Monday Mortgage Update 12-29-08
Posted on | December 29, 2008 | No Comments
Thanks to Katie Mahoney, Carolina One Mortgage, 843-345-7009
Capital Markets Update:
As we all know, for many people, 2008 has been filled with personal and professional challenges, to say the least. I thought about writing a “year in review” piece, but I figured why relive the bad news, as I always say, “It’s not safe driving forward while starring into the rearview mirror.” As far as Wall Street is concerned, the faster 2008 is over, the better. Was there ever a time when so many once blue-chip financial and large companies were pushed to the edge, and in some cases over it? All three major indexes are down sharply, with the Dow off by the biggest percentage since the Great Depression, and the Nasdaq and S&P suffering the biggest calendar-year losses in their history.
What’s ahead for us 2009? Some mortgage industry analysts I track, as well as government officials, are saying that 2009 may be either a bad or a terrible year for the industry and that good isn’t even in their equation. I’m going to take the optimistic path and hope that these low rates are going to spark home sales. Once again, it will all be about jobs. It’s common sense that no one will buy or build a house knowing they may not have a job. One thing that is certain is that the Fed can’t help by loweriing its Fed Fund Rate, because its already at nearly zero. So whatever help Washington can bring will likely be in forms of tax relief or more government spending. The good news is most recessions average about a year in length and we have already reached that point. Barring any unforeseen catastrophe, let’s believe the road to recovery is just up ahead and a new beginning can heal the pain of the past.
This week should be another light trading week, so again we may see some swings that don’t make much sense. The biggest news so far is that GM and Chrysler wil take posession of the first part of the $14 billion emergency loans from the government. On Tuesday, we get a reading on Consumer Confidence (don’t expect much confidence) and on Wednesday we will get the weekly Jobless Claims, which will more than likely be larger than expected mainly because recent layoffs in the auto industry (what a way to end the year, huh?).
Mortgage Industry Headline:
Mortgage Applications Hit Almost 5-Year High:
According to an MBA report, mortgage applications have surged to the highest level in over five years, as borrowers came out of the woodwork to refinance as government interventions helped push interest rates down to record lows. The MBA counts all applications, even those that are ultimately rejected. The really great news of this is that these refinances could help some homeowners avoid expensive resets on their ARM loans, of which many Pay-option ARM’s are coming due very soon. Pay-option ARMs were in many cases some of the most profitable products for mortgage brokers. These products allowed far too many homeowners to “rent” until their ARM reset. Little did they know that their payments would almost double.
Housing Permits, Starts Hit Record Lows:
Housing permits and starts fell to record lows in November. You had to have seen that coming. There are simply too many homes on the market, both new and existing homes. Permits can be a useful indicator to gauge the near future housing market. A new home sales report showed that sales have fallen to early 1991 lows. Moreover, the median sales price has fallen 12.8% from November of 2007, which is the largest 12-month decline since records began in 1968. The silver lining is, these few months are traditionally the slowest of the year anyway and the “buying season” is just a few months away.
New Jobless Claims Jump:
New claims for unemployment claims rose more than expected for the previous week. Damn. If this report was as positive as in the previous week’s reading, the market would surely rally going into the new year. It seems that auto-related layoffs played the biggest role in the new claims. The auto makers said in previous weeks that layoffs were expected regardless of any government aid (referring to the $14 billion loan the President approved).
Fed Grants GMAC Authority For Bailout Funds:
The first step in getting a government bailout is complete. The Federal Reserve approved GMAC Financial Services’ request to become a bank holding company, allowing it to apply for a portion of the $700 billion and get emergency loans directly from the Fed. GMAC provides financing for both GM dealers and home mortgage loans through its Residential Capital division. The company is 51% owned by Cerberus Capital Management, the investment fund that also owns Chrysler. GM owns the remaining 49% of the company. Under the Fed’s order, Cerberus and GM, whose businesses are mainly outside banking, would both have to significantly reduce their ownership stakes in GMAC. GM has committed to reducing its ownership in GMAC to less than 10%. Cerberus was ordered to reduce its stake to 33% of total equity in the company. A GMAC bankruptcy would cut off financing to the roughly 85% of GM’s dealers it does business with. The future of Chrysler Financial, Chrysler’s financing arm, is also uncertain.
FHA-Secure Set To Terminate:
HUD is terminating the FHA Secure program for refinancing delinquent borrowers, but it is still keeping one option that made it easier for borrowers with second liens to refinance into an FHA loan. FHA will allow borrowers to re-subordinate second liens, which was an option provided under FHA Secure. FHA will retain its standard rate and term refinance program for borrowers who are current on their existing mortgages. FHA Secure wasn’t the most popular program, however, it got a lot of media attention because it targeted borrowers who became delinquent due to an ARM loan reset.
FHA also has tightened its appraisal requirements on cash-out refinances where the loan-to-value (LTV) ratio is above 85%. FHA now requires two appraisals on cash-out refinances above an 85% LTV, regardless of the amount of the loan. Previously, FHA required two appraisals only if the loan amount was above $417,000.
Thought of the week:
“The only things that stand between a person and what they want in life are the will to try it and the faith to believe it’s possible.” –anonymous
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