Moday Mortgage Update 12-22-08
Posted on | December 22, 2008 | No Comments
Capital Markets Update:
Last week the biggest news, next to all of the snow the Midwest got, was the Fed’s unprecedented move to cut the Fed Fund Rate (the rate banks charge each other for overnight loans) down 75 bps to a range of zero to .25%. Now remember, no one really pays this rate. It is more or less an arbitrary number. To most investors, this is a true sign of how dire the financial situation really is. Since this was pretty much the Fed’s last bullet left, the question to be answered is what more can they do? So how is this rate cut supposed to spark the economy? Consumers looking to buy homes and cars, along with students seeking loans may benefit the most in the upcoming weeks, as expectations of rates to continue to decline. These low rates usually spark the housing market, as seen a decade ago. However, the difference now compared to a decade ago is these low rates come at a time when home prices are declining and back then, the low rates came when home prices were increasing. The Fed announced that these rates would remain in place for sometime and also predicted the current recession may last into June of 2009, making it the longest since The Great Depression. Now all eyes are on the incoming administration to deliver the campaign promise of “Hope and Change”. For me, I just hope the change in my pocket gets me through the week.
By executive power, the President gave the auto makers a short term loan with stipulations that must be met quickly. Usually, stips are met first before money is given, however, desperate times call for desperate measures. GM and Chrysler must prove viability, defined as positive cash flow and the ability to pay back the loans by March 31, 2009. Ford is not asking for the short-term assistance. I am willing to bet that if it weren’t for the ailing auto industry, we’d be on the road to recovery because the investor sentiment over the past few weeks has grown a bit more upbeat.
So how’s the refi boom going? Over the holidays, family and friends will be getting together and I’m sure refinancing is going to be much of the talk. People will be sitting around with their spiked eggnog with calculator in hand seeing how much they could be saving. Again, the key will be jobs (do they even have one) and whether they have any equity. I’m sure there are a lot of auto workers who would love to refinance, however, far too many are about to lose their job.
This week is a holiday-shortened week as investors will be searching hard for some good news. Trading volume is expected to be very light this week, which tends to skew the market’s movements. Which means if we see some big volatile swings, we shouldn’t bee too alarmed. Reports on New Home and Existing Home Sales for November, as well as the government’s 3Q GDP are all released on Tuesday. Wednesday we will get reports on Durable Goods Orders and weekly Jobless Claims.
Mortgage Industry Headline:
How About Some Good News?:
On Thursday, a Labor Dept. report showed initial jobless claims dropped more than economists’ expectations. One likely reason for the improvement is that the figure was inflated two weeks earlier by applicants who delayed filing their claims during the Thanksgiving holiday week. The government attempts to account for such volatility with its seasonal adjustments but is not always successful. So it almost gave us a heart attack then said, “My fault.” Recall, the unemployment rate is 6.7%, the highest in 15 years. One thing these historical low rates are doing is definitely rejuvenating employment in the mortgage business.
Shaun Donovan Nominated As HUD Secretary:
The current New York Housing Commissioner is picked by President-elect to be the HUD Secretary, where he will lead efforts to increase property ownership among lower-income individuals and be at the center of efforts to solve a housing crisis that has dragged the nation into a recession. Donovan served in the agency under President Clinton. (During the campaign, didn’t Obama say he wanted to bring in new faces to Washington?)
Fannie Mae To Help Renters Stay In Foreclosed Homes:
Fannie Mae announced it’s finalizing a policy to help renters stay in their homes even if their landlord enters foreclosure. The plan allows renters living in foreclosed properties, and who can make their rental payments, to sign new leases with Fannie while the property is up for sale. Last month, both Fannie and Freddie suspended foreclosure sales on occupied single-family homes and evictions from those properties through the holidays until January 9, 2009. This action is said to have already helped an estimated 10,000 families remain in their homes. If I were Fannie & Freddie, I’d find a way to work out a deal to sell the homes to those tenants.
Housing Starts Continue To Fall:
Single-family housing starts plummeted 17% in November to the lowest level since 1959, when the government started keeping records. Some expectations are that it could go down even lower, however the hope that the low mortgage rates may help spark home building. This is one of the key areas to track to get a sense of when the housing market will recover.
2009 Economic Stimulus Package:
As mentioned a few weeks ago, the incoming administration along with Congress are laying the groundwork to formulate another giant economic stimulus package that could reach over $850 billion. An Obama aide said, “The package will feature some forms of tax relief, spending on roads and other infrastructure projects, making government buildings energy-efficient, building and renovating schools and adopting environmentally friendly technologies.” Huh? How does that spark the economy exactly? Spending that much could actually worry the financial markets.
Rates Are Not Low Enough For Builders:
According to National Assoc. of Home Builders, these historical low rates aren’t low enough to lure buyers. NAHB is pushing for a government program to buy down rates to 2.9%. Apparently builders haven’t noticed that lot prices haven’t really come down to earth yet.
Treasury Secretary May Ask For More TARP Money:
Henry Paulson is raising the possibility of asking Congress for the second half of the $700 bailout money. For what, I’m not sure myself. If you’ve been keeping track, only $15 billion of the first $350 billion remains. Most of the money has been committed to buying preferred shares in larger banks with the idea that these institutions will spend the cash by lending it out to businesses and consumers. But it appears banks are hardly doing this, instead using the money to buy other banks or hoarding cash, mainly because they were never forced to use the money for a specific reason.
Comments
Leave a Reply
