Aloha Friday,
What a rollercoaster with rates this week. Traveling up a .25% and now back down an .125%, the week ends up a touch higher than last week. Thursday's auction of 7-year notes marked the last of this week's three government auctions issuing new supply of U.S. debt to fund the country's budget deficit. Analysts are concerned about too much debt coming into the market too frequently.
I found a great article out today on CNBC about the new Obama program that is trying to help struggling home owners:
The Obama administration on Friday announced a $14 billion effort to try to stem a rising tide of home foreclosures by giving lenders incentives to erase some mortgage debt and slash mortgage payments for the unemployed. The new aid programs, funded from the $50 billion allocated to housing rescue under the Treasury Department's Troubled Asset Relief Program, will also allow borrowers to erase mortgage debt down to a maximum of 115 percent of their home's value by refinancing through the Federal Housing Administration. The plan comes as President Barack Obama is under increasing political pressure to change his strategy for helping struggling homeowners and stem the tide of rising foreclosures and is the second major housing initiative announced in as many months.
Delinquencies on U.S. mortgages rose to nearly 14 percent in late 2009, led by a sharp increase in seriously overdue home loans held by the most credit-worthy borrowers, U.S. banking regulators said earlier on Thursday. The new measures are a shift from the efforts announced last year, which focused on reducing interest rates for struggling borrowers who got risky loans.
So, there may be some write downs on mortgage balances after all. The banking industry has fought such measures as it will of course decrease the value of assets on their balance sheet, hence possibly causing a decrease in stock value again.
I will be out of the office today for a few hours and back late this afternoon. Please let me know if we can assist you in any way. Have a super weekend.
Inmates are running the asylum at Bank of America
Bank of America is starting a program to offer homeowners who owe significantly more than their homes are worth the opportunity to have their loan balances reduced. The program, which starts in May, would potentially help about 45,000 homeowners nationwide. In launching the effort, Bank of America is jumping into the debate about how to address the millions of homeowners whose mortgages exceed the value of their homes and who have complicated industry and government efforts to prevent foreclosures. The Bank of America plan is limited in scope. Borrowers must have missed at least two mortgage payments and be severely underwater to qualify, owing 20 percent more than their homes are worth. It is also limited to borrowers with certain types of risky loans, including subprime mortgages or other loans with a two-year adjustable rate. Bank of America expects to forgive about $3 billion in principal on loans as part of the program. The effort expands a settlement agreement that the bank made with several state attorneys general in 2008 to modify thousands of mortgages and settles a Massachusetts investigation of lending practices by Countrywide Financial, which Bank of America acquired in 2008. So what happens now? Joe Sixpack, who up till now has managed to make all his payments in time, reads that he doesn’t qualify precisely BECAUSE he has made all his payments on time, and guess what he does? This is pure insanity.
Initial job claims down
The Labor Department said today that initial claims for state unemployment benefits fell 14,000 to a seasonally adjusted 442,000. report included annual revisions to the weekly unemployment claims seasonal factors going back to 2005. Using the old seasonal factors, claims would have dropped only to 453,000, a Labor Department official said. Analysts polled by Reuters had expected claims to slip to 450,000 from a previously reported 457,000 the prior week. The decline in initial claims last week pushed them into a range that analysts reckon signals labor market stability. The labor market has lagged the economy’s recovery from its worst downturn since the 1930s, but payrolls are expected to grow this month as the government steps up hiring for the 2010 census. About 8.4 million jobs have been lost since December 2007, when the recession started. The number of people still receiving benefits after an initial week of aid fell 54,000 to 4.65 million in the week ended March 13, the lowest since December 2008, the Labor Department said. The so-called continuing claims data included the household survey week, from which the unemployment rate is derived.
Mortgage rates up
Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.99 percent for the week ended March 25, up from the previous week’s 4.96 percent, according to a survey released by Freddie Mac the second-largest U.S. mortgage finance company. Mortgage rates are expected to rise when the Fed—the U.S. central bank—stops buying mortgage-related securities at the end of March. The rate for the latest week is also above the year-ago level of 4.85 percent and the record low of 4.71 percent in early December. Freddie Mac started the survey in 1971. “Mortgage rates inched up slightly this week as bond yields rose even further,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Exit is dangerous
John Taylor, a Stanford University economist and author of a key central banking rule of thumb, will testify before the House Financial Services Committee that the Federal Reserve has not been clear enough about how it intends to unwind its unprecedented monetary easing campaign, and some of the tools it expects to use may not work. He says the Fed’s unorthodox approach has not only threatened its independence but also made policy making more difficult. ”By taking these extraordinary measures, the Fed has risked losing its independence over monetary policy,” said Taylor, arguing that such steps veered too far into the arena of fiscal policy. “Unwinding them involves considerable risks,” said Taylor, who was a Treasury official during the Bush administration, in prepared testimony made available on the House committee’s website on Wednesday. Federal Reserve Chairman Ben Bernanke will be the first to testify before the committee, starting at 10 am ET. The Fed has taken pains to assure investors and the public that it can and will pull back on its zero percent interest rate policy when the times comes, probably through a mixture of draining credit from the banking system, raising the interest it pays on bank reserves, and selling some of its assets. But this approach has serious shortcomings, Martin Goodfriend, a professor of economics at Carnegie Mellon University, will testify.
Social Security underwater
Social Security will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office. Stephen C. Goss, chief actuary of the Social Security Administration, said that while the Congressional projection would probably be borne out, the change would have no effect on benefits in 2010 and retirees would keep receiving their checks as usual. The problem, he said, is that payments have risen more than expected during the downturn, because jobs disappeared and people applied for benefits sooner than they had planned. At the same time, the program’s revenue has fallen sharply, because there are fewer paychecks to tax. Analysts have long tried to predict the year when Social Security would pay out more than it took in because they view it as a tipping point — the first step of a long, slow march to insolvency, unless Congress strengthens the program’s finances. “When the level of the trust fund gets to zero, you have to cut benefits,” Alan Greenspan, architect of the plan to rescue the Social Security program the last time it got into trouble, in the early 1980s, said yesterday.
Mortgage reform: What is to be done?
Over the past 18 months, the government has taken extraordinary steps to keep the housing market viable. Home sales reversed their four-year descent, and prices stabilized. So far. But it has cost $126 billion to date, and the bill is still growing. What’s next? With the Obama administration largely mute on the issue, Congress will hold its first hearing today about how to restructure the mortgage system in the wake of the financial crisis. “Don’t make the American taxpayer responsible for handling speculative situations or bubbles,” he said. Rep. Spencher Bachus, ranking Republican on the committee, said in a subsequent CNBC interview that he would prefer government exit the industry entirely. “We need to phase it out over time,” he said. “America is about competition and innovation. The federal model simply is not the efficient model.” Working out a new system is likely to take years. For the time being, the market is still resting on three government pillars: Fannie, Freddie and the Federal Housing Administration. And even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run agree that the housing recovery remains too fragile for the government to step away anytime soon. “The first priority is we have to keep financing homes, and we don’t have a way to do that without Fannie and Freddie,” said Peter Wallison, a senior fellow at the conservative American Enterprise Institute. “We have to deal with the realities of where we are today.” Since the government took over Fannie and Freddie, Obama officials have given few details on their long-term thinking, apart from saying that they want to delay a legislative proposal until next year.
DSNews.com – short sales now number 1
According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, last month distressed properties – those involving homes acquired as part of a foreclosure or pre-foreclosure sale – accounted for 48.1% of the home purchase transactions tracked by the survey. The February numbers were up significantly from the 37.3% level recorded as recently as November. It was also the highest distressed property market share seen since last July. Stepped up government efforts, including temporary foreclosure moratoriums and a push to qualify more financially troubled homeowners for mortgage modifications, temporarily reduced the number of distressed properties coming on the housing market in the fall and much of this past winter. But now a growing number of distressed properties appear to be hitting the housing market. There are three major types of distressed properties: damaged REO, move-in ready REO, and short sales. During the period from November to February, sales in all three categories rose. Damaged REO grew from 12.3% to 14.4%; move-in ready REO grew from 12.6% to 16.6%, and short sales grew from 12.4% to 17.1%. “Short sales now account for the No. 1 category of distressed property,” commented Thomas Popik, research director for Campbell Surveys. “Losses on short sales are typically lower than for REO, and both lenders and the government are pushing programs to facilitate short sales. But as more and more people default or simply want to walk away from their properties, mortgage servicers are having trouble expeditiously processing these complicated transactions.”
More regulation needed
Philadelphia Federal Reserve Bank President Charles Plosser said yesterday that better regulation is needed to dissuade financial market players from taking excessive risks after the “too big to fail problem” undermined discipline. “The too big to fail problem has essentially removed much of that market discipline,” Plosser told an economic conference in Prague. “We have to have ways of disciplining the actors in the marketplace so that they don’t take excessive risks, and in many cases the market can do that and do that quite effectively. But when we protect creditors, when we protect people from failure, we encourage them to take risks.” Bernanke made clear at the weekend that large financial firms continued to play a crucial role in the global economy, and Plosser said different, but not necessarily more regulations were needed. “Government regulation and government oversight will never replace the marketplace officially … when there is regulation they will look for ways around that regulation in order to be successful,” he said. “We will always as regulators be behind that curve. The only way we can be effective in protecting financial stability is to have regulations and rules that complement and encourage more market discipline, not replace it.” If only things were as simple as adding more bureaucrats.
DSNews.com – seven more banks fail
The FDIC’s failed bank list jumped to 37 for the year after seven more community banks fell over the weekend – three in Georgia, and one each in Alabama, Minnesota, Ohio, and Utah. Appalachian Community Bank in Ellijay, Georgia had 10 branch locations, with $1.01 billion in total assets and $917.6 million in deposits. Bank of Hiawassee, based in Hiawassee, Georgia, ran five branches and had $377.8 million in assets and $339.6 million in deposits. Century Security Bank in Duluth, Georgia operated two branches and had $96.5 million in assets and $94 million in deposits. First Lowndes Bank in Fort Deposit, Alabama was a four-branch institution, with $137.2 million in assets and $131.1 million in deposits. Minnesota’s State Bank of Aurora operated out of a single branch office. It had $28.2 million in assets and $27.8 million in deposits. The single branch of American National Bank in Parma, Ohio had approximately $70.3 million in assets and $66.8 million in deposits. Bank Corp. in Draper, Utah, had $1.6 billion in assets and $1.5 billion in total deposits.
Goodbye to Acorn
The Association of Community Organizers for Reform Now
(ACORN) will no longer darken our doors nationally, after a meeting of the board over the weekend. The fate of the local branches remains unclear. Although the majority will cease operation on April 1, as the non-profit continues to look for ways to settle its debts, some may rebrand themselves and operate around under a different name. In an e-mail sent to reporters, ACORN said: “[We] have a great deal to be proud of — from promoting homeownership to helping rebuild New Orleans, from raising wages to winning safer streets, from training community leaders to promoting voter participation— ACORN members have worked hard to create stronger to communities, a more inclusive democracy, and a more just nation.” ACORN began a turn for the worst when, in September, videos emerged online of ACORN workers allegedly giving some fraudulent advice to filmmaker James O’Keefe and his associate, Hannah Giles. House Republicans last year began an investigation into how Acorn’s political arm was funded. Republican investigators on the House Oversight and Government Reform Committee determined that “there were no firewalls” between Acorn’s federally subsidized housing activities and its political wings, said Kurt Bardella, a spokesman Rep. Darrell Issa, the top Republican on the committee. Officials of Acorn Housing, created by the main Acorn group in the mid-1980s, have said they had a separate board and budget, though the two organizations shared office space in some cities. Congress last year cut off federal funding for Acorn Housing. Federal money last year provided about three-quarters of the group’s budget of $24 million. A large offshoot formerly known as Acorn Housing, which counsels low-income homeowners, has changed its name to Affordable Housing Centers of America and plans to continue operations.
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