The “man behind the curtain” is the “big banks”
How the big banks are fueling legislation that is hurting the housing market but will benefit them in the long run.
When we look back at the crazy housing market in the mid 2000’s, there were a lot of things that fueled crazy loans and crazy home prices. However, the dominant factor was rating agencies were lax or in on the profit. Brokerage houses were packaging MBS (Mortgage Backed Securities) and making large profits on the transactions. Legislation that was in place was not adhered to. In the end, there were products available that should not have been. Originators (like me) tried to advise people (I can’t tell you how many times I had a conversation where I told a client “I can get you approved for a larger loan than you are probably comfortable with. Let’s work to find something that you can afford within your budget”) but the lure of skyrocketing housing prices caused home buyers to pass on logic and bet on the come. There were poorly conceived loan products available. No one disputes that fact. However, the response to that fact has created a far worse outcome. Read more 
Fannie Mae and Freddie Mac – Walking Dead
Goodbye and good riddance says Rep. Barney Frank to Fannie Mae and Freddie Mac. In his opinion, both mortgage agencies need to be closed for good. Once that’s accomplished, the housing finance system can be rebuilt right.
Housing Gains
>> Home Base
INFO THAT HITS US WHERE WE LIVE Among last week's interesting tidbits of information about housing, Radar Logic reported transaction-count increases in 14 of 25 metro areas tracked in December 2008, compared to December 2007. They put these gains to improvements in home affordability and low mortgage rates, but cautioned that their numbers don't necessarily reflect total transaction volume in each area.
Meanwhile, the Federal Housing Finance Agency reported the price of the average home sale in Q4 of last year was only 8.2% lower compared to the year before. The National Association of Realtors chimed in with data showing the average home sales price down 9.4% from a 2006 peak. We all know that parts of the country have experienced serious price drops. But the fact that these national averages aren't so severe, indicates price declines haven't been that bad for most of the country.
Conforming mortgage rates fell again last week, according to FreddieMac's weekly survey. The rate for 30-year fixed-rate mortgages is hovering just above January's all-time low. In fact, conforming mortga ge rates in the survey have only gone up and down about a quarter percent since the beginning of the year.
>> Review of Last Week
UP WE GO… After weeks of continual sliding, the market finally took off like a shot, posting its biggest weekly increase in months. This may not signal the start of a rebound for the market and the economy, but it could indicate a bottom, which is good. Bottoms show stabilization – that the contraction is slowing or has been stopped in some areas. Experts are saying things may go up and down on the way back up, but only time will tell if we're now at the bottom of this recession – and bear market.
Positive economic indicators for the week included a better-than-expected retail sales number for February. It was down just 0.1% overall, but taking out auto sales, retail was UP 0.7%, following a 1.7% GAIN in January. Consumer sentiment also came in a tick up for the month. Fear seems to be abating. On Friday, White House economic advisor Larry Summers said it was indeed encouraging to see signs of a rise in consumer spending.
Best of all was the encouraging financial news. Citigroup said it had a profit the first two months of the year a nd won't need more TARP money. JPMorgan was also profitable in January and February. Some economists see this as early evidence that monetary policy is having some traction. In Washington, Barney Frank, who chairs House Financial Services, said he thinks the SEC will soon reinstate the uptick rule, which would make it harder to short financial stocks.His committee also held its hearing on mark-to-market accounting and seems to favor temporarily suspending the rules. They gave SEC and FASB accountants three weeks to come back with a plan. This is positive news because many experts feel adjusting mark-to-market is vital to fixing the banking system. It should ease capital concerns at banks, giving them increased capacity to lend, which is central to the recovery.
The Dow zoomed UP for the week 9.0%, to 7223.98; the S&P 500 went UP 10.7%, to 756.55; and the NASDAQ almost matched it, going UP 10.6%, to 1431.50.
With stocks enjoying a great week, you'd expect bonds to get hammered, but things weren't so bad. In spite of China's reservations about Treasuries, the price of the benchmark 10-year Treasury dropped just a tad. So its yield, which runs counter to price, only inched up to 2.890%, still comfortably under the 3% threshold. This bodes well for mortgage rates continuing at attractive levels.
>> This Week’s Forecast
THE FED MEETS AND MORE… Tuesday and Wednesday, the Federal Open Market Committee meets and no change is expected to the Fed Funds Rate. But the policy statement coming out of the meeting will be closely analyzed for indications of how the Fed may further support the financial system.
Economic indicators we want to look at include Housing Starts and Building Permits on Tuesday, plus the Consumer Price Index on Wednesday for a further check on inflation. We'll also have earnings from FedEx, General Mills, Nike and Oracle.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Mar 16 – Mar 20
|
Date |
Time (ET) |
Release |
For |
Consensus |
Prior |
Impact |
|
M |
10:30 |
NY Empire State Mfg Index |
Mar |
–32.0 |
–34.65 |
Moderate |
|
M |
09:15 |
Industrial Production |
Feb |
–1.2% |
–1.8% |
Moderate |
|
M |
09:15 |
Capacity Utilization |
Feb |
71.1% |
72.0% |
Moderate |
|
Tu |
08:30 |
Housing Starts |
Feb |
453K |
466K |
Moderate |
|
Tu |
08:30 |
Building Permits |
Feb |
510K |
531K |
Moderate |
|
Tu |
08:30 |
Producer Price Index (PPI) |
Feb |
0.4% |
0.8% |
Moderate |
|
Tu |
08:30 |
Core PPI |
Feb |
0.1% |
0.4% |
Moderate |
|
W |
08:30 |
Consumer Price Index (CPI) |
Feb |
0.3% |
0.3% |
HIGH |
|
W |
08:30 |
Core CPI |
Feb |
0.1% |
0.2% |
HIGH |
|
W |
10:30 |
Crude Inventories |
3/13 |
NA |
–749K |
Moderate |
|
W |
14:15 |
FOMC Rate Decision |
0.0-0.25% |
0.0-0.25% |
HIGH |
|
|
Th |
08:30 |
Initial Jobless Claims |
3/14 |
NA |
654K |
Moderate |
|
Th |
10:00 |
Leading Economic Indicators (LEI) Index |
Feb |
–0.6% |
0.4% |
Moderate |
|
Th |
10:00 |
Philadelphia Fed |
Mar |
–40.0 |
–41.3 |
HIGH |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. Basically, no one is expecting the Fed to tighten monetary policy for some time to come. So no changes in the Fed funds rate are expected to come out of next week's meeting.
Current Fed Funds Rate: 0%–0.25%
|
After FOMC meeting on: |
Consensus |
|
Mar 18 |
0%–0.25% |
|
Apr 29 |
0%–0.25% |
|
Aug 12 |
0%–0.25% |
Odds of change from current policy:
|
After FOMC meeting on: |
Consensus |
|
Mar 18 |
1% |
|
Apr 29 |
5% |
|
Aug 12 |
10% |
This post information was provided by: Greg Brooks southwest area manager San Diego Mortgage Network (800) 287-8292 x 225 San Diego homes for sale
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Rep. Louie Gohmert speaks out against the mortgage cramdown, which would allow judges to rewrite home mortgages during bankruptcy. This proposal would force the 92 percent of responsible homeowners to subsidize the mistakes of irresponsible borrowers and lenders.
At the very least, mortgage lenders will have to add additional fees to all new mortgages to cover for the loses this legislation will cause.
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San Diego Real Estate & Mortgage Views
INFO THAT HITS US WHERE WE LIVE Last Wednesday, January existing home sales came in down 5.3%, to an annual rate of 4.49 million. The supply went to 9.6 months, but that was all because of the slower pace of sales. In fact, the raw inventory of both single family homes and condos/co-ops DECLINED. The inventory of existing homes has now been reduced by one million homes since its peak last July.
Thursday, new single-family home sales came in at a 309,000 annual rate, a bit slower than expected. Because of this slow pace, inventory increased to 13.3 months. But the total inventory of unsold new homes has dropped dramatically – to 341,000 homes, down 40.2% from its record peak in 2006. The new homes inventory is now below the 355,000 average of the last 25 years.
We also saw the Case-Shiller home price index down 2% for December and down 18.5% versus a year ago. The media jumps all over this index, but it focuses on homes in major metro areas, so it isn't a true average for the country. For a truer look at the overall situation, we might want to consider the Federal Housing Finance Agency (FHFA) numbers, which concentrate on homes with conforming mortgages. Sales of these homes showed a PRICE GAIN of 0.1% in December and only an 8.7% drop from a year ago. Some experts feel many areas of the country are close to or already have hit bottom.
>> Review of Last Week
STAYING ABOVE 7000…It wasn't a great week in the markets, with the major indexes slipping just over 4%. The Dow happily stayed above 7000, a psychological victory of sorts, since both the Dow and the S&P 500 finished at 11-year lows. The week began with a low Consumer Confidence reading and ended with Friday's revised Q4 GDP of –6.2%. This was bigger than predicted and the media jumped all over "the worst GDP reading in a quarter century." They were referring to Q1 1982 GDP, which was actually –6.4%, meaning we're still not as bad off as we were in the Reagan recession.
Real disposable personal income was up 3.4% in Q4, indicating people have money, they're just hesitant to spend it. Other positive news included the Chicago PMI (Purchasing Managers Index) coming in UP over last month. This forward-looking indicator is a good si gn, as is University of Michigan Consumer Sentiment, which also came in better than expected. The most encouraging signs came from our leaders. Fed Chairman Ben Bernanke told Congress Tuesday there is a "reasonable prospect" the current recession will end this year and that 2010 will be a year of recovery. That evening, the President told a joint session of Congress, the nation and the world: "We will rebuild, we will recover and we will emerge stronger than before."
Efforts to fix the financial system included the announcement Wednesday of the administration's Capital Assessment Program. CAP will provide banks with capital in exchange for stock, if they go through a "stress test" to determine the need for those funds. Friday, the Treasury agreed to hike its stake in Citigroup to 36%.
The week saw the Dow fall 4.1%, to 7062.93; the S&P 500 went down 4.5%, to 735.09; and the NASDAQ slid 4.4%, to 1377.84.
The bad week in stocks was matched, uncharacteristically, by a bad week in bonds. Uncertainty about the cost of all the bailouts is weighing on prices. The price of the benchmark 10-year Treasury went down, so its yield, which runs counter to price, went up to 3.030%. Mortgage rates, however, remain at very attractive levels.
>> This Week’s Forecast
GOT JOBS?… We'll find out the latest employment story in Friday's Jobs Report. Pending Home Sales will be the topic on Tuesday. AIG is supposed to announce quarterly earnings (no date yet confirmed), but no one's expecting to throw a party over that one. Other indicators will continue to scope out the economic situation.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. Economists believe the Fed is unlikely to move rates from their rock bottom level during the first half of the year. Things could change in the second half if the economy and inflation start perking up.
Current Fed Funds Rate: 0%–0.25%
This post information was provided by: Greg Brooks southwest area manager San Diego Mortgage Network (800) 287-8292 x 225 San Diego homes for sale
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