My Blog

Construction spending falls 0.6%

According to the Commerce Department, construction spending in the U.S. fell for a third straight month by 0.6% to $884.13 billion in January; construction spending dropped 1.2% in December. Nonresidential buildings in the private sector dropped 0.9% in January, while state and local government construction dropped 0.7%. Federal construction spending rose 1.9% to a high of $30.68 billion in January, increasing for the fifth straight month. Spending on private home buildings rose 1.3%. While housing starts rose 2.8% in January from December, construction permits, an indicator of future projects, dropped 4.9%. New home construction which rebounded strongly in the third quarter of 2009 seems to have lost some momentum. The economy was pushed into its worst slump since 1930s on account of the housing collapse. “We haven’t really seen much improvement in housing,” said Michael Englund, chief economist at Action Economics. “Residential construction is still weak. On the non-residential side, builders are hesitant to go along on new projects and banks are reluctant to provide the capital.”

Will Simon’s bid for General Growth attract antitrust?

Simon Property Group, a large owner of malls presented last month a $10 billion offer to buy General Growth Properties, another mall operator. Simon has offered to pay $7 billion towards General Growth’s unsecured debt. In addition, Simon would pay $6 per share to General Growth's shareholders and spin off General Growth's residential-development division, which Simon values at $3 per share. The deal, if it goes through, would create a single entity which would control about 520 malls in the U.S. While analysts wonder if the bid would invite antitrust concerns, David Simon, the Chief Executive Officer of Simon, said such concerns are unwarranted. "No way. Not even close," said Simon. "Retail real estate is so diverse. There are so many options for retailers. We're competing with the Internet. You have Wal-Mart [Stores Inc.], big-box retailers, department stores. I just don't see it being a big issue. But there's an education process I think the industry is going to have to go through." General Growth is not interested in accepting Simon’s bid and has countered Simon’s bid with a plan to receive funding from Brookfield Asset Management Inc., a Canadian property investor.

HARP gets extension for 12 months

The Obama administration introduced the Home Affordable Refinance Program (HARP) last year to help about 4 to 5 million borrowers who have little or no equity in their homes. The program, administered by Fannie Mae and Freddie Mac, refinanced 190,180 mortgages in 2009 with loan-to-value between 80% and 125%. The program which was set to expire June this year has been extended by 12 months. Edward DeMarco, acting director of the Federal Housing Finance Agency, said the program has been extended to June 2011 in order to "support and promote market stability and to encourage lenders and other mortgage market participants to fully adopt the HARP program, including the implementation of the October 2009 expansion of loan-to-value ratios to 125%." Analysts have been critical of the program and say it has had a limited impact so far. "The overall volume last year was an embarrassingly small amount. I don't think it will make a big difference" to have the program extended, said Thomas Lawler, a housing consultant.

Bankruptcies drop in the U.S.

BankruptcyData.com says only 5 public companies filed for Chapter 11 or Chapter 7 bankruptcy protection in February, compared to 19 in the same period in 2009. In January, 12 public companies filed for bankruptcy while 11 public companies went under in December. Bankruptcies of large companies -- with more than $1 billion in assets -- have slowed down. In 2009 about 25% of the companies that filed for bankruptcy had assets over $1 billion while so far this year only 19% percent of the total 16 bankruptcy filings have had more than $1 billion in assets. The improved economic situation and buoyancy in capital markets are helping companies stay afloat. Analysts however warn that the scenario is not entirely rosy and more bankruptcies can be expected. "Last year was like a tsunami, but this next phase will be more like a rising tide; consistent and steady," said William Snyder, a managing partner with CRG Partners. Analysts feel capital restructuring can help companies only to a limited extent. In the long run, what really matters is operational efficiency. Alan Cohen, chairman of Abacus Advisors, a turnaround and restructuring firm, said: "You can correct a balance sheet by manipulating debt into equity, or reducing debt, but unless the entity focuses on improving operations, they're going to have a tough time."

Number of bank failures this year: 22 and counting

Last week, regulators closed 2 banks, bringing the number of bank failures to 22 so far this year. The banks which were shut down are Carson River Community Bank, based in Nevada, with $51.1 million in assets and $50 million in deposits as of Dec. 31 and Rainier Pacific Bank with $717.8 million in assets and $446.2 million in deposits as of Dec. 31. The Federal Deposit Insurance Corporation (FDIC), which insures up to $250,000 per account at member institutions, will take a hit of over $100 million on account of the 2 failures. FDIC says the number of troubled banks jumped to 702 in the fourth quarter from 552 in the earlier quarter. Nearly one in every three banks reported a loss in the latest quarter. Amid recession and a rise in delinquent loans, the pace of bank failures has been rising, from 25 in 2008, to 140 in 2009, and to 22 in just the first 2 months this year. Banks are likely to incur as much as $300 billion in losses on Commercial property loans in the near-term, according to a recent report by the Congressional Oversight Panel, the watchdog that monitors financial bailout. With the economy not showing any signs of sustained recovery, the FDIC’s insurance fund is expected to take a hit of over $100 billion in the next four years.

TARP and HAMP failed to halt foreclosures

In his latest quarterly report to Congress, special inspector general Neil Barofsky said that the Troubled Asset Relief Program, or TARP, has failed to boost bank lending as well as halt the spread of foreclosures -- two key aims of the sprawling program.  "Whether these goals can effectively be met through existing TARP programs is very much an open question at this time," Barofsky said in the report.  Since Congress enacted TARP, lending to both consumers and businesses has continued to decline.  Earlier this month, the Treasury Department reported that the 22 banks that got the most aid from the government's various bailout programs have actually cut their small business loan balances by $12.5 billion since April.  The Obama administration did propose a joint program between the Treasury Department and the Small Business Administration in October to make capital cheaper for community banks that commit to increasing their small business lending, but three months later the government is still drafting guidelines for that initiative.  Barofsky, whose office has been closely tracking the evolution of TARP, also criticized the Obama administration's Home Affordable Modification Program.  Even as Treasury allocated $35.5 billion towards that foreclosure-prevention program as of the end of last year, only 66,500 homeowners have received permanent modifications, with another 787,200 homeowners in trial modifications.  There is no sign that the rate of foreclosures is slowing down anytime soon. Earlier this month, RealtyTrac, the online marketer of foreclosed homes, reported that foreclosure filings surged to a record 3 million in 2009, up 21% from 2008.  There was at least one bit of good news from Barofsky's latest report however. He acknowledged that while the ultimate cost will still be "substantial" for American taxpayers, it will be less than originally estimated.

New $3.8 trillion budget

Today President Obama will reveal a $3.8 trillion budget for 2011.  The budget proposes new tax breaks and incentives for small businesses that hire new employees or boost wages, which would cost $30 billion. There would also be tax breaks for small businesses that make new investments.  The budget includes a one-year extension of Making Work Pay tax breaks, delivered as a part of last year's stimulus package. This credit resulted in slightly higher paychecks for 110 million families, according to the White House.  It would make permanent tax cuts passed during the Bush administration for all except high-income households.  Other spending hikes will include: $17 billion more for Pell Grants to help students pay for college and $6 billion for "clean energy technologies."   The administration would also spend $734 million to install 1,000 new full body scanners at airports.  The budget also calls for a relatively small three-year cap on non-defense discretionary spending. Critics, like the budget watchdog group OMB Watch -- which called the move "emptying a sea with a teaspoon" -- point out that the cap is on a small part of the total budget, leaving room for big increases on war, military and national security spending. In fact, the president's budget will call for billions more in spending increases for defense, diplomacy and homeland security agencies, even though House Speaker Nancy Pelosi said last week that some defense spending should also be subject to the freeze.  White House budget chief Peter Orszag claims that the White House's guiding philosophy is: "Don't make the situation any worse." Shame they didn't think that one up before…

DSNews.com - Fannie Mae seller assistance program

Fannie Mae has announced a temporary seller-assistance program under which people purchasing a property through HomePath, Fannie Mae’s REO disposition operation, will receive up to 3.5 percent of the final sales price, which can be applied toward closing costs or used to purchase appliances for their new home.  The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010, the company said. In addition, many Fannie Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, with as little as 3 percent down.  “Attracting qualified buyers to the market and reducing the inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover,” said Terry Edwards, EVP of credit portfolio management for Fannie Mae. “Many families are taking advantage of the federal homebuyer tax credit to buy a new home so this is a great time for Fannie Mae to offer some additional help.”  According to the GSE’s most recent quarterly filing, Fannie Mae acquired 98,428 homes through foreclosure during the first nine months of last year and sold 89,691 REO properties during the same period. But at the end of September, Fannie Mae still had 72,275 REO properties on its books, marking a 7 percent increase year-over-year.  Furthermore, Fannie Mae’s monthly summary shows significant growth in seriously delinquent single-family mortgages held or guaranteed by the company. Up from 2.13 percent in November 2008, loans three or more months behind in payments or in the foreclosure process soared to 5.29 percent in November 2009.

Obama and his phantasmagorical job count

In the ongoing circus of the White House's elusive "jobs saved or created," administration officials claimed Saturday that its stimulus plan directly funded 599,108 jobs in the fourth quarter.  The figure is based on about 160,000 reports from state, local and corporate recipients that have spent stimulus money to keep teachers in schools and cops on the street, as well as to rebuild roads, launch green energy initiatives and fund other projects. That spending represents one-fifth of total stimulus spending to date.  In total, the economic stimulus program has boosted employment by 1.5 million to 2 million jobs, the president's chief economic adviser said in mid-January. But unlike the figure reported Saturday, that number is derived from a mathematical formula based on how much money has flowed out the federal door and includes both the direct and indirect hires.  A total of $263.3 billion has been paid to states, contractors and other recipients or distributed in tax breaks. Recipients' reports cover $57.9 billion of that spending, according to the White House.  Since it was enacted last February, Republicans have repeatedly attacked the $862 billion effort as a colossal waste of taxpayer dollars that has not created meaningful, long-term employment.  "Americans deserve more than fictitious claims that don't match the reality of what they are going through," said Kevin Smith, spokesman for House Minority Leader John Boehner, R-Ohio.

Fannie Mae hits 5.29% delinquency rate

Fannie Mae reported a serious delinquency rate for its mortgage portfolio of 5.29% in November 2009, the latest month of data, the highest in recent memory.  That number grew from 4.98% in October and more than doubled the 2.13% in November 2008, according to its monthly summary.  For December 2009, the entire Fannie book of business grew at an annualized rate of 9.7% in December to $3.2bn. For all of 2009, the book grew 4.2%.  Fannie’s mortgage-backed securities (MBS) and other guarantees totaled $2.82bn in December. It issued $55.3m in MBS – up from $40.3m in November – bringing its total issuance for the year to $807.8m.  Fannie’s gross mortgage portfolio grew at an annualized rate of 37.6% in December and stood at $772.5m at the end of the year.  Wilshire Credit Corp., the mortgage servicer bought by IBM in October, is set receive a substantial servicing portfolio from Fannie and catch the servicing rights to a portion of these delinquencies. In fact, the mortgage finance industry is abuzz over a rumored change to the way Fannie and its brother GSE Freddie Mac would assign and manage mortgage servicing rights.

Keep the $8000 tax credit, say realtors

A large majority of the nearly 1,000 real estate agents surveyed in a recent Weichert poll say the first-time homebuyer tax credit of up to $8,000 has had a significant impact on spurring consumer interest in getting into the housing market. Some even called for an expansion of the program past its current expiration date and to homeowners that do not yet qualify. 71% indicated the credit was the single largest factor motivating the buyers they’ve worked with so far in 2009, 20% of respondents said affordable home prices were the motivating factor, and 8% indicated low interest rates played a major motivating role. 92% said the market will decline if the tax credit expires at the end of November while 97% of respondents favored extending the credit through Dec. 31, 2010. “The tax credit is working to restore confidence and stimulating the overall economy but we still have a long way to go before we return to a normal market,” said James Weichert, president and founder of Weichert. “As this survey shows, many in our industry are concerned that we will lose much of the ground that has been made toward a recovery if the tax credit is not extended.”

30-Year Mortgage Rate Falls to 4.94%

According to Freddie Mac’s latest survey of data through October 1, the average 30-year fixed-rate mortgage (FRM) had a 4.94% interest rate with an average 0.7 points, down 10 basis points (bps) from 5.04% last week. The 15-year FRM averaged 4.36% with an average 0.6 points, down 10 from 4.46% last week. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.42% with an average 0.6 points this week, down from 4.51% last week. The one-year FRM averaged 4.49% with an average 0.5 points this week, also down from 4.52% last week. A separate rate survey conducted by Bankrate.com of major US banks and thrifts indicated rates fell for a fifth week, dipping to their lowest levels since spring. The 30-year FRM slipped 11bps to 5.25%, while the benchmark 15-year FRM fell 10bps to 4.65% this week. “This is as good a time as any to refinance because Uncle Sam will make it more difficult and more expensive to refi in a few months,” said Bankrate’s Holden Lewis in weekly commentary.

Unemployment hits 9.8%

The national unemployment rate inched up to 9.8%, another 26-year high. The Labor Department said there was a net loss of 263,000 jobs in the month, up from a revised loss of 201,000 jobs in August. Economists surveyed by Briefing.com had forecast losses would fall to 175,000 jobs. The labor market had shown slow but relatively steady improvement since a record loss of 741,000 jobs in January, and this is only the second time this year that job losses rose from the previous month. However, September marked the 21st consecutive month that the number of workers on payrolls has shrunk, a period during which 7.2 million jobs have been lost. Even though many economists, including those at the Federal Reserve, say there are signs that the economy is growing once again, today’s jobs report shows that job losses could continue well into the recovery, limiting the strength of any economic turnaround.

GSE REO Portfolio Near 100,000

According to 10-Q filings with the Securities and Exchange Commission (SEC), Freddie Mac’s portfolio is nearly 35,000 properties, while Fannie Mae’s is closing in on double that figure at nearly 64,000. Fannie’s REO portfolio nearly doubled from the first half of 2008 compared to H109. Fannie held 33,729 properties during H108. The number of properties increased in all regions of the US except the Midwest, which experienced a decrease from 15,265 to 14,626 properties, but the rate of growth in the two portfolios has declined. Freddie acknowledges it expects to experience further losses from REO properties: “While temporary suspensions of foreclosure transfers and recent loan modification efforts reduced the rate of growth in our charge-offs and REO acquisitions during the second quarter of 2009, our provision for credit losses includes expected losses on those foreclosures currently suspended,” the Freddie filing said. Freddie said its pool of Alt-A interest-only loans, as well as 2006 and 2007 vintage loans comprise the biggest share of its portfolio and “continue to be larger contributors to our worsening credit statistics than other, more traditional loan groups,” because of factors like declining home prices. Freddie’s REO properties are concentrated in the West region of the country, and homes there comprised 27% of the unpaid principal balances of Freddie’s single-family mortgage portfolio as of June 30, 2009, but accounted for 46% of its REO acquisitions in the first half of 2009.

Regulation Z statutes in effect5

The Federal Reserve’s long awaited Regulation Z statutes went into effect yesterday after more than a year of preparations by the mortgage industry. Regulation Z is a truth-in-lending regulation to protect consumers who buy higher-priced mortgages with annual percentage rates (APR) above the average prime offer rate for a comparable transaction by at least 1.5 percentage points for first mortgages, or 3.5 percentage points for second mortgages. Lenders now have to provide additional disclosures when their customers purchase these loans. In addition, lenders will now evaluate the borrower’s ability to repay, verify income and assets, establish escrow accounts for taxes and insurance, and won’t have prepayment penalties for two years on most loans.

Taxes looming?

Remember the taxes the President promised no one but “the rich” (making over $250,000/yr) would have to pay? Well, no matter how much you make, reach for your wallet. An increasing number of influential Democrats and fiscal-policy experts have signaled that lawmakers will have to get a handle on the deficit, and they recommend seriously considering the creation of a value-added tax (VAT) on top of the federal income tax. That would mean more money out of everyone's pockets when buying virtually anything -- sweaters, school books, furniture, pottery classes, and dinners out. A VAT is tax on consumption similar to a national sales tax, but it's not just paid at the cash register. It's levied at every stage of production, so all businesses involved in making a product or performing a service would pay a VAT. And then the retail customer gets hit as well. Paul Volcker, the former chairman of the Federal Reserve who heads President Obama's tax reform panel, (among others, including liberal think tanks, of course) said that when it comes to getting control of the country's debt burden, "I think if we can't do it on the cost side, we've got to go on the revenue side. And it's too early to do it, but it's not too early to begin wondering.” Well, we all knew deep down that the “no new taxes” shtick was too good to be true, didn’t we?

Existing home sales drop in August after 4 monthly gains

According to the National Association of Realtors, existing home sales declined 2.7% in August to 5.10 million units, from 5.24 million in July; this follows gains in the previous 4 months during which sales rose a total of 15.2%. Lawrence Yun, NAR chief economist, said: “Home sales retrenched from a very strong improvement in July but continue to be much higher than before the stimulus. Some of the give-back in closed sales appears to result from rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.” Yun cautioned that “we can’t take a housing rebound for granted” given the decline in August. Existing home sales are compiled from contract closings and may reflect purchases agreed upon weeks or months earlier. Total housing inventory at the end of August fell 10.8% to 3.62 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace. The national median existing-home price for all housing types was $177,700 in August, down 12.5% from August 2008.

Fed to slow mortgage purchase; home loan rates likely to stay low

The Federal Reserve (Fed) had proposed last year – when the credit crisis peaked -- to buy as much as $1.45 trillion worth mortgage securities in 2009 in order to keep borrowing costs low for homeowners. The central bank has bought $775 billion worth of both mortgage-backed securities and debt from Fannie Mae, Freddie Mac and Ginnie Mae so far. The program, which was set to expire at the end of this year, has been extended through the first quarter of 2010. By slowing down mortgage purchase, the Fed hopes to avoid a sudden hike in borrowing rates if the Fed were to get out of the market all of a sudden. The Fed’s “primary goal is to avoid a shock to the market by suddenly shutting the programs down all at once,” said Christopher Low, chief economist at FTN Financial. As the Fed slows purchases, “they’re hoping other buyers will step in to avoid a sudden increase in mortgage rates,” said Low. Guy Cecala, publisher of Inside Mortgage Finance, expects rates for home loans to stay low “in the 5 percentage range” even though the Fed will slow its purchase of mortgage securities.

Luxury hotels may default on $24.5 billion debt

According to Realpoint LLC, a credit rating company that tracks commercial mortgage-backed securities, loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default. Luxury hotels with rooms costing over $800 a night have some of the biggest loans; decreasing occupancy and cash flows have put luxury hotels at significant risk. “All segments are showing signs of distress but the luxury segment carries much higher loan balances and is more clearly affected,” said Frank Innaurato, managing director of CMBS analytical services at Realpoint. Smith Travel Research says occupancy in the luxury hotel segment fell to 60% in the first half this year from 70% a year earlier. In addition, aggressive financing adopted by luxury hotels during credit boom is coming back to haunt them. “Luxury hotels have been aggressively financed during the peak CMBS issuance years,” said David Loeb, an analyst at Robert W. Baird & Co. “That’s why luxury hotel loans crowd these watch lists.” Andy Day, an analyst at Morgan Stanley, said luxury hotels are suffering from “a heightened focus on prudent corporate travel expenditures as well as the pullback in vacation travel.”

Initial jobless claims drop to the lowest in 2 months

According to the Labor Department, initial jobless claims dropped by 21,000 to 530,000 in the week ended September 21, from a revised 551,000 the week before. Initial jobless claims reflect firings and tend to drop as job growth rises. “The layoff picture is improving,” said Jonathan Basile, an economist at Credit Suisse Holdings. “Companies are realizing they don’t have to keep cutting costs as aggressively as they have.” Forty-nine states reported a drop in claims, while three reported an increase. The economy has lost 6.9 million jobs since the recession started in December 2007; the most since the Great Depression. The Labor Department data suggests that 33.3% of the unemployed people – about 5 million Americans -- in August remained jobless for at least 27 weeks. That is a drop from 33.8% in July, the most since 1948. The U.S. House voted this week to extend jobless benefits for 13 weeks in states hardest hit by the recession. This measure would continue aid to about 300,000 Americans who are likely to exhaust their benefits by the end of this month. The bill now moves to the Senate for approval.

TARP watchdog says bailout money may not be recovered fully

In a testimony to the Senate, Neil Barofsky, the special inspector general for the U.S. Treasury's $700 billion Troubled Asset Relief Program (TARP), acknowledged the role of bailout funds in stabilizing the economy, but said the program may not fulfill all the policy goals. "The progress on meeting the goal of 'maximizing overall returns to the taxpayer' is unclear," Barofsky said in a testimony to the Senate Banking Committee. "While several TARP recipients have repaid funds for what has widely been reported as a 17 percent profit, it is extremely unlikely that the taxpayer will see a full return on its TARP investment." For example, a full recovery of more than $80 billion spent to stimulate the U.S. auto industry "is far from certain." Barofsky said the Treasury has repeatedly failed to implement his recommendations to increase disclosures, including detailed reports on what banks are doing with taxpayer funds. "We remain puzzled as to why Treasury refuses to adopt our recommendations to report on each TARP recipient's use of TARP funds," said Barofsky. Treasury spokesman Andrew Williams said the department has implemented the "vast majority" of Barofsky's recommendations and has included the inspector general “early” in the development of many programs.

MBA - Mortgage applications up

The Weekly Mortgage Applications Survey, released by the Mortgage Bankers Association (MBA) for the week ending September 18, 2009, increased 12.8% on a seasonally adjusted basis from one week earlier, (a holiday shortened week), and on an unadjusted basis increased 24.6% compared with the previous week and 14.0% compared with the same week one year earlier.  The Refinance Index increased 17.4% from the previous week asthe 30-year fixed rate dipped below 5%.  The Government Purchase Index is at the highest level ever recorded in the survey and the share of purchase applications that were government-insured was 45.7 percent, the highest share since November 1990.  The four week moving average for the seasonally adjusted Market Index is up 4.3%, and the four week moving average is up 0.7 percent for the seasonally adjusted Purchase Index, and the Refinance Index is up 6.8 percent.  Refinances share of mortgage activity increased from 61.0 percent the previous week to 63.8 percent of total applications.  The adjustable-rate mortgage (ARM) share of activity increased to 6.7 percent from 6.0 percent of total applications from the previous week.

Equifax -- Mortgage Delinquencies Still Climbing

According to the Equifax consumer credit trends report for August 2009, delinquency rates for prime and sub-prime mortgages increased nearly every month since March of 2009, for sub-prime borrowers.  30-day plus unit delinquencies for prime mortgages jumped to 6.51% in August compared to 5.89% in March, and the 30-day plus unit delinquencies of sub-prime mortgages increased to 36.35% in August from 33.61% in March.  Dollar rates for prime 30-plus day delinquencies bumped to 7.58%, up from 6.98% in March, and the dollar rates for sub-prime 30-plus day delinquencies rose to 36.35% in August from 33.61% in March.  Definitions of “sub-prime” vary from one source to the next and from one state to the next.  However, The definition of prime and sub-prime mortgages used for the above data refers to the credit score of the borrower, not the type of loan originated, a spokesperson for Equifax said.  Borrowers with an Equifax credit score below 620 are considered sub-prime.  Those above 620 are considered prime.

JPMorgan bullish on housing

JPMorgan has taken a negative stance on the future of housing for three and a half years, but according to a report by JPMorgan analyst Michael Rehaut, it now sees the housing market past its trough and driving toward recovery over the next 24 months.  Rehaut said he is impressed by the current rally in homebuilder stocks, but pointed out that the surge is well below recoveries that followed prior recessions.  The top six builders’ stocks fell 86% from an ‘05 peak and gained 105% from the low in March, compared to the 55% and 66% losses during recessions in 1982 and 1990 and the respective rallies of 171% and 486%, according to the report.  Housing starts remain down 29.6% from August 2008, according to a study by the US Department of Housing and Urban Development (HUD), but according to Brad Hunter, the chief economist at Metrostudy, despite the slowdown in completions, housing starts are approaching a bottom if they have not already reached one.

Geithner - “Consumer Financial Protection Agency”

Treasury Secretary Timothy Geithner will tell a key Congressional committee today that financial reform legislation needs to include a consumer protection agency and enhanced regulatory authority over too-big-to-fail firms.  He calls this the “Consumer Financial Protection Agency,” and suggests that it should have broad rule making and supervisory power of firms offering services and products to the public.  According to CNBC, the testimony reads, “Consumer protection cannot be reformed without addressing these structural problems…Our proposal will address them directly.  It will consolidate fragmented consumer authorities into one agency.”  Committee chairman Barney Frank, for his part, (D-Mass.) is working on an alternative version of the consumer agency bill outlined by the White House in June.  Frank sent a memo to Democratic panel members Tuesday highlighting the key differences in the so-called discussion draft.  With all due respect, can’t anyone find something else for Mr. Frank to do...something that doesn’t involve burning money and wrecking national finances and that kind of thing?

Rates will likely stay low

Federal Reserve Chairman Ben Bernanke and Fed policymakers will almost certainly leave interest rates at a record low and probably will keep other economic supports in place when they announce in the afternoon that the recession is over and that America's economic and financial climate is improving.  They’ll probably also slip in the usual caveat:  rising unemployment and hard-to-get-credit will make for a plodding rebound.  "We're kind of in an economic purgatory right now. We're in a recovery but it won't feel like one to Main Street," said Stuart Hoffman, chief economist at PNC Financial Services Group.  "There's still a lot for the Fed to do to foster a lasting economic recovery."  The housing market has been propped up by the Fed's mortgage-buying program, but Fed policymakers have to walk a fine line between leaving programs intact long enough to support the recovery, but not too long as to unleash inflation later on.  For now inflation isn't a problem with factories still operating well below capacity, a weak job market allowing employers to avoid wage increases, and cautious shoppers making companies wary of raising costs.  Rates on 30-year home loans dropped to 5.04 percent last week, compared with 5.78 percent a year earlier, but the housing sector's health remains precarious as foreclosures continue to mount.

Federal Incentives Coming for Short Sales

Nearly one-third of all existing homes sold were either short sales or foreclosures, according to monthly data compiled by the National Association of Realtors (NAR), and according to testimony by Federal Housing Administration (FHA) commissioner David Stevens, the mortgage servicing industry is about to see details of an incentive program aimed to prevent foreclosures by encouraging servicers to pursue short sales and deeds-in-lieu of foreclosure. The program is being finalized and will be announced as soon as possible – possibly later this month. “Because we know that the MHA program will not reach every at-risk homeowner or prevent all foreclosures, on May 14th the Administration announced the Foreclosure Alternatives program that will provide incentives for, and encourage, servicers and borrowers to pursue short sales and deeds-in-lieu of foreclosure in cases where the borrower is generally eligible for a MHA modification but does not qualify or is unable to complete the process,” he said. Yes, in case you’re wondering, this is the same program announced in April – government moves slowly.

Details on federal incentives for short sales

It’s hard to know beforehand what’s coming down the pipeline, but this is what we’ve got so far: Under the Treasury plan, servicers would get a $1,000 "success fee" when a short sale is completed. The home seller would receive up to $1,500 to assist with relocation expenses, similar to the "cash for keys" programs that various servicers offer. Treasury officials are working with an advisory committee to determine how to accommodate the holders of second liens. "Second liens have been a considerable problem for short sales," said Matt McCabe, the president of Loan Resolution Corp., a Scottsdale, Ariz., company that helps lenders work out defaulted mortgages. Currently there is no uniform policy for banks to accept a payoff for a second lien in order to complete a short sale. Many of the largest banking companies have adopted their own internal policies, which vary. For example, in March, Bank of America Corp. adopted a new policy requiring that 5% of the short sale proceeds go to pay the second lien in situations where there is no equity available, particularly for standalone home equity lines of credit. (B of A's old policy required that 10% of the balance of the home equity loan be paid.)

Short sales help avoid repossessions

Fewer homes were repossessed in August than in July, but just as many Americans were behind on their mortgage payments, according to a report released today by RealtyTrac, an online marketer of foreclosed properties. The number of homes that lenders actually took back from borrowers fell 12.7%, leaving a total of 540,222 homes repossessed so far this year. Banks take big losses on repossessions, so they may leave delinquent borrowers in their homes under the assumption that they’ll maintain the properties, thereby saving banks the time and expense of upkeep and maintenance. Plus, there is always hope that some of these borrowers will catch up on their loans without assistance -- a recent report from the Boston Federal Reserve found that 30% of borrowers who have missed two mortgage payments eventually become current. Increases in short sales could also be reducing the repossession statistics, since a lot of banks are delaying the foreclosure process if they see any kind of chance of making a reasonable short sale. The reprieve in repossessions could be coming to an end, however, since a Fitch Ratings report forecast that of the $200 billion in option ARMs outstanding, $29 billion will reset to fully amortizing loans by year's end, and another $67 billion will reset in 2010. The average payment increase will be 63%, or $1,053 a month -- an impossible hurdle for many borrowers.

Homebuyer tax credit helping the housing market recover

According to the Federal Reserve’s Commentary on Current Economic Conditions, also known as the Beige Book, the first-time homebuyer tax credit is helping the housing market recover, especially in the low end of the market for much of the country. The Chicago, Richmond, Boston, and San Francisco Districts experienced an increase in sales over the past six weeks, while the Boston, Cleveland, Dallas, Kansas City, Richmond, and New York districts reported the first-time homebuyer tax incentive contributed to increased sales. Philadelphia reported steady activity. Most districts reported sales below the last year’s levels, but the Atlanta, New York, Cleveland, and Minneapolis districts experienced year-over-year gains in select markets. The St. Louis district reported residential home sales had not improved in the Midwest.

Jobless claims down

The Labor Department announced in its weekly report that the number of Americans filing for initial unemployment insurance fell last week, and ongoing claims also dropped. There were 550,000 initial jobless claims filed in the week ended Sept. 5, down 26,000 from a revised 576,000 the previous week, and less than the 560,000 new claims a consensus of economists surveyed by Briefing.com had forecast. The 4-week moving average of initial claims was 570,000 down 2,750 from the previous week's revised average of 572,750. We're still talking about declining at a slower pace, not outright job growth," said Tim Quinlan, analyst at Wells Fargo (that’s something to keep in mind in this era of announcing that things are “getting better” because they’re getting worse more slowly). The government said 6,088,000 people filed continuing claims in the week ended Aug. 29, the most recent data available. That's down 159,000 from the preceding week's revised 6,247,000 claims. The 4-week moving average for ongoing claims fell by 37,750 to 6,182,500, down from the prior week's revised average of 6,220,250.

July Pending Home Sales Rise to 2 Year High

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in July, rose 3.2 percent to 97.6, the highest level since June 2007, from 94.6 in June. Analysts polled by Reuters had forecast pending home sales to rise 2 percent in July. Pending sales were 12 percent higher in July from the same period last year. There is a one to two month lag between a contract and a done deal, so the index is a barometer of how sales completed this month and next will turn out.

Housing Recovery or Not?

The good news: Home starts have risen for five straight months, while sales of new homes recently hit their highest level since last September. Prices are up as well: the Case-Shiller index of national house prices rose 2.9% in the second quarter, ending a three-year decline. According to Toll Brothers’ chief executive officer Bob Toll, “declining cancellations and more solid demand indicate that the housing market is stabilizing." The bad news: According to many skeptics, things are not so rosy. Mark Hanson, who runs a California real estate research firm, attributes the much-ballyhooed recent house price gains to a shift in the types of properties changing hands. At one point earlier this year, as many as half of all transactions nationally were resales of foreclosed properties, largely at low prices. Since then, so-called organic sales (those not involving distressed properties) have risen while foreclosure sales have remained stable. This improved mix -- together with cheap financing and a couple of popular tax incentives -- helped to revive prices in some hard-hit areas. But with schools opening up again and the summer home-selling season winding down, sales by nondistressed sellers are likely to fall in coming months, Hanson said. Adding to the pressure on prices, the end is in sight (or already here) for some popular housing subsidies. An $8,000 federal tax credit for first-time home buyers is due to sunset in December. A $10,000 California tax credit for buyers of newly constructed houses expired last month. Says Hanson: "This summer is shaping up as the gateway into the next move down."

Are Banks Holding on to Bank Owned Foreclosed Properties?

With all the rumors flying around, it’s hard to tell what’s going on with foreclosures, but Diana Olick decided to look a little deeper. In response to her question, Bank of America (BOA) pointed out what we’ve reported here before…that foreclosures have been down because banks have been waiting for the Making Home Affordable program to kick in before going through the final steps of foreclosure. Now that the program is operational, BOA anticipates a spike in foreclosures. In BOA’s words: “We do not hold foreclosed properties off the market.” According to Ted Jadlos of LPS Applied Analytics, “Based upon foreclosure and REO timelines, it’s going to take at least 18 months to flush the system of our current problems. But to flush the problems in only 18 months, more problem loans need to leave the system relative to the new problem loans of today and tomorrow. That does not appear to be the case right now—we aren’t clearing faster than new problems are emerging.”

The Refinance Index increased 1.2 percent to 5169.3 from 5108.2 the previous week and the seasonally adjusted Purchase Index increased 5.0 percent to 264.3 from 251.6 one week earlier.  The Conventional Purchase Index increased 5.5 percent while the Government Purchase Index (largely FHA) increased 4.4 percent.
 
The four week moving average for the seasonally adjusted Market Index is down 6.0 percent.  The four week moving average is down 3.1 percent for the seasonally adjusted Purchase Index, while this average is down 6.7 percent for the Refinance Index.

The refinance share of mortgage activity decreased to 74.4 percent of total applications from 75.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 2.1 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.79 percent from 4.62 percent, with points increasing to 1.17 from 1.14 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages increased to 4.57 percent from 4.45 percent, with points increasing to 1.07 from 0.96 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs increased to 6.36 percent from 6.23 percent, with points remaining unchanged at 0.12 (including the origination fee) for 80 percent LTV loans.

**SPECIAL NOTES**

The survey covers approximately 50 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.  Respondents include mortgage bankers, commercial banks and thrifts.  Base period and value for all indexes is March 16, 1990=100.

###

The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA's Web site:  www.mortgagebankers.org.