MBA - 3Q09 Commercial and Multifamily Mortgage Performance Falls According to the Mortgage Bankers Association’s (MBA)
Commercial/Multifamily Delinquency Report, delinquency rates for most commercial/multifamily mortgage investor groups continued to increase in the third quarter. Commercial and multifamily mortgages continued to feel stress in the face of the weakened economy,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “The deterioration in commercial and multifamily loan performance is generally in line with what is being seen in other parts of the economy, with loans backed by commercial properties continuing to perform far better than construction and development loans.” Between the second and third quarters, the 30+ day delinquency rate on loans held in commercial mortgage-backed securities (CMBS) rose 0.17 percentage points to 4.06 percent.
The 60+ day delinquency rate on loans held in life company portfolios rose 0.08 percentage points to 0.23 percent. The 60+ day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.11 percentage points to 0.62 percent. The 90+ day delinquency rate on multifamily loans held or insured by Freddie Mac remained unchanged at 0.11 percent. The 90+day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.51 percentage points to 3.43 percent. Based on the unpaid principal balance of loans (UPB), delinquency rates for each group at the end of the third quarter were as follows: CMBS: 4.06 percent (30+ days delinquent or in REO); Life company portfolios: 0.23 percent (60+days delinquent); Fannie Mae: 0.62 percent (60 or more days delinquent); Freddie Mac: 0.11 percent (90 or more days delinquent); Banks and thrifts: 3.43 percent (90 or more days delinquent or in non-accrual). Construction and development loans are not included in the numbe rs presented here.
Stop Spending, Washington
Several groups of citizens and experts across the country, part of the Concord Coalition's Fiscal Stewardship Project, delivered a report to their lawmakers on Capitol Hill detailing their suggestions for how best to address the long-term fiscal storm facing the United States if lawmakers do nothing. To solve the country's fiscal problems, the gross domestic product would need to increase by double digits on average for the next 75 years, on an inflation-adjusted basis, according to estimates from the Government Accountability Office, lawmakers are left with three unpopular choices: cut spending, raise taxes, or stop making promises the country can't afford. Here are a few of the concrete suggestions made by one or more of the councils: Shore up Social Security's long-term shortfalls: The range of suggestions included raising the retirement age, applying means testing to benefits, raising more revenue and ensuring by a "date certain" that projected revenue is sufficient to cover projected expenses; Simplify the tax code: The aim should be to reduce taxpayer aggravation, increase voluntary compliance and reduce enforcement costs; Raise taxes when necessary: The Atlanta council suggested a combination of an income tax and a federal consumption tax.
The Northern California council recommended that the additional tax burden "be spread in a way that ensures everyone will contribute at least something in return for the government services they receive"; Make everyone curb growth in health spending: That includes the government, medical providers, insurance companies, lawyers and consumers; Form a bipartisan fiscal commission: The goal is to have a commission willing to make tough recommendations about how to address long-term budgetary shortfalls and put those recommendations up for a yes-or-down vote in Congress; Think long-term: Lawmakers should consider the costs and effects of a bill beyond the 10-year window they usually use. And they should think about the consequences of their actions on younger generations; The Atlanta council put it this way: "If Americans don't make the hard decisions now, it will have a devastating impact on the quality of life for our children a and grandchildren."
Interest rates to stay low
Fed Chairman Ben Bernanke says the Federal Reserve is still looking at an "extended period" for low interest rates because the economic recovery remains tentative and inflation continues to be stable. "Right now we are still looking at the extended period, given that conditions remain, low rate utilization...and stable inflation expectations, that remains where we are now," Bernanke said in response to a question at the Economic Club of Washington. "We continue to look at the economy, obviously there have been signs of strength recently."
As is becoming a habit in Washington these days, he tagged on this: "We still have some way to go before we can be assured that the recovery will be self sustaining." The Fed chief repeated his belief that the recovery will continue at least into next year. But he cautioned that the economy is confronting some "formidable headwinds" — including a weak job market, cautious consumers and still-tight credit. Those forces "seem likely to keep the pace of expansion moderate," he said. Under one Fed forecast released last month, the jobless rate would remain stubbornly high next year — ranging from 9.3 to 9.7 percent. The Fed has warned that it could take five or six years for the job market to return to normal.
BOA - 2/3s of HAMP borrowers will lose homes
Mr. Schakett, Credit loss mitigation strategies executive at Bank of America (BOA) says that of the 65 thousand trial modifications set to expire Dec. 31st with (BOA), a full two thirds of the borrowers, while current on their payments, have not submitted the full documentation required to turn a trial mod permanent under the HAMP guidelines. "We don't really know the major reason why the customers are not returning the documentation," Schakett claims. Diana Olick says: "Well I can tell you why (and I'm sure he knows this too). The trial modification process only requires oral verification of income to begin, but to go permanent, you need to prove your income, submit your tax returns, and basically come clean with all your finances. I'm guessing a lot of folks who took out their initial loans with false or non-existent documentation aren't eager to let the government know that." Schakett says that Treasury is now considering upping the ante on the trial modifications, requ iring much more documentation up front, so that banks won't have all these trial mods going with borrowers who inevitably won't reach permanent modification status. As Olick says: "...I get a lot of email from borrowers, telling me that the banks are holding up their paperwork, losing faxes, messing up modifications and leaving those borrowers in the lurch. I don't dispute that, but I can't fully dismiss the banks when they tell me that 2/3 of the borrowers won't submit the paperwork. I also happen to know that a huge percentage of borrowers being offered modifications are rejecting them. They don't want to pay. Many are already gone."
Jobs outlook getting worse?
According to Mike "Mish" Shedlock, author of Mish's Global Economic Trend Analysis and an investment advisor at SitkaPacific Capital Management, the November jobs report that got everyone excited was an "outlier" and "almost looked fabricated." Looking beyond the November jobs data, Shedlock says the odds of the unemployment rate coming down anytime soon are remote. Even based on generous assumptions of 150,000 new jobs per month, no double-dip recession and a declining participation rate as Baby Boomers retire, "the best I can do is suggest the unemployment rate will be over 10% all the way through 2015 and never dip below 8% all the way out through the end of 2020," Mish says. "In the absence of a war outbreak in the Middle East or Pakistan -- and/or Congress going completely insane with more stimulus efforts -- I think oil prices are likely to drop, the dollar will strengthen or at least hold its own, and the best opportunities are likely to be on the short side," he wri tes. "2010 is highly likely to retrace most if not all of the ‘reflation' efforts of 2009. If things play out as I suspect, 2010 will be the year of the great retrace as the economic recovery disappoints."
HAMP destined to fail
As Amherst Securities Group LP’s Laurie Goodman told Congress, the U.S. loan modification program is “destined to fail” because it doesn’t confront the real problem of negative home equity that is driving foreclosures. The three-year housing slump has wiped at least 28 percent off home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California. “The phenomenon of underwater mortgages is one of the most troubling aspects of the entire housing market collapse,” Julia Gordon, senior policy counsel at the Center for Responsible Lending, told the committee. “Homeowner equity position has emerged as a key predictor of loan modification re-default, more so than unemployment or other facts.”
Fewer than 1.5 million of the 3.2 million homeowners targeted by the Obama administration for mortgage relief are likely to qualify for the Home Affordable Modification Program, Herb Allison, the U.S. Treasury Department’s assistant secretary for financial stability, told the committee. Banks have said they are rushing to meet a new deadline announced by the Treasury on Nov. 30 to permanently convert more than half of the 650,994 loans that were in trial modifications at the end of October into permanent reductions by year’s end. A mortgage “cram-down” bill that stalled in Congress earlier this year will also be attached to the broader financial regulatory legislation and voted on this week, Frank said today. The cram-down provision would let federal judges lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court, even if the lender objects.
Cash for caulkers
President Obama proposed a new program yesterday that would reimburse homeowners for energy-efficient appliances and insulation, part of a broader plan to stimulate the economy. No one is quite sure how it would work, but Steve Nadel, director at the American Council for an Energy-Efficient Economy, who's helping write the bill, said a homeowner could receive up to $12,000 in rebates. The plan will likely create a new program where private contractors conduct home energy audits, buy the necessary gear and install it, according to a staffer on the Senate Energy Committee and Nadel at the American Council for an Energy-Efficient Economy. Big-ticket items like air conditioners, heating systems, washing machines, refrigerators, windows and insulation would likely be covered, Nadel said. Consumers might be eligible for a 50% rebate on both the price of the equipment and the installation, up to $12,000, said Nadel. So far, there is no income restriction on who is eligible.
That would mean a household could spend as much as $24,000 on upgrades and get half back. Homes that take full advantage of the program could see their energy bills drop as much as 20%, he said. The program is expected to cost in the $10 billion range. "Not only will [such legislation] increase our energy security and transform our energy infrastructure to a modern, clean and efficient one," Senate Energy Committee Chairman Jeff Bingaman, D-N.M., wrote in a recent op-ed column in the Hill, a Capitol Hill newspaper. "But it also will position the United States to lead in the development of clean energy technologies."
Mortgage applications up
According to the Mortgage Bankers Association (MBA), the Weekly Mortgage Applications Survey for the week ending December 4, 2009 increased 8.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 54.0 percent compared with the previous week, but it was a shortened week due to the Thanksgiving holiday. The Refinance Index increased 11.1 percent from the previous week and the seasonally adjusted Purchase Index increased 4.0 percent from one week earlier. The unadjusted Purchase Index increased 41.7 percent compared with the previous week and was 18.8 percent lower than the same week one year ago.
The increase in purchase applications reflected a 10.0 percent increase in Government Purchase applications and a 0.2 percent decrease in Conventional Purchase applications, both on a seasonally adjusted basis. The four week moving average for the seasonally adjusted Market Index is up 1.5 percent. The four week moving average is up 2.3 percent for the seasonally adjusted Purchase Index, while this average is up 1.6 percent for the Refinance Index. The refinance share of mortgage activity increased to 74.4 percent of total applications from 72.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.7 percent from 4.8 percent of total applications the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.88 percent from 4.79 percent, with points increasing to 1.17 from 1.00 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This ends a six week run of declining
30-year fixed rates which may have triggered the increase in refinance applications.
Shoveling more money
President Barack Obama wants to spend even more with an expansion of his $787 billion stimulus plan, unveiling job-creation proposals that build on the initial package, including a hiring tax credit that his own party jettisoned as unworkable and some business owners deemed ineffective. An additional $50 billion would go toward infrastructure spending, ramping up Treasury Department lending to small businesses through the Troubled Asset Relief Program, extending tax credits for business investment and offering state and local governments a fresh lifeline. Other ideas that weren't in the February stimulus legislation include a tax credit that rewards companies for hiring workers and tax rebates for individuals who make their homes more energy efficient. New infrastructure spending would include funds for roads, bridges, airports and water systems, even though tens of billions of dollars from the original stimulus plan remain in the pipeline.
White House economist Jared Bernstein said worthy projects not deemed "shovel ready" in the initial funding applications now will see money, implying that federal stimulus spending could stretch well beyond 2010. Some beneficiaries of the latest plan expressed skepticism about its payoff. Philadelphia Mayor Michael Nutter, a Democrat, said the initiatives might spur job growth indirectly, but he would prefer a less circuitous route. He said the Obama administration needs to do more direct hiring, to create jobs programs aimed at high-unemployment urban centers like Philadelphia, where unemployment stands at 11.2%. Ralph Braun, chief executive of Braun Corp. in Winamac, Ind., said a tax credit is meaningless for a producer like him. "If you're just going out to hire someone just for a tax credit, what kind of job will you put them in that has any longevity to it?" said Mr. Braun, whose 730-employee company produces wheelchair lifts and other equipment. "You have to have a cus tomer for that employee to serve -- so I'm confused how a tax credit would stimulate anything."
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