Daily news + a weekly analysis of loan-product trends from scotsmanguide.com
Dan Yeh, mortgage-industry analyst
As published in Scotsman Guide's Residential Edition, September 2010.
Follow us on Twitter: @ScotsmanGuideMM
SEPT. 3
What We’re Reading: Sept. 3
Rumors are making the rounds that the Obama administration is considering another economic stimulus package, this time targeted towards small businesses. The administration may also be considering another housing tax credit, aimed at reducing short-sale and foreclosure inventory, according to Diana Olick of CNBC.
-- Dan Yeh
SEPT. 2
What We’re Reading: Sept. 2
Pending home sales increased by 5.2 percent in July but the outlook remains soft, according to the National Association of Realtors (NAR).
“The Pending Home Sales Index, a forward-looking indicator, rose 5.2 percent to 79.4 based on contracts signed in July from a downwardly revised 75.5 in June, but remains 19.1 percent below July 2009 when it was 98.1. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.”
NAR chief economist Lawrence Yun anticipates a slow recovery:
“Home sales will remain soft in the months ahead, but improved affordability conditions should help with a recovery. … But the recovery looks to be a long process. Home buyers over the past year got a great deal, and buyers for the balance of this year have an edge over sellers. For those who bought at or near the peak several years ago, particularly in markets experiencing big bubbles, it may take over a decade to fully recover lost equity.”
-- Dan Yeh
SEPT. 1
What We're Reading: Sept. 1
First off, here is an excellent article from Reuters by Christopher Whalen, co-founder of Institutional Risk Analytics, on why the majority of homeowners are not benefitting from lower rates. We touched on this a bit in our Aug. 31 post. An excerpt from Whalen's article:
"Rules changes made by FNM [Fannie Mae] and FRE [Freddie Mac] since the Treasury's conservatorship began in 2008 have prevented millions of American consumers and business from refinancing their mortgage debts. The Bernanke Fed will attempt to compensate for this de facto freeze on refinancing with QE II, but this will fail."
The solution, according to Whalen:
"First, the Obama Administration should use the power provided in the Dodd-Frank legislation to force an accelerated cleanup of bad assets and to mandate refinancing and principal reductions for performing loans with viable borrowers. If any banks resist, the Treasury should use the power under current federal law to remove recalcitrant officers and directors of these same banks.
"Second, President Obama also needs to focus on the growing competitive problem in the U.S. mortgage sector. The mortgage banking industry suffered significant consolidation since 2007. In particular, the competitive, third part[y] origination players went out of business via bankruptcy or by being taken over. The industry is now dominated by a cozy oligopoly of Too Big To Fail banks (TBTF).
"The top three banks control 55% of all mortgage originations. The top 10 banks control 95%. The top five run the only surviving channels to sell loans to Fannie Mae (FNM) and Freddie Mac (FRE), and force their pricing upon the entire banking industry. Small banks give up half the economics of a typical loan to sell a loan to FNM or FRE indirectly, through WFC [Wells Fargo & Company] or JPM [JPMorgan Chase & Co.]. Why is there no antitrust investigation of the top banks by the Department of Justice?
"The Obama Administration should move to restructure FNM and FRE now, not in 2011. The Treasury should use its existing authority under the conservatorship to force FNM and FRE to make rules changes to allow for the refinancing of all existing residential mortgages, if only to reduce the current cost of the debt and increase disposable income for households."
Mortgage applications increased slightly as refinances continued to rise to the highest level in 20 months, according to the latest report from the Mortgage Bankers Association.
"The Market Composite Index, a measure of mortgage loan application volume, increased 2.7 percent on a seasonally adjusted basis from one week earlier.
"The Refinance Index increased 2.8 percent from the previous week and is at its highest level since May 1, 2009. The seasonally adjusted Purchase Index increased 1.8 percent from one week earlier.
"The refinance share of mortgage activity increased to 82.9 percent of total applications from 82.4 percent the previous week and is the highest refinance share observed since January 2009."
-- Dan Yeh
AUG. 31
What We're Reading: Aug. 31
Home prices rose 4.4 percent from this past first quarter to second quarter — and 3.6 percent from second quarter 2009 through second quarter 2010 — according to today’s Standard & Poor's/Case-Shiller report.
“Data through June 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index rose 4.4% in the second quarter of 2010, after having fallen 2.8% in the first quarter. Nationally, home prices are 3.6% above their year-earlier levels. In June, 17 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up; and the two composites and 15 MSAs showed year-over-year gains. Housing prices have rebounded from crisis lows, but other recent housing indicators point to more ominous signals as tax incentives have ended and foreclosures continue.”
While the report was generally positive, the outlook was not as rosy. According to David M. Blitzer, chairman of the index committee at Standard & Poor's:
“The monthly Composites cover June and the national index covers the second quarter, when the government’s program for first time home-buyers was winding down. While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead …. Even with concerns about near term developments, we recognize that the housing market is in better shape than this time last year ... The worry starts when you remember that the Homebuyers’ Tax Credit has expired, foreclosures are still at high levels, and July data on home sales and starts were very, very weak. The inventory of unsold homes and months’ supply data were particularly troubling. If this relative weakness in demand continues, it will likely filter through to home prices in coming months.”
-- Dan Yeh
AUG. 31
Refinance Criteria Continue to Tighten
Yesterday we posted a story about the Federal Housing Administration (FHA) introducing a new refinancing program for struggling borrowers. We wondered what the driver for the program was, so we turned to Scotsman Guide Loan Post to see if we could find any answers. The graph below displays average credit scores for loan purposes on Loan Post for the last 14 quarters.
As we can see, average FICO scores for purchases hit a plateau in the fourth quarter of 2008 at around 700 and have remained near that level since. Average FICO scores for rate-and-term refinances, however, have continued to increase beyond 700 and ended the second quarter of 2010 at 712.
Despite lenders tightening their underwriting criteria following the financial crisis, refinances have continued to climb as rates have declined to record lows. Meanwhile, underwriting criteria for purchases, partially aided by more-liberal FHA guidelines, have stayed roughly the same for the past seven quarters.
So while government policies and programs have helped make it easier to purchase a house, they haven't done much to help those that already own a house. As the nation's gross-domestic-product growth slows, however, those homeowners could be instrumental to helping the economy continue to expand. That very idea may have motivated yesterday's announcement and at least one unusual rumor last month.
-- Dan Yeh
AUG. 30
What We're Reading: Aug. 30
The Federal Housing Administration will introduce a refinancing program for struggling borrowers and an emergency loan program for unemployed borrowers, according to The New York Times.
According to Shaun Donovan, the secretary of the U.S. Department of Housing and Urban Development:
“The administration will begin a Federal Housing Administration refinancing effort to help borrowers who are struggling to pay their home mortgages, and will start an emergency homeowners’ loan program for unemployed borrowers so they can stay in their homes.”
Also, according to the same story, the homebuyer tax credit may be coming back:
“Mr. Donovan said that it was too soon to say whether the administration’s $8,000 tax credit for first-time home buyers, which expired April 30, would be revived.”
-- Dan Yeh
AUG. 27
What We're Reading: Aug. 27
A recent report from the Federal Housing Finance Agency (FHFA) said the bulk of Fannie Mae’s and Freddie Mac’s huge losses came from their loan-guarantee business as opposed to their mortgage portfolios. This contradicts common opinion and potentially complicates plans for restructuring the two agencies, according to The Washington Post.
“Fannie and Freddie each played two roles in the market. In the guarantee business, they took loans made by banks, pooled them into a security, insured the security against losses and then sold the security to investors. In the portfolio business, they bought and held mortgage securities, some of which were guaranteed and some of which weren't.
“According to the FHFA report, bad investment choices accounted for $21 billion, or 9 percent, of Fannie and Freddie's losses.
“By contrast, the companies lost $166 billion in their guarantee business, or 73 percent of total losses.
“One reason that the companies lost so much more in their guarantee business was that it was much bigger. Fannie and Freddie simply collected a fee for putting their stamp of approval on a mortgage security, so they could essentially guarantee an unlimited number of such securities. They ultimately guaranteed nearly $4 trillion in mortgages.”
-- Dan Yeh
AUG. 26
What We're Reading: Aug. 26
Delinquency rates and foreclosures dropped this past second quarter, but short-term delinquencies have started to increase again, according to the Mortgage Bankers Association’s (MBA's) latest delinquency report.
“The delinquency rate for mortgage loans on one-to-four-unit residential properties dropped to a seasonally adjusted rate of 9.85 percent of all loans outstanding as of the end of the second quarter of 2010, a decrease of 21 basis points from the first quarter of 2010, and an increase of 61 basis points from one year ago.”
The increase in short-term delinquencies is troubling and may foreshadow a rise in future foreclose rates, according to Jay Brinkmann, MBA’s chief economist:
“These latest delinquency numbers contain a mixture of somewhat good news and somewhat bad news. The good news is that foreclosure starts are down and the inventory of homes anywhere in the process of foreclosure fell for the first time since 2006 and had the largest drop since 2005. Loans 90 days or more past due, the largest share of delinquent loans, also fell. The fact that both the 90-plus delinquency rate fell and the foreclosure start rate fell means that a significant number of these seriously delinquent loans have been successfully modified and reclassified as performing, current loans.
“The disappointing news is that, after declining since the beginning of 2009, the rate of short-term delinquencies is going up and the increase in these short-term delinquencies may ultimately drive the foreclosure measures back up. The percent of loans one payment behind had peaked in the first quarter of 2009 at 3.77 percent and fell to 3.31 percent by the end of 2009. Unfortunately that rate has now risen to 3.51 percent. The causes are likely two-fold. First, 30-day delinquencies are very closely tied to first-time claims for unemployment insurance. The number of first-time claims fell through most of 2009 but leveled off in 2010 and have started to rise again. This increase in unemployment directly impacts mortgage delinquencies. Second, some percentage of the loans modified over the last several years have become delinquent again because those borrowers, by definition, have weak credit.”
-- Dan Yeh
AUG. 25
What We're Reading: Aug. 25
Refinances continue to increase because of historically low rates for the week ending Aug. 20, according to the latest release from the Mortgage Bankers Association (MBA).
“The Market Composite Index, a measure of mortgage loan application volume, increased 4.9 percent on a seasonally adjusted basis from one week earlier.
“The Refinance Index increased 5.7 percent from the previous week and is at its highest level since May 1, 2009. The seasonally adjusted Purchase Index increased 0.6 percent from one week earlier.
“The refinance share of mortgage activity increased to 82.4 percent of total applications from 81.4 percent the previous week, which is the highest share observed since January 2009.”
Meanwhile, new-home sales plunged this past July to a seasonally adjusted annual rate of 276,000, which was 12 percent less than June 2010 and 32 percent less than July 2009 sales, according to the U.S. Census Bureau.
-- Dan Yeh
AUG. 24
What We're Reading: Aug. 24
From the National Association of Realtors: Existing-home sales dropped by 27.2 percent from June to a seasonally adjusted annual rate of 3.83 million units in July, the lowest level since 1999. Single-family sales are at their lowest level since May of 1995.
According to Lawrence Yun, NAR chief economist:
“Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September … However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs.”
Inventory also increased significantly, to 12.5 months of supply, which does not bode well for future sales:
“Total housing inventory at the end of July increased 2.5 percent to 3.98 million existing homes available for sale, which represents a 12.5-month supply at the current sales pace, up from an 8.9-month supply in June. Raw unsold inventory is still 12.9 percent below the record of 4.58 million in July 2008.”
-- Dan Yeh
AUG. 24
FHA Credit Metrics Continue to Decline
On Aug. 12, we posted a story that talked about the Federal Housing Administration (FHA) being exempt from the 5-percent risk-retention rule under the Dodd-Frank financial-reform act. The article concluded that FHA would dominate even more of the mortgage market if this rule were retained in the bill. With this backdrop in mind, we decided to look at FHA loans on Scotsman Guide Loan Post to see what trends we could find.
Because the FHA category was added to Loan Post in February 2009, our data for FHA is limited to posts since then. The graphs below compare average FICO scores and loan-to-value ratios (LTVs) for FHA and prime loans posted during the past five quarters.
As we can see, a large gap exists between the credit metrics for prime and FHA loans. Moreover, those gaps have increased. In the second quarter of 2010:
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FICOs for FHA loans were 82 points lower than those for prime. The average difference during the previous four quarters was 71.
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LTVs for FHA were 22 points higher than those for prime. The average difference during the previous four quarters was 18 points.
When we consider the declining credit metrics of FHA borrowers (note: the data used above includes a small percentage of other government-backed loans such as Veterans Affairs loans) along with FHA’s already dominant share of the mortgage market, we must wonder if it's a good idea for FHA to expand further by backing luxury condominium purchases in New York.
-- Dan Yeh
AUG. 16
See You Next Week
Dan Yeh is on vacation until Aug. 23. Posts will resume then.
-- Ivanna C. Sukkar
AUG. 13
What We're Reading: Aug. 13
From Bloomberg: The Federal Housing Administration (FHA) is going uptown by agreeing to insure Manhattan luxury condos — but is this really within its mission?
“The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is now providing a lifeline to new Manhattan luxury condominiums after sales stalled. Buildings featuring pet spas, concierges and rooftop lounges are applying for agency backing to unlock bank financing for purchasers. The FHA guarantees that if a homebuyer defaults on his mortgage, the agency will pay it.
“At least nine Manhattan condo developments south of 96th Street have sought approval for FHA backing since the agency loosened its financing rules in December, according to a database of applications maintained by the U.S. Department of Housing and Urban Development. The change allows the FHA to insure loans in new projects where only 30 percent of units are in contract, down from at least 50 percent. About 1,900 apartments in New York’s most expensive neighborhoods would be covered by the applications.
“The agency also offers insurance to half of all mortgages in a single building after previously setting a limit at 30 percent, according to the new standards, which expire in December. The entire property must be approved for a buyer to get backing. Most of those that applied in Manhattan are buildings converted to condos or built since 2007.
“The FHA is filling a void left after mortgage-finance agency Fannie Mae tightened its condo lending standards last year. The Washington-based company won’t back loans made in new buildings where fewer than 51 percent of the units are in contract, sometimes setting a requirement as high as 70 percent.”
-- Dan Yeh
AUG. 12
What We're Reading: Aug. 12
In a New York Times Op-Ed, John Carney of CNBC.com argues that the provision under the recently passed Dodd-Frank bill that exempts Federal Housing Administration loans from the 5-percent risk-retention requirement will cause even more concentration in the government-backed share of the mortgage market.
“Under Dodd-Frank, financial firms that securitize mortgages are required to retain 5 percent of the risk of those securities. The goal, a laudable one, is to encourage companies to more closely monitor the quality of the mortgages they securitize. But it is also likely to increase the cost of affected mortgages, because banks will seek to pass on the costs of that risk to home buyers.
“Mortgages guaranteed by the F.H.A., however, are exempt from the 5 percent risk-retention requirement. This means that lenders will find that it costs far more, and involves more risk, to offer mortgages they back themselves than those covered with a guarantee from the agency. There’s little doubt this will lead to a huge increase in the volume of business done by the F.H.A., as banks creating securities will seek out mortgages on which they don’t have to cover the risk. Purely private mortgages will quickly be pushed out of the market.”
-- Dan Yeh
AUG. 11
What We're Reading: Aug. 11
The U.S. Department of Housing and Urban Development (HUD) is offering $1 billion in interest-free loans to homeowners in "hard hit" areas to avoid foreclosure, according to Bloomberg.
"The Obama administration will offer $1 billion in zero-interest loans to help homeowners who've lost income avoid foreclosure as part of $3 billion in additional aid targeting economically distressed areas.
"Under the new $1 billion program, the Department of Housing and Urban Development will offer loans of up to $50,000 to borrowers 'in hard hit local areas' to make mortgage, tax and insurance payments for as long as two years, HUD said today in a statement. The Treasury Department will also offer as much as $2 billion in aid under an existing program for 17 states and the District of Columbia, according to the news release."
California's homebuyer tax credit is set to expire soon, setting up a test for the state's nascent housing recovery, according to The Wall Street Journal's Developments blog.
"Since May, the Golden State has tempted first-time buyers and buyers of new homes with up to $10,000 over three years. First-time buyers of existing homes have until Aug. 15 to submit applications, but, at this point, there's no guarantee.
"California's Franchise Tax Board has received more than 30,000 applications from first-time buyers, so the first-come, first-served offer might have already passed its $100 million allotment. Because some applications are duplicates, late or invalid, the state wants extra applications on hand."
-- Dan Yeh
AUG. 10
What We're Reading: Aug. 10
The Federal Reserve Board announced that the federal funds rate will remain unchanged and that it will roll over its portfolio of mortgage-backed securities into Treasurys, according to MarketWatch.
"The Committee will maintain the target range for the federal funds rate at 0 to 0.25% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
"To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature."
Another symptom of the housing crisis related to strategic defaults is on the rise, according to Bloomberg. "Buy and bail" is the process of walking away from one home while planning to purchase another before the borrower's credit rating is ruined.
"Real estate professionals call it 'buy and bail,' acquiring a new house before the buyer's credit rating is ruined by walking away from the old one because it's 'underwater,' or worth less than the mortgage. It's an attempt to escape payments on a home whose value may never recover while securing a new property, often at a lower price with a more affordable loan.
"The practice, which constitutes fraud if borrowers lie on loan applications, is continuing even after Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, beefed up standards to prevent it, according to brokers such as Collier and Meg Burns, senior associate director for congressional affairs and communications at the Federal Housing Finance Agency. Whether driven by greed or desperation, the persistency of buy and bail underscores the lingering impact of the worst housing crash since the Great Depression."
Much like strategic defaults, the "buy and bail" strategy is being practiced by people in higher-income brackets:
"Buy and bail is most often pursued by people with big enough paychecks and low enough debt to qualify for two homes, according to Mark Goldman, a broker at Cobalt Financial Corp. in San Diego. That threshold is easier to meet since home prices retreated and mortgage rates fell to an all-time low, he said. The average U.S. rate for a 30-year fixed home loan dropped to 4.49 percent, the lowest in records dating to 1971, McLean, Virginia-based Freddie Mac said on Aug. 5."
-- Dan Yeh
AUG. 10
Originators Seek Low LTVs
In our Aug. 6 post, we saw that several state agencies are promoting the return of loans with 100-percent loan-to-value ratios (LTVs) as a means of promoting homeownership. This prompted us to seek LTV trends on loans posted on Scotsman Guide Loan Post.
The graph below categorizes all posted loans by LTV range for the past 14 quarters.
As we can see, higher-LTV loans have been losing share on Loan Post for some time, with loan scenarios including LTVs above 80 percent declining from 44 percent of all posts in the first quarter of 2007 to 18 percent in the most recent quarter. This decline comes despite the tremendous growth of Federal Housing Administration-insured mortgages, which typically allow LTVs of up to 96.5 percent.
Conversely, the share of loan scenarios with LTVs of 60 percent or lower has grown fourfold during the same period, from 10 percent of all posts in the first quarter of 2007 to 40 percent in the most recent quarter.
The disappearance of subprime and Alt-A programs promoting high-LTV loans has contributed to this rapid growth. The trend also represents an opportunity for hard-money and traditional lenders, however, provided they have the right products and capability to address these borrowers’ needs.
-- Dan Yeh
AUG. 9
What We're Reading: Aug. 9
Freddie Mac reported a quarterly loss of $4.7 billion before preferred stock dividends in the second quarter of 2010 and also is requesting another $1.8 billion from the U.S. Department of the Treasury, according to a Freddie Mac press release.
Combined real estate-owned inventory for Fannie Mae, Freddie Mac and the Federal Housing Administration increased by 13 percent from this past first quarter to this past second quarter to a new high of 236,338, according to Calculated Risk.
-- Dan Yeh
AUG. 6
What We're Reading: Aug. 6
Private-sector payrolls increased by 71,000 in July versus expectations of an increase of 100,000, indicating that companies are still reluctant to hire in the face of economic uncertainty, according to MarketWatch.
"Markets interpreted the data to be bad for economic growth, sending prices for benchmark 10-year Treasury notes higher while stocks and the U.S. dollar moved broadly lower.
"Anthony Chan, chief economist at J.P. Morgan Private Wealth Management Group, described the report as a 'disappointment, not but a disaster.'
"He noted that average hourly earnings increased as did hours worked in the month."
The 100-percent loan-to-value mortgage returns -- and not from subprime lenders, but from state programs designed to increase homeownership, according to The Washington Independent.
"The pilot program is called 'Affordable Advantage, ' and it has now been adopted by three states -- Massachusetts, Wisconsin and Idaho. (Other states, such as Pennsylvania, California and Colorado, have similar state programs.) The initiative is small, reaching just a few hundred people so far. But it is looking to expand. Given the dangers of these types of mortgages and the specter of the housing bubble, where unconventional loans wreaked disaster, it is also raising questions from wary housing experts and legislators.
"Fannie Mae helped to create Affordable Advantage after the state government agencies tasked with expanding homeownership found they were having trouble doing their job. Before the recession hit, these housing finance agencies, known as HFAs, issued tax-free bonds and used the funds on programs to encourage developers to build in underserved areas and to support single-family mortgages. When the financial crisis hit, private companies -- leery of the collapsing housing bubble and freezing mortgage market -- no longer wanted to buy the HFAs' bonds. Their business ground to a halt.
"To help HFAs move forward, Fannie Mae and NCSHA stepped in. Fannie Mae agreed to purchase mortgages with tiny down payments, as long as the homebuyers were vetted -- had excellent employment histories and credit, and merely lacked a cash reserve for a down payment. And the participating HFAs agreed to buy back loans if they became delinquent, in lieu of Fannie asking for more-traditional mortgage insurance."
-- Dan Yeh
AUG. 5
What We're Reading: Aug. 5
Interest rates for 30-year and 15-year fixed-rate mortgages hit record lows in the week ending today, according to Freddie Mac’s latest survey:
“30-year fixed-rate mortgage (FRM) averaged 4.49 percent with an average 0.7 point for the week ending August 5, 2010, down from last week when it averaged 4.54 percent. Last year at this time, the 30-year FRM averaged 5.22 percent.
“15-year FRM this week averaged a record low of 3.95 percent with an average 0.6 point, down from last week when it averaged 4.00 percent. A year ago at this time, the 15-year FRM averaged 4.63 percent.
“5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.63 percent this week, with an average 0.6 point, down from last week when it averaged 3.76 percent. A year ago, the 5-year ARM averaged 4.73 percent.”
-- Dan Yeh
AUG. 4
What We're Reading: Aug. 4
The New York Fed may need to foreclose on homes and commercial properties as it tries to sort out the portfolio acquired from Bear Stearns in 2008, according to The Wall Street Journal (subscription required).
"The Federal Reserve Bank of New York is facing the prospect of foreclosing on a number of properties in the coming months, from homes to commercial buildings, a result of a souring mortgage portfolio it took over when it helped bail out Bear Stearns in 2008.
"As it deals with delinquent borrowers, a team of New York Fed officials and outside advisers are trying to avoid having the U.S. government, along with local sheriff's departments, seize commercial properties and homes as it copes with falling real-estate values. In the process, the New York Fed is getting a hard lesson in the challenges of mortgage lending."
The real estate portion of the portfolio has dropped by more than 40 percent since March 2008, when it was acquired:
"Overall, the portfolio that acquired the Bear assets for $30 billion in March 2008 had a value of $29.4 billion as of June 30, 2010. The portfolio's value had dropped to about $25 billion during the depths of the financial crisis."
"The problem spot is the real-estate holdings. The portfolio's residential and commercial loans were worth about $5 billion recently, compared with $9.6 billion in March 2008, when Bear Stearns collapsed, illustrating the financial pain other U.S. banks are experiencing as they deal with their own souring holdings of home loans, offices, hotels, shopping centers and land. So far, buyers have been found for about $1 billion in commercial loans.
"The New York Fed's holdings of commercial-real-estate debt lost 35 (percent) of their value over the two years ended March 2010, while a pool of residential loans fell about 60 (percent), according to New York Fed documents and people familiar with the matter."
-- Dan Yeh
AUG. 3
What We're Reading: Aug. 3
Pending home sales hit another record low this past June, according to the National Association of Realtors:
“The Pending Home Sales Index, a forward-looking indicator, declined 2.6 percent to 75.7 based on contracts signed in June from an upwardly revised level of 77.7 in May, and is 18.6 percent below June 2009 when it was 93.0. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.”
-- Dan Yeh
AUG. 3
Tracking Alternative-Product Appetite
In our July 28 post, we highlighted a story quoting Fannie Mae’s chief executive as saying he believes its most recent book of business — which consists mainly of long-term, fixed-rate loans — is the strongest in a decade. While 30-year fixed-rate loans continue to be in high demand on Scotsman Guide Loan Post, with a 38-percent share of posts this past second quarter, we wondered how alternative products were faring.
The graph below displays the top six products — excluding 30-year fixed-rate loans — on Loan Post and their respective shares for the past 14 quarters:
Excluding 30-year fixed-rate loans, the top three mortgage products this past second quarter were interest-only loans, 5/25 ARMs and 2/28 ARMs.
Interest-only and 5/25 ARMs had roughly the same market share they did several years ago — 8 percent and 5 percent, respectively. The market share for 2/28 ARMs, however, has come down dramatically since the financial crisis began, dropping from a high of 17 percent in the first quarter of 2007 to 3 percent this past second quarter.
Although there remains a moderate amount of demand for alternative products, lenders and originators clearly don’t have the appetite for short-term products they once did.
-- Dan Yeh
AUG. 2
What We're Reading: Aug. 2
Federal Reserve Board Chairman Ben Bernanke said he believes consumer spending will pick up in the next few quarters. This likely will prevent the Fed from making any major monetary-policy changes in the near future, according to Bloomberg:
“While the U.S. has ‘a considerable way to go’ for a full recovery, ‘rising demand from households and businesses should help sustain growth,’ Bernanke said today in a speech in Charleston, South Carolina. ‘We are maintaining strong monetary policy support for the recovery,’ he said in response to an audience question, without discussing any further action the Fed could take to aid growth.
“The remarks signal Bernanke and his colleagues, when they meet in Washington next week, will stop short of making major changes in their policy statement or taking new steps to lower interest rates and reduce unemployment, said John Ryding, a former Fed researcher. Consumer spending, which accounts for about 70 percent of the economy, ‘seems likely to pick up in coming quarters from its recent modest pace,’ Bernanke said.”
-- Dan Yeh
ARCHIVED POSTS
June-July 2010
April-May 2010
Feb.-March 2010
Dec. 2009-Jan. 2010
Oct.-Nov. 2009
Aug.-Sept. 2009
May-July 2009
Jan.-April 2009
Sept.-Dec. 2008
