Pending home sales level off

According to the National Association of Realtors, pending home sales have leveled from a market swing driven by response to the home buyer tax credit. The Pending Home Sales Index increased 1.0 percent to 96.6 from 95.6 in November, and remains 10.9 percent above December 2008 when it was 87.1. In November, the monthly index had fallen by 16.4 percent from surging activity in preceding months. Lawrence Yun, NAR chief economist, said it’s important to recognize how the tax credit is skewing market data. “There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” he said. “These swings are masking the underlying trend, which is a broad improvement over year-ago levels.

December activity was the fifth highest monthly tally in two years.” The PHSI in the Northeast rose 2.3 percent to 76.1 in December and is 14.9 percent higher than December 2008. In the Midwest the index increased 5.2 percent to 86.9 and is 8.7 percent above a year ago. Pending home sales in the South rose 2.2 percent to an index of 98.4, and are 5.5 percent higher than December 2008. In the West the index fell 3.8 percent to 119.9 but is 18.6 percent above a year ago. Yun projects the extended and expanded tax credit will encourage 2.4 million households to take the credit in 2010. “While new-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010,” Yun said. Last year there were 5.16 million existing-home sales. He added that one of the greatest benefits of rising sales will be firming home prices.

Son of TARP

Touted last week in Obama's State of the Union address, the plan is the latest incarnation of a proposal the president first floated in October. President Obama will call on Congress Tuesday to recycle $30 billion of the remaining Troubled Asset Relief Program (TARP) funds into a new government lending program offering super-cheap capital to community banks that boost their small business lending this year. The initiative targets banks with assets of under $10 billion, which collectively account for more than half of the nation's small business lending, according to White House estimates. Those banks would be able to borrow money from the Treasury at a dividend rate as low as 1% if they use the cash to make more small business loans this year than they did in 2009. The first draft of Obama's plan, announced three months ago, involved lending TARP money to community banks to use for local business loans. But community bankers reacted warily to the plan -- they had little inte rest in taking capital from a program that has drawn so much criticism.

TARP's extensive regulatory requirements were also a turn-off. Obama's new proposal asks Congress to divert TARP funds into an entirely new lending program. The administration hopes that scrapping the TARP taint will make the offering more attractive to bankers. Banks with less than $1 billion in assets would be able to receive capital infusions of up to 5% of their assets, and banks with assets of $1 billion to $10 billion would be eligible to access investments totaling 3% of assets. More than 8,000 of the country's 8,400 banks would be eligible to participate under these terms, according to government estimates. The dividend rate for the capital would start at 5% and decrease by 1% for every 2.5% increase in small business lending the bank shows compared to a 2009 baseline. The dividend rate could drop as low as 1% for a community bank that increases its small business lending balance by 10%. That rate would stay frozen for five years, allowing the bank to pay the Treas ury back gradually. Maybe it will work and maybe it won't, but if I were a Bank President I'd want nothing to do with a president who encouraged banks to borrow from him and then regulated and taxed them to death while attacking them for "greed."

U.S. manufacturing up

U.S. manufacturing expanded in January at its fastest pace since 2004 but consumers increased their spending only slightly in December, worried by job prospects and the state of the economy. The Institute for Supply management said its index of national factory activity rose to a reading of 58.4 from 54.9 in December, handily beating economists' median forecast of a rise to 55.5. A reading above 50 indicates growth in the sector. The prices paid component was at its highest since August 2008. Economists said gains were driven by businesses replenishing inventories, which fell sharply during the recession. "It is telling me that the first half of 2010 is going to be supported by the restocking," said Stephen Gallagher, chief U.S. economist at Societe Generale in New York. "We have a 3 percent to 3.5 percent growth range for the first half of 2010 and based on these numbers we might be underestimating the growth." The U.S. economy grew at a 5.7 percent annual pace in the fourth quarter, its fastest clip in six years, driven by a sharp slowdown in the rate at which businesses reduced stocks of unsold goods, the government said on Friday. But while the ISM employment component hit its highest level in nearly three years, some economists said the month-on-month gain was fairly modest. "All of the employment numbers are showing that the huge losses in jobs are well behind us but we are not gaining in jobs either," said Jay Mueller, senior portfolio manager at Wells Capital Management in Milwaukee.

Time for a government exit?

The Obama administration’s bailout plans and stimulus packages are working to keep the economy from collapsing, but they are also creating an environment in which private investors in the securitization sector are reluctant to come back en masse. During a panel at the American Securitization Forum 2010 in Washington, titled “Restoring the Private Securitization Market and Unwinding Government Support Programs,” moderator Karen Weaver, global head of securitization research at Deutsche Bank asked: “Do you think the [securitization] market is ready for the [government's] exit?” Ish McLaughlin, a managing director at Citigroup, said the investor base appears smarter and more understanding of the securitization landscape, though the investor base is significantly deteriorated. “80 percent of volume is bought by 20 percent of the investor base,” he said. “It’s too narrow a base to build a house on. And, if you can’t get your hands around the product now, you p robably aren’t going to get you hands around it.”

Paul Colonna, president of fixed income at General Electric Investment Corporation added that the homebuyer tax credit helped stimulate the market, but it is no longer needed as long as banks get recapitalized in order to begin offering credit in a meaningful way. “We have to start thinking about what the exit looks like. We’ll see rates rise, but at the end I don’t think rates are the problem,” Colonna said. “Loan mods are a big issue, you won’t see investors back in the market until we see what will happen with this.” McLaughlin added that the money is there for creating a private market securitization market. When private-label RMBS does come back to market, it will have to stand up under significant review. The industry is undergoing a sweeping reform of due diligence in order to increase transparency in the securitization process.

MBA - Commercial Loan Maturity Volumes

The Mortgage Bankers Association (MBA) today released the results of its 2009 Commercial Real Estate/Multifamily Survey of Loan Maturity Volumes. The survey indicates that the volume of commercial and multifamily mortgage debt maturing in 2010 and 2011 is relatively low. Of the $1.45 trillion balance of outstanding mortgages held by non-bank investors, only 13 percent of the total ($183.9 billion) will mature in 2010 and 7 percent ($99.8 billion) in 2011. “Commercial and multifamily mortgages tend to be long-term loans, often for ten years or more,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “The fact that a disproportionate share of commercial and multifamily mortgages were made in 2005, 2006 and 2007 means that for most investor groups, only a fraction of the balance will be maturing in the next couple of years.”

Commercial/multifamily mortgage maturities vary significantly by investor group. Just 2 percent ($4 billion) of the outstanding balance of multifamily mortgages held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae will mature in 2010. Life insurance companies will see 7 percent ($17.5 billion) of their outstanding mortgage balances mature in 2010. Among loans held in CMBS, 12 percent will come due in 2010, including 7 percent of the $650 billion of loans in fixed-rate conduit CMBS and 72 percent of the $54 billion of loans in floating rate and large-borrower CMBS. Thirty-two percent ($69 billion) of commercial mortgages held by credit companies and other investors will mature in 2010. MBA’s 2009 survey collected information directly from servicers on the maturity years of more than $1.5 trillion in outstanding mortgages, including $1.45 trillion of non-bank commercial/multifamily holdings.

Follow Up: FHA Waives 90 Day Flipping Rule

With a glut of foreclosures plaguing the nation, the Federal Housing Authority (FHA) is temporarily removing restrictions on investors who buy and sell homes within 90 days. "FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," FHA Commissioner David Stevens wrote in a statement last month. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity." The FHA is only lifting the ban for one year and there are rules. You can't flip the property for more than a 20 percent profit without getting two appraisals in most cases and the transaction must be at "arms-length" so friends don't get together to drive up the home value and then snag some unknowing buyer. The FHA program, like the Fannie Mae 3.5% rebate that we talked about here yesterday, are designed to get rid of the glut of foreclosures on the market, but some people are wary of them. Diana Olick sa ys, " Look, I get it. The United States saw roughly 2.8 million foreclosure filings in 2009, and many of those properties are still sitting on the banks and on Fannie and Freddie's collective books. As continued foreclosures push inventories higher, they push home prices lower.

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