Friday, April 15, 2011

Bair: Dodd-Frank can restore market discipline

Bair: Dodd-Frank can restore market discipline Gone are the days of the financial crisis, but Chairman of the Federal Deposit Insurance Corp. Sheila Bair said there are specific aspects of the industry that need improvement before the financial system can again be called stable. Furthermore, Bair said new financial regulations under Dodd-Frank can serve as a cornerstone to maintaining economic integrity.

Thursday, April 14, 2011

The Day Ahead: PPI, Jobless Claims, Bond Auction, Fed Speak

Stock futures are lower and the Treasury market continues to firm following a volatile session yesterday.
The ten-year Treasury rallied  three basis points overnight to 3.43%, marking the third straight session of strengthening.  The benchmark 10-year note is currently +4/32 at 101-16 yielding 3.444%. 10s actually moved mostly sideways in overseas trading before making a break lower in the 5AM hour after this headline hit wires....
Euro zone hit by Greek restructuring worry: (Reuters) - Greece faced a new surge in its debt costs on Thursday after Germany said for the first time that Athens may need to restructure its debt, a move one central banker warned would be a "catastrophe." Growing talk of restructuring by Greece, the first euro zone member to receive a bailout a year ago, points to a new stage in the debt crisis that has driven Ireland and Portugal to seek aid and forced draconian budget cuts in Spain.
Here in the U.S., financial stocks could be in the spotlight as the Senate last night released a 600-page page report critiquing the banks for the economic crisis. The report calls Goldman Sachs, down more than 1% in pre-market trading, a "case study" of the recklessness and greed, according to CNN.
"Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing," said senator Carl Levin, chairman of the subcommittee investigating the causes of the crisis.
Stocks look to decline on the open as investors brace for new data on inflation and employment.  S&P 500 futures are down 5.25 points at 1,303.50 and Dow futures are off 44 points at 12,155.

Light crude oil futures are -0.53 at $107.18 per barrel - down from $112 per last week - while gold futures are trading +1.00 at 1,456.60.

"The US dollar index is modestly higher this morning and equity markets are taking a negative tone as inflation worries and euro area struggles weigh," said economists at BMO Capital Markets. They note that Greek and Portuguese 10-year bond yields rose to euro-era record highs, "underscoring the ongoing crisis in the region."
Mortgages have opened wider to the 10-year note but are in-line with swaps and 5-year notes. The FNCL 4.5 is UNCH at 101-18.

Key Events Today:

8:30 - With the bond market on edge about rising inflation, the Producer Price Index will be watched closely this month. The headline index jumped 1.6% in the month of February and forecasters assume another substantial increase in March at 1%. Oil prices are of course the main culprit. The core index, which excludes volatile energy and food prices, is anticipated to rise a moderate 0.2% for the second straight month.

"Food will not spike as it did last month (when a freeze devastated fresh vegetable supplies), but food commodity prices do keep climbing," said economists at IHS Global Insight, who believe oil prices could push the headline figure to 2%. " Core prices should probably climb at the recent average level of about 0.2% with some pass-through of higher commodity costs pushing prices higher."

8:30 - Initial Jobless Claims have been falling at a pretty steady pace recently. The last report showed 382k new claims for unemployment insurance in the week ending April 2, down 10k from the previous week and comparing with 405k in the first week of March. Economists anticipate 380k new claims this week, about 9k below the four-week average.

"US initial claims for unemployment insurance are likely to continue their downtrend in coming weeks," said economists at Nomura. "While layoffs are certainly slowing, we will focus on whether hiring picks up in tandem."

9:00 - Narayana Kocherlakota, president of the Minneapolis Fed, speaks to the HomeTown Helena Meeting in Helena, Montana on "Economic Development in Indian Country."

9:00 - Elizabeth Duke, governor of the Fed, speaks on small credit conditions.

12:30 - Charles Plosser, president of the Philadelphia Fed, speaks to the Levy Institute at Bard College in New York.
1:00 - Treasury auctions $13 billion 30-Year Bonds
Today is Class B Notification Day for 15 year MBS coupons

Mortgage rates inch up, remain below 5%: Freddie Mac

Mortgage rates inch up, remain below 5%: Freddie Mac Mortgage rates inched up this past week, but still remain below the 5% threshold as the market approaches home-buying season, Freddie Mac said Thursday. The 30-year, fixed-rate mortgage rose to 4.91% from 4.87% the previous week, but lower than last year's rate of 5.07%. The 15-year, fixed-rate mortgage climbed to 4.13% from 4.1% and remains below the 4.4% a year earlier. At the same time, the five-year hybrid adjustable-rate mortgage hit 3.78% this week, up from 3.72% last week yet lower than 4.08% a year earlier. "Mortgage rates edged up following a light week of economic data releases," said Frank Nothaft, vice president and chief economist of Freddie Mac. "Although rates on 30-year fixed mortgages have risen four weeks in a row, they have remained below 5% for eight straight weeks now, helping to maintain affordability in the housing market. Meanwhile, consumer purchases of retail goods rose for the ninth consecutive month in March, suggesting families have an increasing capacity to spend, which bodes well for the economic recovery." Bankrate said Thursday mortgage rates were mostly lower, with the 30-year, FRM now at 5.07%, the 15-year FRM at 4.28% and the 30-year jumbo at 5.55%. "Adjustable rate mortgages were also lower, with the average five-year ARM sinking to 3.83% and the seven-year ARM pulling back to 4.19%," according to Bankrate.

Saturday, April 9, 2011

Dwindling demand: Wells Fargo lays off 1,900 mortgage workers

Dwindling demand: Wells Fargo lays off 1,900 mortgage workers

Analysts say FHA shutdown possible without budget consensus

Analysts say FHA shutdown possible without budget consensus If the government were to shutdown, two important steps in the FHA origination process would be put on hold. FHA lenders may still be able to originate loans, but they would have to wait on obtaining case numbers and a mortgage insurance certificate to be issued. During the last government shutdown in November 1995, case numbers could not be obtained.

Wednesday, April 6, 2011

Eight bills to wind down Fannie, Freddie inch forward

Eight bills to wind down Fannie, Freddie inch forward Eight bills designed to deflate the power of Fannie Mae and Freddie Mac passed the Capital Markets and Government Sponsored Enterprises Subcommittee. The House Subcommittee approved the bills Wednesday morning. Cumulatively, the legislation will curb excessive compensation for Fannie and Freddie executives, end affordable housing goals, increase guarantee fee requirements and end new business activity at the GSEs. The bills will now be sent to the House Financial Services Committee.

Monday, April 4, 2011

Why the Housing Crash May End in 2011

Why the Housing Crash May End in 2011 Either way, it will be welcome relief for current homeowners as well as for potential real-estate investors. Reasons to be optimistic have been sadly lacking since the housing bubble burst in 2006. For sure, last week we learned the widely watched S&P/Case-Shiller home-price index fell 1% in December, its fifth straight decline. The index tracks 20 major markets. But that figure belies real reasons to be optimistic, according to some experts. If they are right, it might make sense to jump into real estate. The trick is avoiding getting burned again, and it doesn't necessarily mean owning a home. First, let's recap the economic signs a bottom is close. Houses Are a Good Deal Housing is the most affordable it has been in decades, according to analysts at Moody's Analytics. They don't just look at house prices. They also look at incomes. Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years. Prices usually average close to two years' pay, although that varies nationally. At the peak, midway through the last decade, a home in Los Angeles cost the equivalent of 4.5 years' pay. The average price has since fallen to just over two years' income now. That's well below its pre-bubble average of 2.6 years. This means average Los Angeles homes are cheaper in "real terms" than they were typically during the period 1989 through 2003. The opposite is true around the Washington beltway, where it will take 26 months of pay to buy a home, versus the historical norm of 22 months. In the end, it will be affordability that will drive people to buy homes. "Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own," says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla. It is definitely bullish. But what about timing? "Housing prices will probably bottom in 2011," says Scott Simon, a managing director at money-management firm Pimco in Newport Beach, Calif. He foresaw the housing crash, helping his firm dodge losses that plagued Wall Street. Mr. Simon says prices might dip another 5%. Still, in the scheme of things, that's small. Consider this: In some markets, home prices have fallen by half or more since 2006. For instance, in once-hot Miami you can snap up an average house for under $166,000, according to recent data from the National Association of Realtors. That's down from $371,000 in 2006. Another 5% drop would take it to $158,000.

QRM premium capture reserve could hinder secondary market

QRM premium capture reserve could hinder secondary market Requiring a securitization sponsor to hold a premium on a deal in cash under the qualified residential mortgage standard could have the unintended consequence of being a disincentive for the secondary market.The "premium capture reserve account" puts banks at a disadvantage for securitization and forces substantial changes within that business structure. The premium reserve, as written in the QRM proposal released last week, would be loss absorbing and subordinate to all other tranches, effectively becoming the first loss on a deal, according to reports from JPMorgan Securities and Barclays Capital.According to JPMorgan Securities, the proposal fails to incorporate the costs of originating loans or the cost a sponsor may incur to buy the loan from an originator. Since most originators sell whole loans at a premium, JPMorgan expects the value of the premium to decline."If a premium received by the sponsor will not be released for five years and a 15% discount rate is applied (since it is a first loss), any premium value would be cut in half," the firm said.Barclays Capital said that banks' traditional origination channels would feel the effects of this reserve balance the most, and that it may make it difficult for banks to get true sale accounting treatment."The fact that this does not take into account costs that push a bank’s basis in originating the loan to above par means that the bank may be left paying out of pocket to fund the premium recapture account, which is worse than just holding the loan on portfolio," Barclays said.JPMorgan said for both these reasons the premium capture reserve account could potentially be a "deal-killer" for both agency and private-label securitizations. Barclays believes that based on the new standards, real estate investment trusts, asset managers and insurance companies will be making most of the new deals in the QRM space.Federal regulators provided a narrow definition of the QRM last week, and also voted in favor of an exemption rule set at 20% down payment. A qualified residential mortgage is one with a maximum 80% loan to value, on a property that is owner-occupied and has a 30-year amortization period with full documentation. A borrower must have a track record clear of 60-day delinquencies. This excludes interest-only loans and loans with premium penalties.JPMorgan said less than 20% of all GSE loans originated since 2001 would meet this standard, while roughly 20% to 25% of nonagency loans qualify.

New Rules for First-Time Home Buyers

New Rules for First-Time Home Buyers


Without a house to sell , first-time home buyers have had a field day in the depressed housing market. Until recently, anyway. A series of new rules, regulations and policies have changed the landscape, making buying that new home harder and more expensive.Not long ago, first-time buyers accounted for 40% of home sales. Now they're down to 29% and falling, experts say, as first-time buyers confront a steady accumulation of rising fees, costs, and rates. This month, fees on most new mortgages will rise by up to 0.50%. In April, fees on small-down-payment mortgages, a first-time buyer favorite, will spike. Meanwhile, more lenders are requiring larger down payments, and new proposals from the Obama administration call for mortgages to become more expensive and limited in size. The new fees and higher barriers to entry are all a response to the sweeping mortgage losses of the last several years. Banks and other lenders lost billions of dollars on subprime and other risky mortgages, and some must now buy back bad loans they sold to Fannie Mae and Freddie Mac. To cover those losses, banks and the agencies are raising fees on new mortgages, says Keith Gumbinger, a vice president at HSH Associates, which tracks the mortgage market. Also, from the perspective of lenders and the government, making it harder and more expensive to get a mortgage will deter or cull the riskiest borrowers and minimize defaults.But taken in total, all this reform means the window of opportunity for first-time buyers may be closing. Home prices still seem to be near the bottom, mortgages are still cheap and, though they have increased over the past five months, interest rates are still low. Of course, there are still reasons to wait to buy: The changes to the mortgage market could depress home sales and prices further. But for those who don't want to wait, here are the new rules for first-time home buyers. New rule: Put more money down. Not because you'll have to -- it's still possible to make a down payment of less than 5% -- but because you want to. Insurance fees on the government-insured mortgages that require just 3.5% down have doubled in seven months, to up to 1.15% (as of April). On a 30-year, $300,000 mortgage, a buyer would pay $30,000 more in fees than if he had signed up for the mortgage in September. Also, between new lender requirements and cash-flush buyers, down payments have been rising since the last half of 2010 and now average 34% of the purchase price, according to the latest data by mortgage-data firm CoreLogic. It's unlikely that a first-time home buyer can save so much money for a down payment, especially in high-priced markets like New York and San Francisco, says Cameron Findlay, chief economist at LendingTree.com, which tracks mortgage rates. Instead, first timers might need to consider alternative options to get cash , like grants offered by individual states. And most lenders still permit buyers to use cash gifts from family with a notarized letter from the donor stating that the money doesn't need to be paid back, says Gumbinger. Or, a buyer who's open to co-owning a home can sign up for a mortgage with a co-applicant who has extra cash to put down but wants a stake in the property. New rule: Stay for a decade. Not only are the days of flip-and-move long gone, but buying a house has become truly a long-term investment. In many cases, 10 years long, says Paul Bishop, vice president of research at the National Association of Realtors -- if buyers are hoping to make a profit or just break even. As mortgage fees rise, buyers have to recoup larger costs, which takes a longer time. Also, experts predict very slow growth in home prices over the next 10 years, which means it will take a long time before sellers can make a profit, says Findlay. Of course, buying a home may still make financial sense, but buyers' focus should shift from rising prices to building equity.For first-time buyers, this means avoiding homes that require renovations, if it's possible -- it will only take longer to recoup the costs of a new kitchen or deck, says Findlay. Instead, stick to a home that requires few major projects, which builds equity with the passing of time. Also, a bigger down payment can cushion the blow for buyers who end up having to sell in a hurry, because it lessens the chances of owing more money on the home than it's worth should values drop. New rule: Brace for competition. Following the housing downturn, desperate sellers were often eager to accept an offer – any offer. But now, first-time buyers looking for discounted prices may be disappointed. Over the past few months, investors, international buyers, and downsizing retirees have made a noticeable impact on the market, because they're paying with cash. In January, about 32% of purchases were made with all cash, up from 26% a year ago, according to the NAR. Sellers are often more inclined to accept these offers since they don't need to wait for a lender to approve financing, says Karen Trainor, managing broker at Weichert Realtors in Ashburn, Va.To stand out, first-time buyers can present an offer with few contingencies, she says. At this point, given growing competition among buyers, there's little reason for a seller to work with someone who requests repairs or asks them to cover the closing costs. But offers from buyers who ask strictly for a home inspection and appraisal – two requirements they shouldn't give up – are more likely to get accepted than all-cash bids with a long list of requirements.

The New Costs of Renting

The New Costs of Renting Freaked by the housing market , more would-be home buyers are opting for rentals – driving rents up along the way. But it's not just rising rents that new renters have to worry about. A handful of new costs could make renting less than the bargain it appears. The average national vacancy rate for rentals fell 17% last year to 6.6%, according to Reis, Inc., which tracks rental performance data. And as renting has gotten more popular, prices have jumped. The average monthly rent, including studios, one- and two-bedroom apartments is now $986, based on Reis data. Before the recession, the average was just $930. And in some markets, it's far worse: In New York, rents are up 9% on average in the last five years; in San Jose, they're up 8%. The market is only likely to get tighter. For the first time in memory, the federal government is actively encouraging people to rent, rather than buy. The Obama administration's recent housing proposal calls for a larger rental market and limits home ownership . Not that renting needed the endorsement: It's already attractive to anyone hesitant to commit to a home in an uncertain job market, those who can't qualify for a mortgage, and people waiting for a more stable housing market before buying. And some people just don't have a choice. Skyrocketing foreclosures have left thousands of former homeowners with no option but to rent, says Frank Nitschke, principal at Prudential Real Estate Investors Research. And with another five million homes expected to go into foreclosure over the next two years, according to RealtyTrac.com, that means more renters will soon enter the market and could drive rentals up even more. The rise in demand almost certainly means higher rents, which are projected to rise by 3.4% by the end of the year, according to Reis, and fewer of the perks that became popular during the recession, like two or three months' free rent for anyone willing to sign a one-year lease. While shopping around, new renters should look for landlords who are still willing to provide free months of rent – a trend that has been declining during the past year, but is still more widely available than it was pre recession, says Ryan Severino, a senior economist at Reis. Existing renters might save money by renewing their lease sooner than later when rents are likely to be even higher, he says. Before signing a contract, look for wording that promises not to raise rents during the lease period. By end of year, rents could rise even further should inflation pick up. But there are other costs, too, that can take a bigger bite than many renters expect: Insurance, storage fees and, in cities where housing costs have plummeted, opportunity costs. Suddenly, home-ownership doesn't quite sound so bad. Storage costs For former homeowners, renting often means living in a smaller space – which means taking the 8-foot dining room table or the piano to storage. At Public Storage, among the largest U.S. storage companies, the popular 100-square foot unit – about half the size of a one-car garage -- can cost up to $270 per month, depending on location. (The average price is around $150.) There's also a one-time fee of around $20 to sign up. The company's U.S. same-store revenues were up modestly in the third quarter compared to a year ago, and "there's no doubt, foreclosures have helped the industry," says Clemente Teng, the company's vice president of investor relations. To lock in the most affordable rental, look online: Companies often offer lower prices online than they will over the phone. And since prices can vary by location, check out the options a town or two over. Consumers shopping for a space now might want to consider locking in the price – when home sales and moves pick up in the summer, storage prices tend to rise. Insurance fees There's no reliable data, but anecdotal evidence suggests that more landlords are requiring tenants to sign up for renter's insurance, says Loretta Worters, a vice president at the Insurance Information Institute. They're concerned about getting sued if someone gets hurt on their property, and while the extra cost may seem unnecessary at first, it makes sense: A typical policy covers a tenant's possessions and pays for hotel stays and additional living expenses in the event a rental is destroyed or seriously damaged. Premiums usually range between $100 and $300 per year, according to State Farm, and vary based on location and amount of coverage. Some renters may want additional coverage, because most policies place a limit of up to $2,500 – total –on jewelry, fur, silverware, gold, art and rugs, whether they're destroyed or stolen. A supplemental policy, called a floater, costs on average $7.50 per $1,000 worth of jewelry, says Scott Simmonds, a Saco, Maine-based insurance consultant. Missed opportunity In some cities, the housing market has fallen so far, and the rental market has gotten so tight, that rent could cost significantly more than a mortgage on a comparable place. In Miami's Dade County, for example, a two-bedroom apartment costs $1,206 on average in rent; monthly mortgage and property tax payments on the same property, based at the median list price of $209,000, would cost $774, according to Movoto.com, which tracks sales and rental prices. Over five years, that's a savings of almost $26,000 – not even including the tax break for mortgage interest. In Fairfax County, Va., the markets, and savings, could be similar. To determine whether owning is cheaper than renting in a specific neighborhood pull up equivalent for-sale listings online or speak with a realtor and use a rent-or-buy calculator to compare the monthly cost of renting and owning. And if the monthly savings are significant, there are other compelling reasons to buy, says John Mulville, a senior vice president at Real Estate Economics, which tracks residential real estate data: prices are low, as are mortgage rates.

The Psychology of Real Estate

The Psychology of Real Estate If you've ever house-hunted, you've probably got a sense that real estate purchases don't represent consumers at their most rational. Did you like a house or apartment more, or less, depending on whether it was sunny the day you saw it? Chances are, you did. Buying a house isn't the same as buying a stock, an air conditioner or even a car. It's not just a product with pluses and minuses—good school system versus small kitchen, new roof versus longer commute. A house represents the kind of life you want to live. And given its cost, a house and the value it gains or loses represent in a very concrete way the life you will be able to live. Thus, it's both unsurprising and disturbing to realize our judgment about real estate is susceptible to many of the foolish forces that affect so many other consumer decisions—and in some ways, it may even be more affected. Research by Michael Seiler, a professor at Old Dominion University, has found that both men and women (though particularly men) are susceptible to the attractiveness of a female real estate agent. The more attractive the agent, the more the buyer is willing to pay. What's more, superficial things like a room painted an ugly color can make people less likely to buy a house—even though fixing such a problem is as cheap as a couple cans of paint. What's more troublesome, though, is how attached our minds get to the perceived values of our houses. In one study, economists David Genesove and Christopher Mayer looked at the spectacular bust in condominium prices in Boston in the early 1990s. When a market goes south—as the national housing market did recently—standard economics tells us that sellers should recalibrate their expectations and behavior, knowing they'll have to sell for less. Of course, this isn't how our brains work. Instead, we're susceptible to loss aversion—the mental quirk by which we feel losses much more sharply than we feel equivalent gains. So we set the price of our property not by what the market will bear, but by what we paid and what we feel we "have to" get out. People who bought at or near the peak of the Boston condo boom listed their properties for around 35 percent more than those who had bought lower. Consequently, those overpriced properties sat on the market; fewer than 30 percent had sold after 180 days. Another wrinkle: Owners who also lived in the units exhibited about twice as much loss aversion as people who had bought them as investment properties. A home, it seems, makes us more irrational than a house. It doesn't take a boom or bust to trigger this phenomenon: A more recent paper finds that homeowners consistently overestimate the value of their homes by 5 to 10 percent. The only cure for this seems to be buying one's home during a slump; in fact, these buyers may underestimate their home's value. Buyers getting in now, then, may be at a cognitive advantage for years to come. Boom buyers, meanwhile, have to come to terms not just with economic losses, but with psychological losses and regret. Home Is Where the Head Is Research shows that consumers struggle to stay rational when buying or selling homes. Some examples: The New Curb Appeal : It's not just the paint job—the more attractive the real-estate agent showing a house, the more the buyer is willing to pay. Refusing to Lose : People who buy homes near the peak of a boom tend to list them at high prices, even if that means they don't sell. Blame it on "loss aversion," which makes us acutely feel and fear losses. Mine's Better : Homeowners consistently overestimate the value of their homes by 5 to 10 percent. The only group that's an exception: those who bought during a slump.

Sunday, April 3, 2011

Obama housing stats underscore the fragility of the market

Obama housing stats underscore the fragility of the market Mortgage delinquencies along with foreclosure-related activity are dropping compared to a year ago, according to the Obama administration's most recent housing scorecard. But experts are unwilling to say the figures signal positivity in the market. Department of Housing and Urban Development Assistant Secretary Raphael Bostic said February's stats undermine the true fragility of the marketplace. Both HUD and the Treasury Department compile data for the monthly scorecard.