Pending home sales drop 7.6%Aloha Friday,

Treasuries rose Thursday as investors flocked to the safety of U.S. debt following a dour report on the job market and worries about Greece's fiscal problems. On Wednesday, Bernanke repeated that the federal funds rate, which is the central bank's primary tool for monetary policy, is likely to stay low for an extended period. That comment helped spark a rally on Wall Street and sent Treasury yields sharply lower. Bernanke also told members of the House Financial Services Committee that government action has helped start an economic recovery, but warned that many concerns persist -- namely, the state of the job market

This is great news for us as his statements help to mold a market. That signal is some assurance to the bond traders that he won’t be drastically raising rates soon, hence the reason for slightly lower rates this week by an .125%. But, don’t miss these low rates. They will go up. We are in a great window of opportunity for buyers to snag a property at a discount price while also obtaining a low interest rate.

According to Fiserv, a division of Moody's Economy.com, the average home price in the United States will fall by about 6% by September 2011. Most of the projected home price decline will occur during the usually slow summer months of 2010. After that, prices should begin to stabilize, according to Fiserv, and stay almost flat through fall of 2011. The main reason for continued decline, according to Mark Zandi, economist and co-founder of Economy.com, is foreclosures -- the same thing that's plagued markets for the past three years. He figures there are at least 4.5 million mortgage loans either in foreclosure or clearly headed in that direction. When that additional inventory hits the market, it will provide numerous choices for buyers and encourage sellers to drop their listing prices. The end of two federal programs, which have been propping up markets, will also tamp down prices. The Fed's program to buy mortgage securities lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates, and a month after that, the homebuyer tax credit will start to expire. Of course, home prices are ultimately decided by employment. "If [the job market] improvement is stronger than expected, prices will get better. If it's weaker than expected, prices will be worse," Zandi said.

Jobless claims up

The Labor Department said in its weekly report that there were 496,000 initial job claims filed in the week ended Feb. 20, up 22,000 from a revised 474,000 the previous week,. The prior week, there were 442,000 claims filed. A consensus estimate of economists surveyed by Briefing.com expected new claims to fall to 460,000. The government said 4,617,000 people filed continuing claims in the week ended Feb. 13, the most recent data available. That's up 6,000 from the preceding week's revised 4,596,500 claims for a jump of more than 12% over the past two weeks. A Labor Department official said the unexpectedly large rise could partly reflect a backlog of claims that were unable to be processed in four Mid-Atlantic and New England states because of heavy snowfall. Still, the increase is likely to amplify concerns that the job market is weakening, potentially slowing the economic recovery. Dan Greenhaus, chief economic strategist at Miller Tabak, said the claims data has been un usually distorted in recent weeks. As a result, "we are concerned about the upward pressure on initial claims but not overly concerned." The four-week average, which smoothes volatility, rose by 6,000 to 473,750. The four-week average has risen by about 30,000 in the past month, raising concerns that job cuts are continuing. Initial claims had fallen sharply over the summer and fall but the improvement has stalled since the year began.

New home sales down

The Census Bureau says the seasonally adjusted annual rate of new home sales fell 11.2% to 309,000 last month, compared with a revised rate of 348,000 in December. It was the lowest rate since the government began keeping records in 1963 and comes after declines in November and December. The drop surprised many industry analysts. A consensus of economists surveyed by Briefing.com had expected January sales to rise to an annual rate of 354,000. "Some people were expecting a surge in demand because of the tax credit," said Patrick Newport, an economist at IHS Global Insight. "But that surge isn't materializing." New home sales fell in all U.S. regions except the Mid-west, where sales edged up 2.1%. The Northeast was the hardest-hit last month, with sales plunging more than 35%. "Distressed inventory continues to hit the market at cut-rate prices, drawing potential buyers away from new product," said Mike Larson, real estate analyst at Weiss Research. "And let's face it, the
job market is nothing to write home about, either." There were an estimated 234,000 new homes for sale at the end of December, according to the report. At the current sales rate, it would take 9.1 months to sell through that inventory. That's up from December, when there were 8.1 months of inventory on the market. Prior to December, inventory levels had been steadily declining since May 2009. IHS Global Insight's Newport said he also expects sales to pop this spring. However, he may reduce his full year forecast for new home sales in light of Wednesday's report. "Builders are putting up homes," he said. "But what these numbers are telling us is that those homes aren't selling."

Manufactured Goods Jump 3%

The Commerce Department reported Thursday that orders for durable manufactured goods jumped 3 percent in January, the biggest increase since a 5.8 percent increase last July. However, excluding transportation, durable goods orders fell by 0.6 percent, a weaker showing than economists had expected. The strength came mostly from a surge in demand for commercial aircraft, while demand for autos, machinery and a host of other products fell last month, indicating manufacturing is still facing hurdles that could slow the economic recovery. The drop in orders excluding transportation followed solid gains of 2 percent in both December and November. Analysts were not too concerned by the drop in demand outside of aircraft, noting that the government revised higher the increase in orders excluding transportation in December to show a gain of 2 percent, stronger than the initial estimate of a 1.4 percent rise. Paul Ashworth, an economist at Capital Economics, said the January durabl e goods report provided further evidence that "the manufacturing sector is enjoying a healthy rebound, driven by restocking and a sharp turnaround in world trade." The 0.6 percent drop in orders outside of transportation reflected a big 9.7 percent plunge in demand for machinery, which offset a 1.9 percent increase in orders for primary metals such as steel. Orders for non-defense capital goods, excluding aircraft, fell by 2.9 percent in January following solid gains in the two previous months. This category is considered a proxy for business plans to invest in new equipment to expand and modernize.

MBA proposes forbearance program

The Mortgage Bankers Association (MBA) says it has developed a concept for a new forbearance program that would allow qualified borrowers who had lost their jobs to remain in their homes while they seek new employment. According to the proposed program, loan servicers would reduce the borrower's mortgage payment to an affordable amount for up to nine months while the homeowner looked for employment. "The vast majority of new distressed borrowers we are seeing involve the loss of income," said John A. Courson, MBA's President and CEO. "This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification." Loan servicers who participate in this program would reduce monthly payments to an affordable level based on household income, and borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months of losing his or her job at 75
percent of the borrower's previous salary. The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once reemployed, the borrower would be evaluated for a modification under the Obama Administration's Home Affordable Modification Program (HAMP). "Recent statistics show that the average unemployed U.S. worker stays unemployed for between six and seven months," added Courson. "That is a long time for a borrower with a dramatic drop in income to stay current on their mortgage. Further, borrowers with such a precipitous drop in income can't qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job."

Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6 million, or 41 percent, of all negative equity loans. “Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”

Freddie Mac loses $6.5 billion

Government-owned mortgage financing firm Freddie Mac lost $6.5 billion in the fourth quarter, up from a loss of $5.4 billion a year ago. The company lost $21.6 billion for the year, an improvement from 2008 losses of $50.1 billion. Freddie said it ended the quarter with a positive net worth of $4.4 billion, which means that for the third straight quarter it did not need another injection of government cash. Net worth compares a company's assets to the value of its liabilities. A year ago Freddie needed $30.8 billion in federal cash as mounting foreclosures on the mortgages Freddie owns or guarantees hurt the company's finances. Since the start of the conservatorship Freddie has received $50.7 billion in taxpayer dollars, while Fannie has received $60.9 billion. Together, Fannie and Freddie own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages. The two companies loosened their lending standards for borrowers during the
real estate boom and are reeling from the consequences. Nearly 4% of Freddie's borrowers have missed at least three payments.

Consumer confidence down

The Conference Board, a New York-based research group, said its Consumer Confidence Index fell to 46.0 in February from 56.5 in January. According to a Briefing.com consensus survey, economists expected the index to fall slightly to 55.0 from 55.9. The index, which is based on a survey of 5,000 U.S. households, is closely monitored because consumer spending drives two-thirds of the nation's economic activity. The overall index remains at historically low levels and is the lowest since April 2009. A reading of above 90 indicates a stable economy, while 100 or greater is an indication of strong growth. February's present situation index, which indicates how consumers feel about current economic conditions, hit a 27 year low of 19.4, according to the Conference Board. That means that consumers feel things are worse now than they were during the throes of the financial crisis in the fall of 2008. Expectations for the future also took a turn for the worse in February.

The expectation index, a measure of consumer outlook over the next few months, fell to 63.8 from an upwardly revised 77.3 in January. Only 16.7% of consumers expect to see an improvement in business conciliations over the next 6 months, down from 20.7%. Some 15.3% of those surveyed expect business conditions to get worse over the next six months. The outlook for the labor market was even more bleak. The percentage of those who expect fewer jobs to become available jumped to 24.6% from 18.9% in January. And only 9.5% of those surveyed anticipated an increase in their incomes, compared to 11.0% in January.

Mortgage rates to rise?

The Fed has been buying mortgage-backed securities since late 2008. But next month it plans to finish its purchase of $1.25 trillion in mortgages, and that could be bad news. There is wide agreement that the removal of this support will mean higher mortgage rates, which could hit housing prices and sales hard. Some even worry that it could cause the broader economic recovery to stall. The program was the largest single injection of cash into the economy by the Fed during the financial crisis, and it will be the longest-lasting source of funds as well. Even though the Fed intends to stop buying mortgages, few people expect that the central bank will start selling them to private investors any time in the next few years. even if the Fed holds onto the mortgages it has already purchased, the act of no longer buying additional mortgages is likely to raise mortgage rates in the coming weeks.

Experts say a jump of at least a quarter to a half percentage point is likely. San Francisco Federal Reserve President Janet Yellen warned of higher rates in a speech Monday. Fed Chairman Ben Bernanke is likely to take questions about the Fed's mortgage program when he testifies about economic conditions on Capitol Hill Wednesday and Thursday. The worries about the Fed pulling back support for housing are compounded by the end of up to $8,000 in tax credits for home buyers. To qualify, buyers face an April 30 deadline to sign a sales contract. Dean Baker, co-director of the Center for Economic and Policy Research, argues that the Fed's program and tax credit for home buyers "ended the free fall in home prices." But he thinks that the removal of this support could mean that home prices could start to drop by as much as 1% a month again. He also thinks mortgage rates could climb by as much as a percentage point in the coming months.

Banks not lending

While top-tier banks are recovering at a faster clip, last year the rest of the industry posted their sharpest decline in lending since 1942, suggesting that the industry's continued slide is making it harder for the economy to recover. According to a quarterly report from the Federal Deposit Insurance Corp, banks fighting for survival, especially those plagued by losses on commercial real estate, are less willing to extend loans, siphoning credit from businesses and consumers. FDIC Chairman Sheila Bair said banks are "bumping along the bottom of the credit cycle" and that the number of bank failures in 2010 will likely eclipse the 140 recorded last year. The struggling U.S. banking industry remains a problem for policy makers eager for banks to lend again. Lawmakers on Capitol Hill and administration officials have pushed banks to lend, particularly in light of the billions in taxpayer aid injected into the financial industry over the past two years. Banking groups and th eir members counter that they're under pressure from regulators to be more prudent and that demand from struggling consumers and businesses isn't there. Initiatives such as the Obama administration's $30 billion small-business lending program will rely on banks making loans at a time when many of those same firms are wrestling with a rising tide of commercial real estate problems or being told to add to their reserves by regulators. The FDIC said that the decline in loan balances in the quarter hit all major categories—from construction to commercial loans and residential mortgages—with the exception of credit card loans. It remains unclear whether the sharp decline in loans outstanding stems from banks' tightening standards and a fear of lending or from weak demand from potential borrowers spooked by the downturn. Another cause could be banks actively reducing the size of their loan portfolios, creating a natural decline.

MBA - mortgage applications down

The Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending February 19, 2010 decreased 8.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 7.3% compared with the previous week. The Refinance Index decreased 8.9% from the previous week. The seasonally adjusted Purchase Index decreased 7.3% from one week earlier, putting the index at its lowest level since May 1997. The unadjusted Purchase Index decreased 3.6% compared with the previous week and was 13.4% lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is up 1.6%. The four week moving average is down 2.1% for the seasonally adjusted Purchase Index, while this average is up 3.2% for the Refinance Index. The refinance share of mortgage activity decreased to 68.1% of total applications from 69.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased t o 4.7% from 4.4% of total applications from the previous week.

NAR - No commercial real estate recovery before 2011

According to the National Association of Realtors (NAR), fallout from the recent recession continued to negatively impact commercial real estate sectors in the fourth quarter, and things are not going to get better anytime soon. “With the job market expected to turn for the better later this year, we’ll see rising demand for office and warehouse space, but that isn’t likely before 2011,” said Lawrence Yun, NAR chief economist. Yun notes that commercial vacancy rates remain high in most market areas and are depressing rents. The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 700 local market experts, suggests a flattening level of business activity in upcoming quarters with 55% of members expecting the market to improve in the second quarter. The SIOR index rose 0.2%age point to 35.5 in the fourth quarter, compared with a level of 100 that represents a balanced marketplace. This is the first ga in following 11 consecutive quarterly declines. Although some indicators show that a decline in commercial property values is beginning to flatten, 86% of respondents report prices are below replacement costs. Nearly nine in 10 survey participants said new commercial development is virtually nonexistent in their market areas, and rent concessions are reported almost everywhere.

Home prices fell, but just 2.5% during the last three month of 2009 compared with the fourth quarter of 2008, according to the S&P/Case-Shiller Home Price Index. That was a big improvement over the past three years. "As measured by prices, the housing market is definitely in better shape than it was this time last year, as the pace of deterioration has stabilized for now, said David Blitzer, chairman of the Index Committee at Standard & Poor's. "However, the rate of improvement seen during the summer of 2009 has not been sustained." The index did rise 1.6% on a seasonally adjusted basis during the fourth quarter compared to the previous three months, for the third consecutive quarter of increase. S&P reports the national statistics quarterly and an index of 20 cities monthly. The 20-city index inched down in December, falling 0.2% compared with November. Only four cities showed improvement. One of those was Las Vegas, where prices rose 0.2% -- the first monthly gain for t hat city in three years. The future of home prices remains difficult to forecast, though, as the market at some point will have to weather the withdrawal of government measures to boost home buying, Yale economist Robert J. Shiller told CNBC. "This isn't a forecast, but it's a worry that home prices might drop substantially from here forward once this support is taken away," Shiller said in a live interview after the report was released. "Mortgage rates will go up, the economy might double-dip, the expectations for housing which helped drive the market might change suddenly once people see this support being withdrawn."

Jobs bill passes

The Senate voted Monday to push forward a $15 billion jobs creation bill that would give businesses a tax break for hiring the unemployed. The 4-prong bill will: Exempt employers from Social Security payroll taxes on new hires who were unemployed; Fund highway and transit programs through 2010; Extend a tax break for business that spend money on capital investments like equipment purchases; and Expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects. The final legislation is a scaled-down version of an $85 billion bipartisan draft bill that was crafted by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa. However, the bill does not extend the deadline to apply for unemployment benefits and the COBRA health insurance subsidy. Some 1.2 million people will run out of benefits after Feb. 28 if the deadline is not extended. Lawmakers are looking to pass a separate, 15-day extension to give them time to en act a longer fix. And unlike the House's bill, the Senate measure does not provide additional assistance for states. Many governors, who are holding their annual meeting in Washington, want the Obama administration to send more federal dollars their way so they can cope with yawning budget gaps. Labor leaders and left-leaning think tanks all say the Senate must do more to spur job creation - as if the Senate can fabricate jobs out of thin air somehow.

Commercial real estate prices up

US commercial real estate prices, as measured by Moody’s Investors' Service/Real Estate Analytics, Commercial Property Price Indices (CPPI) increased for the second month in a row in December, rising 4.1%, as the commercial real estate (CRE) market continues to face several challenges, such as the rising tide of defaults and subsequent foreclosures. Moody’s said the index’s improvement was the largest month-over-month increase in the nine-year history of the CPPI and followed a small, 1% gain in November. The volume of transactions also rose in December, typical for the end of the year, Moody’s added. In December, 716 transactions totaling $9bn were recorded in the month. At the end of December, CRE prices are down 29.2% from a year ago and 39.8% from two years ago. They are 40.8% below their peak values. But, Moody’s said, it’s uncertain whether the recent price increases represent CRE passing the bottom of the market or are only the “volatility of a market i n transition.”

Underemployment at 20%

According to a Gallup poll released today, nearly 20% of the U.S. workforce lacked adequate employment in January. Gallup estimated that about 30 million Americans are underemployed, meaning either jobless or able to find only part-time work. This is a big deal, because underemployed people spent 36% less on household purchases than their fully employed neighbors in January, while six out of 10 were not hopeful about their chances of finding adequate work in the coming month. Gallup surveyed more than 20,000 U.S. adults from Jan. 2 to 31. The results have a 1% point margin of error. Gallup found that underemployed Americans were more likely to have a favorable view of Obama, with 55% approving of his performance as president against 49% of the wider public. Hopefully this doesn't give President Obama ideas for a campaign strategy - to put people out of work to increase his popularity. The poll's estimate of U.S. underemployment is higher than official statistics, and te nds to paint a darker picture of the economy than official statistics. The Labor Department, for its part, disagrees with Gallup and claims only 16.5% of American workers were without employment or worked part-time for economic reasons in. A Labor Department official said the government rate may be lower because it factors out temporary seasonal changes in employment to better reflect the underlying economy.

DSNews - Subprime securities fall in value

Heightened concerns about the valuation of subprime assets backing U.S. residential mortgage-backed securities (RMBS) has manifested in an across-the-board drop for all vintages, Fitch Solutions reported last week. The ratings agency’s U.S. Subprime RMBS Price Index fell by just under 6 percent month on month to 7.17 as of February 1, down from 7.62 as of January 1. All vintages dropped in value, highlighting concerns about the valuation of all RMBS subprime assets. Driving the declines was the 2007 vintage, which dropped by 17.7 percent, followed by the 2005 vintage falling by 9.5 percent month on month. Recent loan level analysis conducted by Fitch Solutions on the indices’ constituents found that the 2007 vintage showed a significant jump in 90-day plus delinquencies rising from 13.7 percent to 14.2 percent. “The rise in delinquencies is signaling a potential increase in 2007 loan defaults,” explained Thomas Aubrey, managing director at Fitch Solutions. Further
evidence of a potential rise in defaults is in the six-month constant default rate (CDR) for both 2007 and 2005 vintages, both of which fell only marginally, the company said. Fitch explained that this is in stark contrast to much larger declines in the default rates of 2004 and 2006 vintages.

On April 5, 2010, the U.S. government will implement the Home Affordable Foreclosure Alternatives Program. Part of the Home Affordable Modification Program, HAFA helps homeowners who are unable to retain their home under HAMP by simplifying and streamlining the use of short sales and deeds-in-lieu of foreclosures. Homeowners must meet certain requirements to participate and incentive payments are provided to homeowners and servicers. To help Realtors understand HAFA and its guidelines, NAR has released a brochure about the Home Affordable Foreclosure Alternatives Program and additional resources online, including government forms and guidelines, a video explaining the new federal guidelines, and frequently asked questions. Designed to help Realtors explain the new program to homeowners, NAR’s HAFA resources explain how the program aims to streamline short sales and, in the process, save more families from foreclosure. “The new guidelines and incentives as part of HAFA a re a crucial step towards reducing problems with the short sale process, and Realtors are ready to help make this new program a success,” said Golder.

Ex-US Treasury Secretaries Back Volcker Rule

Five former Treasury secretaries - Michael Blumenthal, Nicholas Brady, Paul O'Neill, George Shultz and John Snow - urged Congress to bar banks that receive federal support from engaging in speculative activity unrelated to basic bank services. "The principle can be simply stated," the five said in a letter to The Wall Street Journal. "Banks benefiting from public support by means of access to the Federal Reserve and FDIC insurance should not engage in essentially speculative activity unrelated to essential bank services." The Treasury secretaries insisted, however, that hedge funds, private-equity firms and other organizations engaged in speculative trading should be "free to compete and innovate" but should not expect taxpayers to back up their endeavors. "They should, like other private businesses, ... be free to fail without explicit or implicit taxpayer support," said the former secretaries for both Republican and Democratic presidents. The appeal comes as Senate lawm akers are pressing ahead with efforts to produce a financial regulatory reform bill that would curb some of the practices that led to the 2008 financial crisis. The regulatory reform proposal endorsed by the five former Treasury secretaries is the so-called Volcker Rule, formulated by former Federal Reserve Chairman Paul Volcker, a top economic adviser to President Obama. Obama surprised the financial markets in late January when he announced the proposal, which calls for new limits on banks' ability to do proprietary trading, or buying and selling of investments for their own accounts unrelated to customers.

Delinquency rate down but foreclosures at all time high

According to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 9.47 percent of all loans outstanding as of the end of the fourth quarter of 2009, down 17 basis points from the third quarter of 2009, and up 159 basis points from one year ago. The non-seasonally adjusted delinquency rate increased 50 basis points from 9.94 percent in the third quarter of 2009 to 10.44 percent this quarter. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 4.58 percent, an increase of 11 basis points from the third quarter of 2009 and 128 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 15.02 percent on a non-seasonal ly adjusted basis, the highest ever recorded in the MBA delinquency survey.

The percentage of loans on which foreclosure actions were started during the fourth quarter was 1.20 percent, down 22 basis points from last quarter and up 12 basis points from one year ago. The percentages of loans 90 days or more past due and loans in foreclosure set new record highs. The percentage of loans 30 days past due is still below the record set in the second quarter of 1985. Jay Brinkmann, MBA’s chief economist, says, “Despite the drop in short-term delinquencies, foreclosure rates could continue to climb, however, based on the ability of borrowers 90 days or more delinquent to solve their problems. A sizable number of the loans in the 90+ day delinquent bucket are in loan modification programs. They are carried as delinquent until borrowers demonstrate they will make the payments agreed to in the plans." And we all know how well HAMP is working…

Credit card rules are here

Today the CARD act goes into effect and consumers finally get some relief from such practices as "double-cycle billing" and arbitrary rate increases. As with most government meddling though, the results aren't all rosy. For starters, consumers could suddenly find themselves socked with a variety of new fees and charges. Banks and other card issuers have already been aggressively implementing new fees or raising existing ones to help make up for any potential revenue lost as a result of the CARD Act. And whereas 3% was once the standard charge for rolling over a balance from one credit card to another, issuers like JPMorgan Chase are now assessing customers a 5% fee, according to Bill Hardekopf, CEO of the card rating site LowCards.com. With the new law setting no restrictions on the types of fees issuers can implement, consumers should pay particularly close attention to the "Terms and Conditions" section of their statement so they know exactly what they are being charge d for, warn experts. Credit is poised to tighten even further.

As part of the CARD Act, credit card companies will be severely restricted in how they market cards to college students, potentially shrinking an important part of their business. But issuers are also expected to implement much more severe underwriting practices. Some may demand, for example, details on an applicant's income or proof of other savings. Consumers may also be increasingly unable to enjoy the fruits of their spending as a result of the new law. It wasn't that long ago where a cardholder could easily earn credit towards a free airline ticket or cash back for every dollar spent. But issuers are now quietly becoming more stingy with their rewards in an effort to save money. Things aren't all bad though. One of the biggest victories for consumers in the new law are a series of limits on how and when credit card companies can set interest rates. Whereas in the past, banks could raise your annual percentage rate just for missing a payment on your cell phone bill or without giving a consumer much advance notice, such practices will soon be outlawed. Issuers now have to alert you at least 45 days in advance before raising your rate under the CARD Act.

$1.5 billion - more details

Remember on Friday we reported that Obama was going to use $1.5 billion of Troubled Asset Relief Program (TARP) funds to aid homeowners in select states? We have a few more details today: Treasury Department policy adviser Sarah Apsel, in a posting on the White House blog, said the program will apply to states where house prices have fallen more than 20% from their peak. William Apgar, Housing and Urban Development senior adviser for mortgage finance adds that the states were chosen because of these “precipitous house price declines” and holding a large number of “first and second mortgages underwater.” Apgar said related mortgage-backed securities investors are willing to take write-downs on the firsts, but want borrowers with a second, as is often the case, to be able to access federal funding.

The industry recently sounded a warning against these so-called “silent seconds,” as it relates to investors; “Lien priority dictates that the first mortgage cannot be written down until the second is extinguished,” Amherst Securities said in that report. “Such price declines, coupled with the effects of high unemployment, means that many working and middle-class families in these areas are facing serious challenges,” Apsel wrote. “The effort we are announcing today will provide support for state housing finance agencies (HFAs) to design programs tailored to the urgent needs of particular communities.” According to Apsel, the funds will support programs geared toward sustainable and affordable homeownership including efforts to help unemployed homeowners, borrowers in negative equity positions and borrowers pressured by second mortgages. The Treasury will announce maximum state level allocations over the next two weeks, she said. The plan will support homeo wners in California, Nevada, Arizona, Florida, and Michigan.

According to the National Association of Realtors (NAR), its Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, dropped 7.6% to 90.4 from a reading of 97.8 in December, and is 12.3% higher than January 2009 when it was 80.5. NAR said the harsh winter hampered home sales. “January pending sales, though still higher than one year ago, remain much lower than expected given that a large number of potential buyers are eligible for the expanded home buyer tax credit,” said NAR chief economist Lawrence Yun. “Moreover, the abnormally severe and prolonged winter weather, which affected large regions of the US, hampered shopping activity in February.” Analysts say extension of tax credit is doing little to boost pending home sales, and given that the Federal Reserve will end purchase of mortgage backed securities this month, the housing recovery is going to take time. “When you take away all the support from the housing market, the und erlying demand for housing is a lot weaker than we thought,” said Mark Vitner, an economist at Wells Fargo Securities. “We clearly pushed some demand forward, and there wasn’t that much demand to pull forward anyway. The housing recovery is going to be very, very slow.” On a regional basis, the pending home sales index dropped 8.7% to 71.3 in the Northeast, dropped 13.2% to 102.9 in the West, dropped 8.9% to 81.2 in the Midwest, and dropped 2.1% to 98.1 in the South.

Construction of multifamily units to rise in 2010

Green Street Advisors, a research firm, says real estate investment trusts are likely to begin construction of multifamily units worth about $1 billion in 2010; this is a significant increase over the $100 million of development starts in 2009. This comes as a bit of surprise since apartment vacancy is at a record high and the unemployment rate is not expected to come down any time soon. Analysts point out that construction cycles of multifamily units run into a few years and companies have to start today and be ready when the market turns around. Companies are betting that limited supply of new units coupled with an improving economy will help the sector in another couple of years. After 2012 until 2015, "apartment REITs may generate the best property net operating income growth that they've seen in a very long time, maybe ever," said Haendel St. Juste, a REIT analyst with Keefe, Bruyette & Woods. While the sector has significant risks, analysts believe things are getting be tter. "There's an element of risk," said Andrew McCulloch, an analyst with Green Street. "But if you were to go back a year, the outlook is much more clear today. Their confidence level in that eventual recovery is much higher."

Analysts predict better times for commercial mortgage

The commercial mortgage market, which hit the lowest level last year since 2003, is likely to do better in 2010. Analytics firm Trepp, which monitors collateral performance on related commercial mortgage backed securities (CMBS), says the amount of commercial loans at least 30-days delinquent rose to 6.72% in February; this is the smallest increase in six months. In addition, the value of commercial real estate loans that collateralize CMBS increased to 76.7% of the original loan price through January 2010, up from 75.9% in December, according to Debtx, a research firm. Cushman & Wakefield, a commercial real estate (CRE) services provider, has predicted a 30% increase in global CRE investments in 2010. Analysts believe mortgages are the best option now for both high yields and safety, and will attract the attention of investors in 2010. David Hutchings, head of research at Cushman & Wakefield says investors aren’t shying away from the risk in CMBS. “While challenges clear ly remain and a double-dip cannot be ruled out, a higher risk appetite among financiers and investors will continue to fire the market,” Hutchings said.

Factory orders rise 1.7%

According to the Commerce Department, new orders for goods manufactured in U.S. factories rose 1.7% in January; this is the ninth rise in the last 10 months. Orders for nondurable goods, including food, paper products, petroleum and coal products, rose by 0.9% in January while orders for durable goods such as computers, cars and machinery, rose by 2.6% in January. Manufacturers have been battered by the financial crisis and the recession hit demand for durable goods in the last couple of years. Orders for heavy machinery fell 9.2% in January after posting a 7.3% increase in December. “The culprit here is turbines,” said Michael Feroli, an economist at JPMorgan Chase. “You smooth it out and things weren’t as robust as they seemed in December, but maybe not as dire as they seemed in January.” The decline in orders for heavy machinery has not dampened economists’ outlook. The declines in orders of heavy equipment “don’t change our opinion that capital spending is
recovering,” said Aaron Smith, an economist at Moody’s Economy.com. “There’s always a tendency for the turbines and generator category to be weak in the first month of the quarter and stronger in the last month and that trend is particularly strong for the first part of the year.”

Payrolls fall less than expected in February

The jobless rate remained unchanged at 9.7% in February compared to January. The Labor Department said employers cut 36,000 jobs in February; analysts had expected at least 50,000 jobs to be cut in February. On a sectoral basis, professional and business services added 24,000 jobs in February; manufacturers added 1,000, construction companies eliminated 64,000 jobs, financial sector cut 10,000, and the government cut 18,000 jobs. The Labor Department said it is difficult to measure the impact of winter storms on employment. "Nor do we know how new hiring or separations were affected by the weather. For those reasons, we cannot say how much February's payroll employment was affected by the severe weather," said Bureau of Labor Statistics Commissioner Keith Hall. Economists say the less than expected job cuts are an indicator that unemployment is easing. “We are almost there, the point where we are consistently adding jobs,” said Ken Mayland, president of ClearView Economic s. “The economy is making incremental but broad-based gains towards improvement.” Since the start of recession, 8.36 million jobs have been lost and unemployment remains the single biggest challenge for President Obama.

According to the Mortgage Bankers Association (MBA), its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, rose 14.6% for the week ended February 26, from the earlier week. The Refinance Index rose 17.2% from the previous week while the seasonally adjusted Purchase Index increased 9.0% from one week earlier. The increase was due to a drop in loan rates -- the rate on 30-year fixed-rate mortgages dropped to 4.95%. "Mortgage applications rebounded last week, particularly refis, as rates dropped back below 5 percent," said Michael Fratantoni, vice president of research and economics at MBA. "Purchase activity remains subdued, with application volumes remaining within the narrow range seen in the last few months." Analysts say the surge in mortgage applications is not an indication of long-term recovery, given the current levels of foreclosure and unemployment. "We are seeing positive signs of some form of life, but it is not si gnificant and the recuperation period is going to be significant because these are dramatic declines" in housing, said Vickie Lester, president of mortgage servicing at RoundPoint Financial Group.

Home prices rise 5%

Clear Capital, a provider of real estate data, says home prices climbed 5% nationally in February from a year ago. The prices grew 2.3% in January on an annual basis. Among metropolitan areas, Providence, Rhode Island saw the highest rise of 6.1% from the earlier quarter. California had 5 of the 15 highest performing markets. The rise in prices is likely to be sustained as the tax credit deadline approaches in April. “If the increase in demand that preceded the end of the last tax credit is any indication, home prices may dip only slightly into negative territory before getting an added boost before the April tax credit deadline,” said Alex Villacorta, senior statistician at Clear Capital. The firm has expressed optimism despite the likely impact of REOs – properties that go back to the mortgage company after an unsuccessful foreclosure auction – on home prices in the coming months. “Although many markets have seen a slow down in price gains, I’m encouraged that p rices have remained positive through the first two months of the year despite all the negative economic news and threat of more REOs hitting the markets,” Villacorta said.

Hovnanian returns to profitability

Hovnanian Enterprises, a real estate development company, posted a profit of $236.2 million for the quarter ended January 31, compared with a year-earlier loss of $178.4 million. The result includes a $5 million write-down on land and other items, compared with $132 million in write-downs a year earlier. This is the first quarterly profit since 2006. Hovnanian operates in 18 states, including California, Arizona and Florida, the worst-hit states. The company’s net contracts, excluding unconsolidated joint ventures, decreased 5% while the average price grew 14%.
The company's contract backlog as of January 31 was 1,593 homes, down 4%, with a value of $505.4 million. The cancellation rate dropped to 21% from 31%; this was the company's lowest cancellation rate since the second quarter of 2005. Ara Hovnanian, Chief Executive of Hovnanian, sounded cautiously optimistic about the company’s prospects for the near-term. "We are pleased to see the market for new land deals begin to thaw out a bit and we continue to diligently pursue new land opportunities where we can make normalized returns based on today's home prices and sales absorption levels,” said Hovnanian. "I'm not trying to brush off concerns in the marketplace. There are risks, and the risks are real."

Service sector’s best performance since December 2007

The Institute for Supply Management (ISM) said its index tracking the service sector rose to 53.0 in February from a reading of 50.5 in January. This is above the estimate of 51.0 made by economists. A reading above 50 indicates economic expansion while a reading below 50 denotes contraction. The February reading is the highest since December 2007. The services sector accounts for about 70% of America’s economic activity. “We’re starting to see a broadening of the economic recovery,” said Richard DeKaser, chief economist at Woodley Park Research. The data “are encouraging, to say the least.” Dean Maki, chief U.S. economist at Barclays Capital, said: “Spending by consumers and businesses is growing again, though not at the pace prior to the financial crisis. Generating service-sector employment is quite critical to the broader economy.” Unemployment is the biggest concern. Given the current unemployment level, it may take years and not months for the sector to recover in a sustained manner. “Business feels better, there is no question about it,” said Macy’s Chairman and Chief Executive Officer Terry J. Lundgren. “We still have high unemployment, and I still see tight credit on consumers.” Nine industries, including information technology, arts, transportation and retailing, saw growth in February while 8 industries saw a fall in output.

Planned layoffs drop in February

According to a report released by Challenger, Gray & Christmas, a consultancy, planned job cuts announced by U.S. employers dropped 41% to 42,090 in February, from the 71,482 layoffs recorded in the previous month; this presents a 77% drop from 186,350, a year earlier. The report states that job-cut total in February is the smallest since July 2006. Analysts believe it will take some time before hiring starts to grow. John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said: “Employers have shifted away from downsizing and are poised to start adding workers. It may be a couple of more months before hiring begins to surge.” Pharmaceutical companies, with 17,687 announced cuts, and government and non-profit agencies, with 4,628, led all industries in reductions in February. The economy is limping back from its worst downturn since the 1930s, but economists are concerned about the unemployment rate which is expected to average close to 10% this year.
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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.

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 Thoma s 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."

The Oracle of Omaha, in his annual letter to shareholders of Berkshire Hathaway Inc., has written, “Within a year or so, residential housing problems should largely be behind us. Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.” The decline in the U.S. housing market has led to record foreclosures and an over-supply of housing. Buffett thinks it will take another year before housing demand catches up with supply. Buffett said reduction in new housing starts is the best way to reduce inventory overhang, and joked that the only other options are to destroy existing homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.” Berkshire, which owns companies in the real-estate space, has su ffered on account of the housing slump. Clayton Homes, the pre-fab housing company owned by Berkshire, saw a drop in profit by about 9% last year, while earnings at Shaw Industries, a carpet manufacturer, dropped 30%. Buffett decried the “punitive differential” in mortgage rates between factory-built homes and site-built homes. While buyers of site-built homes obtain a 30-year loan at a little over 5% on account of guarantees offered by Fannie Mae and Freddie Mac, buyers of homes built by Berkshire companies such as Clayton pay as high as 9% on their mortgage since “very few factory-built homes qualify for agency-insured mortgages.”

Mortgage delinquencies rise in January

Freddie Mac has reported that delinquency rate on its single-family loans rose to 4.03% in January, from 3.87% in December; a year ago, the delinquency rate was 1.98%. In volume terms, Freddie’s total mortgage portfolio dropped at an annualized rate of 1.7% in January. The agency’s refinance-loan purchase and guarantee volume was $22.6 bn in January, down from $27.3bn in December. The total guaranteed purchase coupons and structured securities issued decreased at an annualized rate of 0.5% in January. Freddie reported $36.6bn of purchases and issuances for January, including $7.2bn of guarantees under the Housing Finance Agencies initiative. Freddie Mae and Fannie Mac have announced they will buyout delinquent loans over a period of the next few months, amounting to “a significant portion of the current delinquent population.” Moody’s Investors Service, a rating agency, warns that investors in mortgage backed securities issued by Freddie and Fannie are likely to wit ness a decline in their investment value on account of delinquent loan buyouts. Linda Lowell, principal of Offstreet Research, said the buyout -- which is principal repayment at par -- means “any investor who carries their MBS positions at market value (and that’s the vast majority) will take a loss on every dollar that prepays, one that averages to about 4%. Ouch.”

Toll Brothers reports smaller losses

Toll Brothers, a luxury homebuilder, has posted a smaller loss of $40.8mn, or $0.25 per share, for its first quarter that ended January 31, 2010; this compares to