Olick -- Holiday Moratoria Didn't Reduce Foreclosures

Diana Olick of CNBC pointed to a surge of 14% in foreclosures in December -- a month in which foreclosures traditionally drop off because lenders impose moratoria over the holidays. Olick asked RealtyTrac's Rick Sharga why, and here's his answer: "In fact, our numbers surged in early December and dropped off significantly throughout the month. We've attributed the growth to this being the end of both the quarter and the year, and lenders trying to clean up their books. Secondarily we're probably starting to see some of the foreclosures hitting the books now after being delayed over the past few months by legislative or procedural issues (Nevada, for example, was up significantly after two months of artificially low numbers while the state put its mandatory mediation program in place). The spike in REOs also supports this theory." Olick adds that many of those borrowers who didn't make the final cut in the government's Home Affordable Modification Program are going back on to the foreclosure rolls.

Even when they do it right, they do it wrong.

As you know, The original $8000 tax credit was just good for first-time home buyers and was slated to end on Nov. 30. But Congress extended the credit to include contracts signed by April 30 and closed by June 30. It also made a refund of up to $6,500 available to existing homeowners looking to buy something new. Nov. 6 marked the date that the rules changed because an extended -- and expanded -- version of the homebuyer tax credit went into effect. And that put filing for the credit on hold, and started a new IRS paperwork wrangle. Those homeowners who closed their sale before Nov. 6 used Form 5405 to claim the credit, but those closing after that date are in limbo because no form yet exists for them to file. The IRS had been expected to come out with a revised form by early January, but it has yet to release anything. Robert Dietz, an economist with the National Association of Home Builders who has been monitoring the situation, said the delay may be caused because numer ous parties, including the Treasury Department, have to agree on how to process all the new documentation that the expanded tax credit requires. "They may just be making sure all their i's are dotted and their t's are crossed before they release it," Dietz said.

CPI slightly higher in 2009

The Consumer Price Index, the government's key inflation reading, rose 2.7% during the past 12 months compared to 2008. Gasoline prices rose 53.5% over the last year while food prices decreased 0.5%, according to the report. The so-called core CPI, which is more closely watched by economists because it excludes volatile food and energy prices, was up 1.8% over the past year. Excess slack in both the industrial sector and the labor market are keeping inflation pressures muted. The Federal Reserve has promised to keep overnight lending rates near zero for an extended period of time. The Labor Department said its Consumer Price Index rose 0.1 percent last month, driven by a sharp rise in the index for used cars and trucks, after rising 0.4 percent in November. But the gain was smaller than the 0.2% rise Economists surveyed by Briefing.com had forecast. Manufacturing growth in New York State accelerated more rapidly than expected in January on surging new orders and shipmen
ts, and employment also improved, the New York Federal Reserve said on Friday. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

Olick -- Holiday Moratoria Didn't Reduce Foreclosures

Diana Olick of CNBC pointed to a surge of 14% in foreclosures in December -- a month in which foreclosures traditionally drop off because lenders impose moratoria over the holidays. Olick asked RealtyTrac's Rick Sharga why, and here's his answer: "In fact, our numbers surged in early December and dropped off significantly throughout the month. We've attributed the growth to this being the end of both the quarter and the year, and lenders trying to clean up their books. Secondarily we're probably starting to see some of the foreclosures hitting the books now after being delayed over the past few months by legislative or procedural issues (Nevada, for example, was up significantly after two months of artificially low numbers while the state put its mandatory mediation program in place). The spike in REOs also supports this theory." Olick adds that many of those borrowers who didn't make the final cut in the government's Home Affordable Modification Program are going back on to the foreclosure rolls.

Fannie and Freddie add billions to the deficit

According to the Congressional Budget Office (CBO) government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac added $291 billion in subsidy costs to the Federal deficit by mid-year. That number may reach as high as $389 billion over the course of this decade. The agencies’ combined net worth deteriorated from a $7 billion surplus in June 2008 to a $258 billion deficit in June 2009, according to the CBO report. However, the CBO expects the overall cost to dwindle to a projected $99 billion between 2010-2019. According to the just-released CBO “Budgetary Treatment of Fannie Mae and Freddie Mac” report, loan losses on defaults are typically in the range of 30-50% of outstanding balance. With a housing market in decline, the loss rates are expected to be much higher. “The total amount that CBO projected for the Treasury’s cash infusions from 2009 to 2019—$163 billion—falls well short of the $389 billion in subsidy outlays projected in CBO’s baseline for
that period,” the report states. Representative Darrell Issa (R-CA), a House Committee on Oversight and Government Reform member, says: “Fannie and Freddie have become the largest taxpayer bailout in American history it defies common sense to leave them without proper oversight while the federal government keeps giving them unlimited access to its ATM card.”

Subprime securitization crisis not over

Moody’s Investors Service has revised its loss estimations on mortgage securitizations and placed thousands of tranches on review for downgrade as subprime residential mortgage-backed securities (RMBS) continue to slide. This development shows that the Obama administration’s effort to halt the tide of mortgage defaults through government-supported programs remains largely unsuccessful, according to Moody’s. The basket of mortgage backed securities that the credit rating agency reviewed for its report deal with loans originated during the recent boom years in housing finance. Moody’s is now projecting cumulative losses of 18.7% for 2005 vintage securitizations, 38.4% for 2006 RMBS and 48.1% for 2007 RMBS. Moody’s said in an e-mailed statement that “the government’s effort to curb loan defaults and foreclosures through loan modification has failed to gain traction; prompting Moody’s to reduce the average modification benefit to projected losses across vintage s from 15% in March to less than 5% going forward.” Along with the developing performance, Moody’s placed on review for possible downgrade 5,698 tranches of subprime RMBS. The tranches now being watched had a combined original balance of $584 billion and now bear a combined outstanding balance of $319 billion.

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