FedUpUSA

Archive for the ‘Mortgage market’ Category

I am a Loan Officer for a national mortgage bank – yes, I am one of those horrible bankers who forced people to take out mortgages they did not understand on homes they could not afford. Actually, I have been a loan officer for 5 years, so I started after those OTHER horrible bankers had done all those bad things to poor unsuspecting people.

At any rate, I get asked often if now is a good time to buy a home.

My answer? There has probably never been a better time to buy a home. Home prices are low, and interest rates are about as low as they have ever been. It is a Buyer’s market, and you can get a great deal on a home.

That said, there is a caveat or two. You have to have decent credit (decent, not great), a job, and you have to have some money (unless you are an Armed Services veteran, there are no more 100% loans), and you cannot have too much other long term debt (long term debt is car loans, other consumer loans, student loans, mortgages and credit card debt).

There can be issues with getting approved if you are self-employed or if you are new to a job or career field, but for the most part, loans are available, and not just for the people with great credit and 20% to use as a down payment.

In addition, you should be relatively secure in your employment situation. I know there is no guarantee that anyone will keep their jobs, especially these days. Buying a home is a large commitment, so if you have an unusual amount of job or financial anxiety, wait to buy until things improve. Peace of mind is a hard thing to lose.

So, given the current good market for buying, what does the future hold for the housing and mortgage market? If I knew for sure, I would be on my yacht sipping umbrella drinks and wondering what to snack on next, but I can make some informed predictions. I call these types of predictions SWAG’s (scientific wild-ass guesses).

My view of the future is predicated on the following assumptions. Until something changes dramatically, these things are and will continue to be true.

• Government spending and the associated deficits will continue to be HUGE – even if the Republicans take over Congress in the next election, it will be many months or several years before anything changes with government spending – this is not want I want, this is reality. Nothing changes quickly in DC.
• Taxes will rise – a lot. This is a sure thing. The tax cuts that President Bush got passed on 2001-2002 expire at the end of 2010, so taxes will go up. Add to that the new healthcare bill and other “stimulus” measures coming out of Washington, and you can expect a BIG increase in your taxes.
• The economic doldrums will continue – the decisions and spending by our federal government are exactly opposite what was/is needed to get the economy pumped up. Think I’m wrong? Check out what happened in Japan in the 90’s and see what their government did to “fix” it. They did exactly what Washington is doing, and we are going to get the same result – a decade or more of no grow, at all.

All this means that the housing and mortgage markets will be adversely affected. I expect the following:

• Interest rates will remain low for the remainder of 2010. Then, depending on what happens in the Nov. election, and what course the new Congress takes, rates will rise – maybe a lot. I would not be surprised if mortgage interest rates were at or near 10% in 12-18 months. Why will they rise? The Treasury department artificially “made the market” for mortgage interest rates by buying LOTS (over $1 trillion) of mortgage-backed securities, starting in Dec of ’08. This program stopped at the end of the 1^st quarter this year Government deficit spending. Right now, other countries ate financing our spending by buying Treasury bonds – at very low rates (near 0% returns). That will NOT continue. When the countries & investors buying our debt stop doing so, the return will have to rise to get them to buy (good old supply & demand). So, the Federal Reserve will have to raise rates to sell the bonds, and that will make rates in all other things rise as well. In addition, I think we are headed for rapid inflation, and the Fed will fight that by raising interest rates. This could happen very quickly – in a matter of weeks. I watched rates go up 2+% in a few weeks in 2005, and down 2+% at the end of 2008.
• Home Values will NOT recover – not in the next couple of years. There is not enough demand for homes to warrant an increase – except in some very specific towns & neighborhoods. People are anxious about their livelihoods and the economy and government spending, and that is not going to change until several things change 180 degrees.

All this tells me that the next year or so are not going to be perceptively better than now – and got get worse.

I hope I am wrong. I hope (and am working personally to see it happens) that there are substantial changes in Washington as a result of the November election. I hope that the new Congress will see the light and go after government spending with a blow torch, especially that horrible health care “reform”, without more taxes hikes than we will have anyway (those Bush tax cuts expiring). I hope that they make major changes to entitlement spending (Social Security, Medicare, Medicaid) that get those runaway programs under control. I hope all these things, and I am working in my small way to help make them happen, but until they do, no one can assume they will. The old saying applies – “Hope for the best, plan for the worst.”

OK, mortgage rates are low and probably going up soon. Home prices are down and probably not going up anytime soon. The federal government is filled with thieves, charlatans, mountebanks, and failed lawyers (basically the same thing, huh?) , and that will probably never change.

What are you going to do? Do like I did. I own a home and have refinanced to a rate in the mid-4%. If I had some money, I would buy rental properties and/or a vacation home, but alas I do not have the funds for that. Buy a home if you can and want to; refinance your mortgage if you have not done so yet. These things will help you and will help the economy. Then, go vote for conservatives in November and force them to do as they are told.

Contact me if you want more info about anything I have written here.

Tom MacKinnon

U.S. Aid Benefits Banks, Not Homeowners

By PETER EAVIS

Government support for the economy has helped banks make all manner of windfall profits. But have outsize returns in banks’ mortgage operations deprived borrowers of lower mortgage rates?

In 2009, there was a big jump in an industry margin used to gauge the profitability of banks’ main mortgage business, selling home loans to government-supported Fannie Mae and Freddie Mac.

In theory, if that margin had remained at narrower, historical levels, mortgage rates for borrowers could have been lower. That might have caused sizable savings for homeowners over the life of their loans and breathed more life into the housing market.

Banks’ mortgage profits have come amid extraordinary government support for the housing market. Since 2008, the Treasury has spent $112 billion to shore up Fannie and Freddie. Further support has come from the Federal Reserve’s $1 trillion-plus of purchases of mortgage-backed securities since the start of 2009. All this has helped mortgage rates fall. But could they have been lower still?

Consider what happens when banks sell their loans to Fannie or Freddie. A bank might write a mortgage at 5.1% and sell it to Fannie, which guarantees the loan and sells it with other loans packaged as mortgage-backed securities, perhaps with a coupon of 4.35%. The difference of 0.75 of a percentage point is booked by the bank, which uses some of that revenue to cover costs in its mortgage business. From 2000 through 2008, that margin averaged 0.73 of a percentage point, according to Barclays Capital data. But in 2009, the average was a much wider 0.98 of a percentage point.

Any additional margin likely boosted banks’ bottom lines. And by a lot, potentially, given that $1.4 trillion of mortgages were written in the first three quarters of 2009, according to Inside Mortgage Finance. Indeed, Wells Fargo and Bank of America, which together account for 45% of the market, reported blowout mortgage earnings last year.

The cause of the wider margin: The Fed’s buying helped pull down coupons on Fannie and Freddie securities by more than mortgage rates. If banks had cut mortgage rates in line with those coupons, homeowners would have benefited. Instead, the benefit appeared to have accrued to the banks.

Banks say the higher margin only offset higher expenses. But basic costs, like the guarantee fee banks pay to Fannie or Freddie as well as loan-servicing costs—roughly 0.25 of a percentage point each—likely haven’t gone up excessively.

Jay Brinkmann, of the Mortgage Bankers Association, says banks needed to recoup a drop in the value of servicing-related assets last year. Lenders also face hedging costs when selling mortgages into a forward market, he says. Of course, since mortgage rates have come down so much, some might say it is nitpicking to focus on potential extra gains for banks. But mortgage rates still are relatively high on an inflation-adjusted basis. And though mortgage origination picked up in 2009 on the lower rates, it fell well short of previous low-rate years.

So should the Treasury have leaned on banks to charge lower mortgage rates, given the government’s desire to help homeowners? Sure, intervention would have risked making banks skittish, perhaps leading to less lending. But the main lenders all have strengthened their mortgage operations through big mergers, and the price at which they sold mortgages benefited a lot from the Fed’s buying.

As the government spends huge sums shoring up the housing market, it may want to look more closely at who is benefiting. Peter Eavis

“HAFA” – Foreclosure Warning Dead Ahead!

Posted by Karl Denninger

Under the Radar – a bit – came this ditty at the end of November.  Coupled with the “unlimited” Fannie and Freddie “credit line”, this may presage a veritable collapse in house prices this coming spring and summer – along with a massive “dump” of inventory.

“HAMP”, the Treasury’s program to “prevent” foreclosures, did not originally appear to have a “stick.”  Well, here’s the stick folks – for those who cannot qualify for a modification, or who “blow it” while on a trial program and simply don’t get a permanent change servicers are in fact required to offer short sale or “deed in lieu” alternatives when they make sense.

Got that?  Servicers participating in HAMP must follow the guidelines set forth in this Supplemental Directive.

No choices here folks – if you’re part of HAMP, you are required to offer expedited and unified procedures for short sales and, optionally, “deed in lieu” programs.

This goes into effect in April, although servicers can start offering these programs earlier. 

Come the spring selling season you’re going to see the inventory of homes that were “HAMPd” and failed for whatever reason hit the market. 

This is not a trivial number of houses – there are close to 750,000 homes currently under trial modifications, and only a tiny number of them – something like 30,000 – have converted to permanent payment changes.

Thank Treasury for not telling you about this until the “selling season” had ended and we were in the middle of the winter months when sales are slow – and timing the “required start” date for April 1st, right into the maw of the spring selling season.

If you need to sell your house in the next year this is something you need to take into consideration.  A flood of nearly 3/4 of a million houses appear poised to hit the market as short sales and “deed in lieu” sales beginning in April.

In short it appears that Treasury has figured out that all these “extend and pretend” games are not converting delinquent loans into sustainable payments and ownership opportunities.  As such the stick has now made it’s appearance.  While this will promote the market clearing (a good thing) one wonders about:

• The propriety of “deciding” to extend an unlimited line of credit to Fannie and Freddie on Christmas Eve in the hope that the market “wouldn’t notice.”  Dennis Kucinich and a couple of other reps have made noise about Fannie and Freddie becoming the tools by which bad loans are dumped on the taxpayer in a back-door bailout of the banks.  Before you applaud Dennis make sure you look at his voting record on the bills that enabled the bailout of Fannie and Freddie – and made Treasury’s actions lawful – in the first place!
• The be really really quiet fashion in which Treasury has tried to play this one.  Remember that there are overlapping programs here, and the quiet nature of some, along with the trumpeting of others, appears to be designed to disadvantage consumers – that is, to SCREW YOU.  Specifically, the “first time” home buyers tax credit (and repeat credit) both require contracts to be signed by April 30th, 2010.  This program’s mandatory effect begins on April 1st, which means that with the ordinary process of approval and evaluation (set forth in the document linked above) that inventory will hit the market right about May 1st.  That $8,000 “credit” may be the most expensive $8,000 you have ever received compared to the deal you would obtain had you waited a couple of months and bought into the maw of the short sale and deed-in-lieu unload.  Thank Tim Geithner and President Obama for hiding their intentions in this regard until tens of thousands of Americans bought (and are still considering buying) grossly-overpriced houses when they were fully aware of their intent to force an unload at an actual market price just a few months later!

The short form is that Treasury has suddenly pulled the stick out of its pocket with regard to the HAMP program and as a consequence those who believe that “housing has stabilized” are very likely to get a truly epic surprise later this spring and into the summer months.

In addition, those who bought during the time period of the “home buyer tax credit” almost certainly, to an individual transaction, have gotten and will continue to be screwed, with the essence of the rip-off being the lack of disclosure of Treasury’s intent to force the market to clear. Indeed, Treasury has sent public signals for over two years that they have NO INTENTION of forcing market-clearing prices - EVER!

If “housing stability” is part of your investment thesis, whether it be in credit the equities, you need to check the premise upon which your thesis is based and adjust accordingly.

I applaud Treasury for what appears to be recognition of what I have advocated for more than two years: The housing market cannot be propped up at artificially-inflated prices and must be forced to clear by a return to fundamental values. 

However, I must object to how Treasury has gone about this.  Rather than being an advocate for the people of this nation Treasury has instead intentionally designed these programs and withheld critical information from the public with regard to their full intentions with the purpose and effect of inducing consumers to enter into transactions that are severely to their disadvantage – all to create yet another rip-off of the public for the benefit of the big banks.

U.S. Loan Effort Is Seen as Adding to Housing Woes

By PETER S. GOODMAN

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy. “We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”

Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.

In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.

“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.

Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”

From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.