ISM just a touch higher than expected, Construction Spending beats expectations
April 1st, 2008
So far, not a very happy morning for the bond market, unless you care about the fact that MBS are performing significantly better than treasuries.
The UBS and Lehman news is fueling a stock rally. The higher it goes today, the more it will hurt bonds. Hopefully that pain continues to be less for MBS relative to treasuries.
Adding fuel to the fire are better than expected numbers on the ISM coming in at 48.6 as opposed to estimates ranging from 47.5-48.0. (looks like those who said NAPM would be a good indicator were correct, at least for this month). This still signifies contraction, but not quite as much as the consensus estimate would have. As I indicated last week, analysts, after being continually shocked by weak data, have started to estimate a bit more conservatively. Thus we are still posting historically unattractive numbers, but because of analysts expectations, even worse numbers are "baked into the cake" so the better-than-expected-but-still-pretty-crappy numbers give the markets a bit of a boost and don't do anything to help mortgage rates come down.
Also, construction spending came in at -0.3%, much better than the consensus of -1.1%. In light of the other data today, this is not of major concern, even though it would be salient in the absence of headlines
If you didn't lock on yesterday's last update, it's a tough call to make a recommendation now. We still have tons of important data this week and sometimes I get the impression that the stock market has a psychological optimism that defies the indications of the data. In a vacuum, stocks would improve simply due to this psychology. So if we add better than expected data this week it will be a bad one for MBS. If employment numbers are dismal, Friday should prove to be a good day. The consensus numbers are probably not quite aggressive enough considering the economic turmoil, so I'd tend to say we'd be on the weaker end of the consensus range. If you disagree, and you have loans to close in the short to mid term, MBS are still fairly good today and locking might be the best option.
Home Prices Continue 5-Month Decline According to New Report
March 25th, 2008
The Standard & Poor's S&P/Case-Shiller Home Price Indices (HPI) for January which were released on Tuesday are reporting further bad news on the home value front.
The HPI which tracks, in two different indices, 10 and 20 metropolitan statistical areas (MSAs) across the United States, reported that the prices of existing family homes nationally continued to decline into the new year. 16 of the 20 MSAs in the larger survey reported record declines, ten of them reaching double digits.
Both the 10-City and the 20-City Composite Indices are now reporting annual declines in excess of 10 percent. The 10-City had a record annual decline of 11.4 percent; the 20-City reported a decline of 10.7 percent.
Las Vegas and Miami - boom cities only months ago - share honors for being the weakest cities price-wise in January. Both showed price declines year-over-year of 19.3 percent with Phoenix not far behind at 18.2 percent. Other MSAs with double-digit declines include Detroit (15.1 percent), Los Angeles (16.5 percent), Minneapolis (10 percent), San Diego (16.7 percent), San Francisco, (13.2 percent,) Tampa (15 percent), and Washington (10.9 percent).
David M. Blitzer, Chairman of the Index Committee at Standard & Poor's commented about the survey results; "Unfortunately it does not look like early 2008 is marking any turnaround in the housing market, after the declining year recorded throughout 2007. Home prices continue to fall, decelerate and reach record lows across the nation. No markets seem to be completely immune from the housing crisis, with 19 of the 20 metro areas reporting annual declines in January and the remaining - Charlotte North Carolina - eking out a benign 1.8 percent growth rate. Looking deeper into the data, you can see that 16 of the metro areas are also reporting record low annual growth rates. The monthly data show that every one of the MSAs has now declined every month since September 2007, marking five consecutive months. On top of that, the declines have increased through time, in general, as 13 of the 20 MSAs reported their single largest monthly decline in January."
Federal Reserve Makes Three Big Weekend Moves
March 17th, 2008
First, of course, the Fed arranged to assist J.P. Morgan Chase in acquiring Bear Stearns by approving a $30 billion credit line to J.P. Morgan, secured by the Bear Stearns portfolio, a move that, by early Monday the talking heads were referring to as "nationalizing" the investment bank.
Then the Fed announced a new lending program aimed at the 20 large investment banks that serve as "primary dealers" and trade Treasury securities directly with the Fed. The program would allow the government to hold a wide variety of collateral including securities backed by mortgages which are increasingly difficult to sell. This essentially opens the "discount window" to investment bankers. This facility was previously available only to commercial banks.
According to The New York Times, Fed officials said that the new program would have no limit on the amount of money that can be borrowed.
In a third move aimed at helping banks and thrifts, the Fed lowered the rate for borrowing from its so-called discount window by a quarter of a percentage point, to 3.25 percent. Rumors are everywhere that the Fed will lower the Federal Funds interest rate by a virtually unprecedented 1 percent at its regular meeting this week. This would take the rate down to 2 percent. In the climate of near panic that is prevailing in the markets right now week this may become a self-fulfilling prophecy - the Fed may become afraid to do any less.
Home Equity Hits New Low
March 6th, 2008
The Federal Reserve on Thursday announced that, in 2007, American ownership in their homes as measured by equity fell below 50 percent for the first time since records were first kept in 1945.
During the 2nd quarter of 2007 the central bank reported that homeowners' equity slipped to a downwardly revised 49.6 percent and slipped further to 47.9 percent in the fourth quarter. This was the third straight quarter that equity was under 50 percent.
Home equity is a measure of the market value of the home minus the mortgage-related debt. Because Americans have repeatedly cashed out the equity in their homes through cash out refinancing, home equity loans and high loan to value mortgages, equity has steadily declined even in the midst of the surging prices of the housing bubble.
The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.
In related news, the Mortgage Bankers Association released its fourth quarter delinquency report which showed the home foreclosures and the number of homes entering the foreclosure process both rose to record highs.
Most of the foreclosures and delinquencies could be tied to subprime loans where the delinquency rate (usually loan payments 60 or more days late) was up 1 percent from the third quarter to 17.31 percent of all outstanding loans. The delinquency rate for all loans was 5.82 percent, up from 4.95 percent one year earlier and the highest since 1985. In addition, 0.83 percent of loans entered the foreclosure process during the fourth quarter. This surpassed the previous record of 0.78 percent during the third quarter. One year earlier the rate was 0.54 percent.
How economic stimulus addresses mortgage crisis
Relief for Bay Area home buyers
January 24, 2008
Below is an article published in the San Jose Mercury News providing opportunity from homeowners to lower their high interest rate jumbo loans (currently in the mid 6.00% range) to conforming interest rates (current in the low 5.00% range). If the Economic Stimulus package passes the House and is signed into law it could provide additional cash flow to struggling households throughout California:
By Katherine Conrad
Mercury News
Article Launched: 01/24/2008 06:59:18 PM PST
The economic stimulus package introduced Thursday included a provision long sought by California housing leaders that would benefit home buyers and homeowners across the state, but especially in the Bay Area, where residents must contend with some of the highest prices in the country. When asked why Congress agreed to raise the limit on conforming loans - which carry lower interest rates and are backed by government-sponsored companies, Fannie Mae and Freddie Mac - one real estate expert answered, "Panic." "California leads the nation in recovery," continued Jeff Barnett, regional manager for Alain Pinel Realtors in Los Gatos, and a director for both the national and state associations of Realtors. "If you get good housing news out of California, it's a stimulus for the country." Here are some questions and answers about the change.
Q. What have Congressional leaders agreed to?
An increase in Fannie Mae's and Freddie Mac's conforming loan limits from $417,000 to a maximum of $729,750.
Q. Who benefits?
Home buyers who are in the market as well as home sellers, who should benefit from a larger pool of buyers who would be able to get bigger loans at lower interest rates. Homeowners with non-conforming, or jumbo loans, also could benefit because they could refinance into a new conforming loan.
Q. Why is this proposal important to California?
The average home price in the Bay AreA. - more than $600,000 - is almost triple the average price in the rest of the nation. a A. result, many Bay AreA. homeowners have jumbo loans at higher interest rates.
Q. When will the plan take effect and how long will it last?
Congressional leaders hope to have it on President Bush's desk by mid-February. It is scheduled to end on Dec. 31.
Q. Why is it only for one year?
It's meant to stimulate the economy as soon as possible. Permanent changes would require more study and take longer to enact.
Q. What are the chances it will be extended?
It's possible, depending on how the economy is doing Dec. 31, 2008.
Q. Should I refinance my home loan just because of this change?
Only if you have a non-conforming loan. Homeowners with loans from $417,000 to $729,750 would be prime candidates to refinance for a lower rate.
Q. What was the conforming loan limit in California. before this proposal?
$417,000.
Q. Why wasn't the conforming loan limit increased before now for some higher-priced areas?
It takes an act of Congress to change the limit. This is a low priority because only a few states such as California, New York and parts of Florida, benefit from raising the limit. The limit is already higher - $625,000 - in Hawaii, Alaska, Guam and the U.S. Virgin Islands. Even though housing leaders in California have pushed to raise the limit for the past several years, they have not succeeded. Until the rapid run-up in prices during the boom, most parts of California did not need a higher limit. The Bay Area, however, has had significantly higher home prices than the rest of the state since the mid-1990s.
Q. How did they come up with the number $729,750?
It is 150 percent of the current limit of $417,000.
Q. Will the conforming loan limit vary from place to place?
No.
Q. Will the legislation have any effect on me if I already have a conforming loan?
No.
Q. How many homeowners in Silicon Valley and in California have non-conforming or jumbo loans?
The number of jumbo loans in Silicon Valley is estimated to be 105,000, and in the entire state there are about one million loans, according to First American CoreLogic Loan Performance in San Francisco. The number of conforming loans in the valley is about 200,000, and about 5 million in the state.
Q. Will this help homeowners at risk of foreclosure?
It could help some homeowners who couldn't refinance under the conforming loan limit of $417,000, unless their credit is already impaired.
Q. How many more homes sales could be generated nationally from this stimulus?
As many as 350,000 - or about $44 billion in economic activity, according to Joseph Perkins, president of the Home Builders Association of Northern California.
Contact any First Net Mortgage professional for additional information on how you can benefit from this unique opportunity.
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