Fed May Resume Asset Purchase Program

It was reported last week that the economy slowed in the second quarter and the Gross Demostic Product is growing at a very slow rate. This a sign that the economy is decelerating.  More than likely if you are job hunting right now you are feeling the effects of this.

Following this, Ben Bernanke addressed the economy in a speech in Jackson Hole, WY.  Bernanke said that:

“although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected”.

“Household finances and attitudes also bear heavily on the housing market, which has generally remained depressed. In particular, home sales dropped sharply following the recent expiration of the homebuyers’ tax credit. Going forward, improved affordability–the result of lower house prices and record-low mortgage rates–should boost the demand for housing. However, the overhang of foreclosed-upon and vacant housing and the difficulties of many households in obtaining mortgage financing are likely to continue to weigh on the pace of residential investment for some time yet”.

“A first option for providing additional monetary accommodation, if necessary, is to expand the Federal Reserve’s holdings of longer-term securities. As I noted earlier, the evidence suggests that the Fed’s earlier program of purchases was effective in bringing down term premiums and lowering the costs of borrowing in a number of private credit markets. I regard the program (which was significantly expanded in March 2009) as having made an important contribution to the economic stabilization and recovery that began in the spring of 2009. Likewise, the FOMC’s recent decision to stabilize the Federal Reserve’s securities holdings should promote financial conditions supportive of recovery.

Many experts are speculating that the Fed is out of bullets and really don’t have a lot of options. Bernake did say that they are prepared to restart the asset purchase program. Outside of that he did not offer details on any other options.

The housing market is the key to the economy and if not fixed it could bring everything else down with it.  The Arkansas Housing market has suffered but nothing like other parts of the country.

Barney Frank Wants Fannie Mae and Freddie Mac Eliminated

Barney Frank called for the dissolution of mortgage giants Freddie Mac and Fannie Mae. He said “they she be abolished”. This then poses the question, what do we replace them with. The current mortgage market couldn’t function without something to replace them.

Frank continued “There is no more hybrid private-public.  If we want to subsidize housing then we could do it upfront and let the budget be clear about that”.  Frank emphasized that whatever replaces Fannie and Freddie should be self-financing.

Fannie Mae and Freddie Mac were seized by the federal government in 2008.  Since that time, the Obama Administration has pledged unlimited capital (taxpayer money) to backstop the agencies.  Thusfar, $150 billion has been poured into Freddie and Fannie.  The Congressional Budget Office estimates the total bailout will run around $400 billion, whilst others say it will cost closer to $1 trillion dollars (that’s twelve zeros, people).  Bear in mind that the bailout of Fannie and Freddie is in essence a backdoor bailout of banks that made risky loans.

Frank also commented that “public policy has been too much to try to push people in homeownership”.

We agree with much of what Frank is saying, but you will notice that he doesn’t say anything specific.  I have yet to see a real viable, specific plan as to how we should deal with mortgage subsidies, Fannie, and Freddie from either Democrats or Republicans.  Most of the policy makers in Washington seem to speak in trite generalities, seemingly designed to offend nobody while simultaneously saying little.  It’s kind of like saying “we need to cure cancer.  The only question is how do we do it?”

It would be great if we could have an actual public discourse about housing and the wisdom/efficacy of subsidizing homeownership, but I suspect we will spend most of our time on some sort of quixotic run-around, tilting at windmills

Forclosures Rise Month Over Month

Realty Trac released a report this morning that says the number of people who lost their homes due to foreclosure was up in July from June.  It was 9 percent increase from June to July and a 6 percent increase from the same time last year.

For eight straight months foreclosures have increased for the month year over year. This is a sign that the lenders are moving the backlog of properties at a much faster rate. On average it takes at least a year from the time a foreclosure notice is given to the time the home owners actually vacate the property. The large delay is contributed to the number of homes in the US that are in the process of foreclosure. Additionally mortgage lenders are slow to process them because they do not want to flood the market which causes even more problems by negatively impacting home values.

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The number of houses entering into the foreclosure process was up 1 percent from the previous month, but was down 28 percent from the previous year.  For the past six months, foreclosures have declined on a year-over-year basis.

The foreclosure problem continues largely because the country’s labor market has not improved at all over the past year.  Nearly 7 million people have been out of work for more than six months.  This accounts for almost half of the unemployed people in the country. Arkansas is below the national average of 9.5% unemployment. The state is currently around 7.5%.  Additionally, government loan modification and foreclosure alternative programs have been largely unsuccessful because they are largely dependent upon the voluntary participation of lenders.

RealtyTrac estimated that one million American homes will be seized by banks this year.

FHA Releases Details Of New Program

Beginning September 7^th FHA will be offering a new option for home owners who are underwater on their current home. Homeowners with a Arkansas Mortgage Can benefit fromt this program. They recently released the details of the new program. The title of the program is FHA short refinance.

Deutsche Bank recently released some staggering numbers. They said there could be as many as 20 million homes that are underwater by the end 0f 2011.

From the letter, here are the conditions for qualification for the new program:

1. The homeowner must be in a negative equity position;
2. The homeowner must be current on the existing mortgage to be refinanced;
3. The homeowner must occupy the subject property (1-4 units) as their primary residence;
4. The homeowner must qualify for the new loan under standard FHA underwriting
requirements and possess a “FICO based” decision credit score greater than or equal to 500;
5. The existing loan to be refinanced must not be a FHA-insured loan;
6. The existing first lien holder must write off at least 10 percent of the unpaid principal balance
7. The refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent;
8. Non-extinguished existing subordinate mortgages must be re-subordinated and the new loan may not have a combined loan-to-value ratio greater than 115 percent;
9. For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard (TOTAL) and/or are manually underwritten, the homeowner’s total monthly mortgage payment, including the first and any subordinate mortgage(s), cannot be greater than 31 percent of gross monthly income and total debt, including all recurring debts, cannot be greater than 50 percent of gross monthly income;
10. FHA mortgagees are not permitted to use premium pricing to pay off existing debt obligations to qualify the borrower for the new loan;
11. FHA mortgagees are not permitted to make mortgage payments on behalf of the borrowers or otherwise bring the existing loan current to make it eligible for FHA insurance; and
12. The existing loan to be refinanced may not have been brought current by the existing first lien holder, except through an acceptable permanent loan modification as described below.

From the outside looking in there doesn’t seem to be a incentive for mortgage lenders to participate in this program. The only real advantage that we can see for lenders would be that it may be more cost-effective to write down a loan than to deal with foreclosure. If this is the case, however, one would think that lenders would be doing this right now, without any prompting from the government. We will probably have to wait and see how everything shakes out in the coming weeks.

Greenspan Says Double Dip Recession Possible

Alan Greenspan, former Federal Reserve Chairman, recently stated that the slow economic recovery feels like a “quasi-recession” and the economy might contract again if home prices decline.

 “We’re in a pause in a recovery, a modest recovery, but a pause in the modest recovery feels like a quasi-recession,” Greenspan said in an interview on NBC’s “Meet the Press” broadcast yesterday.

When asked if a double dip recession was possible, he stated, “It is possible if home prices go down. Home prices, as best we can judge, have really flattened out in the last year.”

Declining housing market, and slow economic growth after the tax credit ended, has caused concern that the there is a chance the economy could return to a recession before we begin to see a recovery.

If you recall home sales and mortgage applications fell off a cliff in July after all the tax credit related transactions worked through the system in June. Unemployment and Underemployment continue to be a problem as well. Arkansas is below the national average on unemployment with a rate of around 7.5%. Only time will tell but people have to go back to work before they are going to start buying homes.

Housing Prices May Fall For Another Year

Late last week there was another negative report about housing. Fiserv via Housing Wire’s Diana Golobay released the report. It stated that the national average home price increased by 2 percent year over year in the first quarter of 2010, which was the first year over year gain since 2006.  At first glance this looks like it is good news, however the increase was not equal across the country rather it was large gains in a few markets.

The worst part is, Firserv is stating that home values will fall 4.9 percent over the next 12 months. This is mainly due to the jobless rate coupled with peoples lack of income, and the large amount of distressed and REO property that is on the market. Not only will this have a large impact on home sales but also on mortgage loans as well.

The steepest declines are predicted for the Nevada, Arizona, and Florida markets, all off which are predicted to decrease 9-11 percent over the next year.  David Stiff, Fiserv chief economist was quoted in the article as saying: “The stabilization of residential real estate markets will take many years as buyers and sellers try to find price levels that clear large inventories of vacant homes from the market.  Consequently, we expect to see prices bounce up and down around their lows for the next two to three years, especially in markets that experienced the largest home prices bubbles.” In a previous report, Fiserv predicted that it will take until 2025 for homes to get back to 2006 levels in the aforementioned states.

Based on most of the recent articles published it seems pretty apparent that home prices will fall over the next 12 months but its hard to really say just exactly how much. Most experts agree the only way to turn it around is add jobs and decrease the inventory that is currently out there.

Foreclosures Continue To Make Housing Inventory Grow

Bad news for the housing sector and the economy in general just keeps coming like a prize fighter. Mortgage rates continue to be at all time lows yet the economy continues to sputter. With consumer confidence extremely low, coupled with low homeownership we have a bad combination.

We recently heard a report that the housing supply continues to grow. Of course this is something we have known because all the experts have been predicting this. In a recent article by The Wall Street Journal they stated that over 4.5 million mortgage loans were in some stage of default or foreclosure in June of this year. In addition to this they also reported that Freddie Mac’s and Fannie Mae’s new foreclosures were up by almost 21 percent from May to June.

Some of the growing number of foreclosures can be attributed to the outright failure of initiatives like the Home Affordable Modification Program (HAMP) and the rising number of strategic defaults that largely arise from lost equity.

Despite this, we are seeing additional new homes constructed by builders who purchased land in anticipation of a housing rebound.  When the rebound failed to manifest itself, builders decided to build and sell homes close to cost in order to get rid of the land.  Shockingly, new home construction is up over 60 percent in bubble areas like southern Florida, Las Vegas, and Denver.

According to the excellent Calculated Risk Blog, we currently have an 8.9 month supply of homes on the market, and the number is going to grow.  Normally we have 6 months of housing supply on the market.  This does not include a lot of the shadow inventory that likely exists on banks’ asset sheets.

None of this bodes well for home values.  While today’s S&P Case-Shiller House Price Index showed increases in most cities, that survey is a 3 month average with a 2 month lag, so it only really tells you what has happened, not what is or is going to happen.

Fannie Mae and Freddie Mac Will Make Lenders Buy Back Bad Loans.

In an article earlier in the week by Jody Shenn of Bloomberg.com reported that Fannie Mae and Freddie Mac may identify up to as much as $30 billion worth bad loans that they could force lenders to buy back.

Just in the month of July the Federal Housing Finance Agency has issued 64 subpoenas seeking files and documents that are related to the securities purchased by Fannie and Freddie. This include some of Wall Street’s biggest banks.

In the first quarter of this year alone they have forced buybacks totaling over $3.1 Billion. One of the main quotes in the article was:

“With what’s happened in the mortgage sector, we realize there was a great deal of fraud involved,” William Sidford, a senior vice president at AllianceBernstein LP, which manages almost $200 billion in fixed-income assets, said July 15 at the Securities Industry and Financial Markets Association conference in New York. “That being said, investors aren’t in a position to enforce the claims on those reps and warranties, rather we’re relying on the trustees and servicers to take action for us.”

With both agencies being propped up by the government the amount they could possible recovery is small in comparison to how much money has already been put into the mortgage giants.

Arkansas FHA Mortgage Requirements

There are always a lot of questions surrounding a FHA loan.  The first being what it is and how it is different from other loan types.  It’s a loan that is insured by Federal Housing Administration. By insured I mean the actual lender is insured against the borrower defaulting.  It differs in its much more flexible than most other loans and requires less down payment than a Conventional loan. In Arkansas the maximum loan amount for a FHA loan is $271,500. Before making a offer on a home you should always get pre-approved by a Arkansas Mortgage Lender like Primary Residential Mortgage.

FHA mortgages are the most flexible home loans to qualify for. When trying to prequalify there are certain things that are essential.

• Steady employment history over the last 2 years.

• Stable or increasing income.

• Good credit. Most lenders now require a 620 minimum credit score.

• You can’t have had a bankruptcy in the last 2 years.

• No foreclosures in the last 3 years

There are other factors related to qualifying for a FHA loan but the above are some of the major ones. The best thing to do is call Primary Residential Mortgage at 501-225-5626. Currently Arkansas FHA Mortgage Rates are low so it is a great time to apply for a loan.