from previous week.
· The consensus of a survey of economists by Reuters was that unemployment would peak at 10.5% and that the Fed will start raising rates in the third quarter of 2010.
· The Bureau of Labor Statistics reported that in the third quarter there were 1776 “extended mass layoffs” of 277,924 workers the most ever in a third quarter.
Commentary/Observations
The FDIC issued a clarification of its problem loan policy for its staff in the field regulating bank activity. In part the communication tells the employees not to classify loans as problems if the payments are current even though the underlying asset has a debt greater than the assets value.
More from the FDIC: According to an upcoming quarterly report banks are not lending because with their cost of funds near zero they are buying high yielding assets like stocks and commodities. This is known as the “carry trade”. Guess they can make more money doing this than lending money to consumers and businesses to help speed up the economic recovery.
Iran update: Iran’s Persian Gulf neighbors including Saudi Arabia and United Arab Emirates are leading a drive to upgrade their missile defense spending and naval and air forces. Spending by these nations could reach $40 billion in the next two to five years. Details could be discussed at the Dubai Air Show starting November 15. Happy Friday the 13th!
If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.
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