March 30, 2009
March 30, 2009 by admin
The auto industry is back in the spotlight as General Motors and Daimler Chrysler have both failed at their recent attempt to go back to Washington for additional loans. The companies have been given an additional thirty days to revise their plans to execute a profitable business. As part of the governments decision to extend their time frame to approve additional loans in the future, the CEO of General Motors, Robert Wagner has been forced to resign. The government is now signaling that their is a realistic chance that both companies could be looking at a chapter 11 bankrupcy restructure in the near future. Both companies have a large burden of debt, unions that are not eager to further negotiate and the challenge of trying to downsize in one of the worst economic periods of the past one hundred years.
Financial stocks have also been paring gains from the past two weeks. Concerns over a global effort to stabalize the world economy through a universal stimulus program have been greatly dimished by comments out of Europe over the weekend. It is clear that not every country shares President Obama’s opinion that you can continue to borrow and spend your way out of a recessionary period. There are a number of countries that are quite concerned that the U.S. is headed for disaster as they increase their deficit to three trillion dollars.
The slide in the stock market is good news for mortgage rates. The ten year bond is now hovering under 2.7% and long term fixed thirty year mortgage loans are now back at five percent and under five percent if the borrower is willing to pay points to buy the rate down. The low rates should be a boost for mortgage lenders capitalizing on refinance applications and new home buyers entering the market and taking advantage of the governments rebates.
What the stock market rally means to rates
March 27, 2009 by admin
The month of March has been a great month for stock investors. The market has jumped over twenty percent this month, and the NASDAQ has now recouped all of it’s losses for the year. The market appears to have rallied off of the March 9 low following a lead from better than expected news from new and existing home sales, a radical move by the FOMC and the general psyche of the average investor.
The rapid increase in the stock market could begin to pressure fixed interest rates and mortgage rates to move higher. Last week, Freddie Mac, one of the countries largest agency lenders reported that fixed mortgage rates on thirty year loan terms had dropped to their lowest level in recorded history (4.88%). This rapid decline has led to a spike with home refinance applications, as reported by the mortgage bankers association. The rapid jump with refinance applications could be impacted by the recent moves in the stock market. Historically, as the stock market improves, mortgage rates tend to rise. This is a direct reflection of investors pulling money out of the bond market, and investing this into equity postions.
The average consumer can follow this by tracking both the stock market and the ten year bond. While this is not always the best reflection of how a mortgage loan is priced, it is generally the easiest to follow. The day after the FOMC announced that they would be purchasing and additional five hundred billion dollars worth of mortgage bonds, the yield on the ten year bond dropped down to 2.65%. The yield on the ten year bond opened at 2.73% on Friday, and has been over 2.8% this week. The rise in the yield, most likely indicates that fixed rate mortgage loans have moved up roughly .25%. This is not a dramatic move, but the markets are very much in a state of uncertainty and their is potential for large swings in both the equity and bond markets, which could adjust interest rates quickly.
The stock market is likely to remain in unchartered territory for the next few months as investors continue to digest the latest economic news and corporate earnings. The moves by the FOMC should help to keep mortgage rates at low levels for the balance of 2009. Their is no guarantee that home owners will be able to lock in rates under five percent, but it is hard to imagine rates moving beyond the six percent range in the near future. The low rates are good for both existing home owners who can refinance and free up disposable cash to invest back into the economy and new home buyers who can help reduce the existing home inventory levels, both of which will be critical to helping the economy rebound and both of which are important to the FOMC and will help to shape future policy.
March 25, 2009
March 25, 2009 by admin
The stock market is hoping to continue moving in a positive direction following Tuesdays sell off as investors pulled profits off the table following the markets recent move up closing in on 15% for the month of March. Today, the market was greeted with the second positive report out of the housing industry this week. New home sales for the month of February were up over four percent, great news for the beleagured housing industry. The report could be a clear indication that the housing market could be working towards a bottom in the near future. The report is great news for home builders and home owners alike. The momentum from a rebound in the housing market could be a significant boost to the struggling U.S. economy. The fed appears committed to helping keep fixed rate mortgage loans at historic low levels, however rates have moved up slightly from last week when they made their FOMC announcement. The yield on the ten year bond has moved out of the 2.6 range and was trading at 2.77% in late action on Wednesday. The stock market is being influenced by treasury auctions and the assumptions of purchasing more corporate debt. International markets have been relatively flat in trading and it is possible the recent bull market run for U.S. equities could be running out of momentum.
March 23, 2009
March 23, 2009 by admin
The stock market moved up sharply in early trading on Monday. The government has supplied more details on their plan to combine private and public capital to help remove toxic assets from banks balance sheets. This move, which is seen as critical component to helping restore lending and bring the credit markets around is being viewed as mostly positive by the lending and investing communities.
The stock market has rallied well past the 7000 point level as investors in banks and finance companies appear to believe they have turned the corner for their business lows and more prosperous times will soon appear. Citigroup and Bank of America have both seen their stock prices double up over the past two weeks and have been amongst the hardest hurt following the collapse of the stock market.
The announcements from the government today will collectively use the tarp to help incentive private investment firms to purchase assets from banks and lenders. This new phase will be called a collaborative Public-Private Investment program and has earmarked over 500 Billion dollars for an initial investment with the potential to exceed one trillion dollars. The hope is that the combined efforts will help in establishing a fair value for these assets and also help banks in determing their asset values as they work to clean up their books and comply with mark to market accounting rules. The mark to market accounting rules have been extremely challenging for the banks and investment firms as they have struggled to identify the true value of their assets and have continued to increase their required capital as these values have diminished. This has been one of the major factors as to why banks have had to borrow money from the government their tier one, two and three core capital ratios have been greatly influenced by the toxic assets and the mark to market accounting rules.
The housing industry today released details on existing home sales for the month of February. The market saw home sales move up over five percent as buyers are purchasing homes at deep discounts and foreclosures and bank owned properties continue to be a growing component of housing sales. The housing market could get some additional help from news out of the fed last week. Long term fixed mortgage rates received a nice boost last week from the FOMC and are now hovering in the high four percent range with points on thirty year loan terms.
Fed bold moves should keep rates low
March 20, 2009 by admin
This week the stock market has seen a nice rally and moved up sharply following Wednesdays FOMC meeting. The market was very receptive to the announcement from the Fed that they would be adding over one trillion dollars of liquidity to the market. The fed is trying to restore the credit markets and is willing to explore every avenue possible after lowering the discount rate down to .25% earlier this year, it was believed that they may be limited in their ability to influence the economy after lowering rates to such a low point, but Ben Bernanke remains committed to helping the economy recover.
The Fed made a few key announcements this week. They indicated they would be purchasing treasuries and have earmarked up to $300 billion for this and would be purchasing mortgage securities and have earmarked over $700 billion to this cause. Their agreement to purchase the mortgage securities (securitized by Fannie Mae or Freddie Mac) is the second move the fed has made to directly purchase these assets, following a move in December of 2008. The fed’s decision in January to purchase the mortgage backed loan securities help to bring mortgage rates down to historic lows and lead to a refinance boom for lenders. The historic low rates have helped millions of home owners to refinance their mortgages often at rates under five percent fixed for either fifteen or thirty year loan terms. The drop with rates did not have a direct boost in helping to improve home sales and this marketplace has not directly benefited from the historically low rates.
The feds bold move at influencing the price on consumer mortgage loans will likely keep fixed rate mortgage loans around five percent for the near future. Many industry experts believe that their is not likely to be a further drop with mortgage rates as lenders are simply going to try and leverage the extra margin they are now earning into extra profit. The challenge for the banking and lending industry is that the rapid drop in rates has helped to improve their volume of loans, but most lenders are now understaffed as they were forced to lay off workers in 2008 when their was less volume in the marketplace and they do not seem eager to re-staff these positions and would rather focus on improved profit margins and quality of loans versus sheer loan volume.
The feds moves this week also could help to free up capital for consumer loans and commercial lending. These two markets have been hit particularly hard over the past year as their is no secondary market that is buying these loans. The fed has attempted to free up this market through its TALF program, but the results have not been as immediate as their work in the mortgage industry.
March 16, 2009
March 16, 2009 by admin
The stock market fell for the first time in the past five days. Investors moved agressively to lock in profits as the market was up almost 150 pts in mid day trading. The early rally was sparked by comments from Ben Bernanke that he believes that the economy will begin to stabalize in the near future and by the end of 2009 will begin to improve. The stock market rally has been a great benefit to the major finanancial companies (Citigroup, Goldman Sachs). The major economic news of the day was related to manufacturing (empire state report) which measures manufacturing output, the news indicated further retrenchment in the manufacturing front.
Politically, President Obama is sure to gather some support following his announcement that he would seek to block the bonuses paid out to AIG. The recent report that AIG executives would receive hundreds of millions in bonuses for their productivity in 2008, following a period in which the company has lost 75 billion dollars and is now only in business thanks to a lifeline from the U.S. government.
The housing front is showing no signs of a quick improvement. A study released today that measures builders confidence showed further deterioration in the month of February. Long term fixed mortgage rates have begun moving up with the recent run of the stock market. The yield on the ten year bond closed at 2.95% on Monday. Fixed rate home loans are now in the low five range, but to secure a rate below five percent you should expect to pay points with your mortage loan.
March 13, 2009
March 13, 2009 by admin
The stock market climbed over 700 points this week as investors regained confidence in the health of the economy. The market moved up on Friday, following a study from University of Michigan that consumer confidence has improved slightly in the month of March. The stock market reclaimed the 7000 point level on Thursday and has been led this week by major moves from Bank of America, Citigroup and JP Morgan Chase.
The housing market may begin to see some benefits from the current low mortgage rates and government tax incentives. The continued pressure on stocks have helped to keep fixed rate mortgage loans near historic lows (low five percent range) for most thirty year loan products. With mortgage rates hovering at these levels lenders have seen a surge of consumers looking to refinance their home mortgages, up over 11% for the past week as reported by the mortgage bankers association. The recent move up in the stock market and the improvement in confidence, combined with historic low rates may be the spark that ignites the real estate market. The abundant surplus of homes on the market provide a great buying opportunity for qualified home seekers.
The yield on the ten year bond closed at 2.88% this week, remaining relatively unchanged for the week. This is generally considered a leading indicator for movement with mortgage backed bonds and ultimately how fixed mortgage rates are determined.
March 12, 2009
March 12, 2009 by admin
The stock market is looking to extend its rally to three days and get back above the 7,000 point level. Freddie Mac, the nations second largest loan servicer reported that rates on fixed rate thirty year loan terms are now just above five percent and have moved lower over the past week. The agency lender on Tuesday reported grim financial results as they lost over twenty three billion dollars in their latest quarter, in large part due to foreclosures and derivatives. The company has indicated they will go back to the Treasury and request and additional thirty billion dollars worth of capital to restore its balance sheet.
The market is focussing today on a few monumental stories, including the admission of guilt by Bernie Madoff who is pleading guilty to 11 counts of financial fraud and his estimated ponzi scheme could total sixty billion in fraud losses. The weekly job report this morning showed that job loss claims ticked up by 9,000 to over 650,000. The yield on the ten year bond, often a leading indicator of mortgage rates, was trading at 2.89% on Thursday, relatively flat for the week.
Home foreclosures are the economies achiles heal
March 11, 2009 by admin
The stock market has lost over twenty percent of it’s value in 2009 and job losses for the first two months are above one million, yet some economists (Ben Bernanke) believe that the U.S. could navigate its way out of the recession over the next six to nine months. This believe seems to be based on the trillions that the U.S. is adding to banks and the economy through various forms of government spending. The U.S. housing market is continuing to suffer the consequences of a failed plan to fix the home foreclosure challenge last year with the hope for homeowners program and a planned tax credit of $8,000.
The government rolled out details on their lates attempt to fix the downward spiral of home foreclosures last week through various loan modication and refinance programs aimed at home owners who are upside down on their home value or have fallen behind on their mortgage. This latest government proposal has been met with mixed reviews at best as most economists do not believe the help will be broad enough to slow down foreclosures. The month of February saw the largest number of homes lost to foreclosure ever and there is little reason to believe that the month of March will be much different. The major item that the government and banks have ignored is that mortgages are non recourse loans, essentially home owners can walk away from their homes and only face the danger of damaging their credit, not losing other financial assets. This trend gained momentum in 2008 and likely will continue to grow as homeowners who are hundreds of thousand of dollars upside down (Arizona & California markets) have little reason to continue to pay on homes that could take ten years or longer to return to a level equal to their current mortgage balance and payment terms. Until the government roles out a solution that lowers the principal balance of these types of mortgages, their is not likely to be a dramatic slow down to home foreclosures in the near future.
March 10, 2009
March 10, 2009 by admin
The stock market posted it’s largest rally of the year on Tuesday rallying almost 400 points. Financial stocks rallied around a news report released early this morning from the Ceo of Citigroup and gathered momentum as the FOMC chairman Ben Bernanke spoke about the state of the financial industry prior to the market opening. Financial stocks have seen their market caps lose trillions of dollars over the past year as investors have agressively sold out of these companies and speculation that most major banks will need to fall under a nationalization program have led investors to believe these companies offer little or no value as the U.S. deals with it’s worst recession of the past twenty years.
The housing market has shown some regional signs of improvement, but home values continue to decline. Home mortgage rates remain at historic low levels and most national mortgage lenders are offering fifteen year fixed loans with rates under five percent. Despite the historically low interest rates, refinance applications have begun to drop sharply as consumers explore other alternatives such as loan modifications to try and navigate their home finances.