Seniors lose out on reverse mortgages as home values continue to decline
June 30, 2009 by admin
The latest report from Standard & Poor’s Case Schiller report showed almost a twenty percent decline in home values from April of 2008. The erosion in home values will hit the senior market especially hard as their refinance and reverse mortgage loan options will become more restricted. The month over month decline was .6%, the only silver lining in another disappointing report on the U.S. housing market. California, Arizona and Nevada all showed declines well over 25% and represent the nations hardest hit markets.
Seniors looking forward to their retirement years have faced numerous challenges over the past twenty four months. The decline in the stock market, combined with the erosion of home prices will likely make it impossible for millions of seniors who had planned to retire to fulfill this goal in the near future. Seniors have taken advantage of government backed reverse mortgage programs to help supplement their incomes and enjoy more financial freedom during their retirement. Reverse mortgages allow seniors, over the age of sixty two whom own their homes to refinance and eliminate their house payments. The loans are backed by the government and provide attractive options, as they do not require the loan to be paid back until the property is sold. In some situations, a homeowner who has enough equity may also elect to pull cash out of their property in a lump sum amount or through monthly distribution payments.
Reverse mortgages are offered by lenders who work directly with the FHA. The guidelines for reverse mortgages, are directed by HUD, and limit items such as fees, rates and ultimately the loan amount eligible. Reverse mortgage loan amounts are based on the age of the senior, county the property is located and the value of the home. As home values have declined sharply over the last twenty four months, the amount of money a Senior is eligible to refinance through a reverse mortgage has declined, in some situations, this means a senior could receive little or no cash from their homes value. Typically a reverse mortgage limit increase based on the seniors age, but as a general rule, the amount a senior may be eligible for will not exceed sixty five percent of the homes appraised value.
Reverse mortgages were always believed to be safe government investments, as ultimately (HUD) is the entity that insures the lender if the home value exceeds the amount the property could be sold for. Reverse mortgages work directly opposite of a forward mortgage as the loan balance grows larger every month. Seniors who are considering a reverse mortgage can find additional information on the AARP website, but also would be encouraged to work with a financial planner and consider all of their finance options, including a tradition mortgage, home equity loan or interest only mortgage loan to ensure they are making the best long term financial decision. The decline in home values will be a critical factor in determing the benefits a reverse mortgage may offer, choosing to wait a few years before locking in the loan may provide more risk then reward.
Market awaits critical jobs report
June 28, 2009 by admin
The stock market enters a critical junction for the year this week, the year will officially be in the third quarter and a critical jobs report will be released to the market. The stock market has drifted lower in June, following a thirty five percent run up from March through May as investors have grown more cautious on the economic outlook. Early june saw a spike to home mortgage rates as the bond market rallied sharply, pushing yields past the 4% level for ten year bond and driving mortgage rates up near six percent. The last two weeks of the month, investors have grown more cautious, spurred by a report from the World Bank and a number of guidance reports from the market, as a result the stock market has shed about 600 points and the ten year bond has dropped below 3.7%, driving mortgage rates into the mid five percent range. The FOMC met this week and did little to provide direction for investors who were looking for assurances of their role in continuing to stabalize the housing market by purchasing mortgage backed loan securities, another sign that the government is hopeful the freemarkets will begin to return to normal and work their own way out of the current challenges.
This weeks job report will be analyzed from every possible angle prior to and after the release of the data on Thursday. Most economists are universal in their belief that the current economic recession will not end until the market has stopped shedding jobs. The month of May, showed favorable progress in this regard as only 370,000 job losses were reported, well below most experts predictions. The improved numbers for May will add pressure to the data for June. Since the official start to the recession, over six million jobs have been lost and the unemployment rates is hovering close to the ten percent range.
According to a survey from CBSMarketwatch, the market is predicting job losses to again exceed the 300,000 level, pushing the national unemployment rate to 9.6%. The mounting job losses have been felt in every area of the economy. A study from Moodys last week, showed significant increases with credit card defaults. Home foreclosures are at their highest levels and the national manufacturing industry has seen a number of Bellwether companies (GM, Delphi, Daimler Chrysler) all head into bankruptcy.
The world economy will all be closely following the data on Thursday. The United States is one of the world’s largest consuming nations, and the fallout from the sub prime mortgage fallout and credit crunch have impacted businesses across the globe. The government’s two trillion dollar stimulus program was put in place to help create jobs, with a renewed focus on energy and infrastructure. The government is hopeful that job losses will begin to turn their course as confidence returns to the market and public and private companies focus on growing their business for future success.
June 26, 2009
June 26, 2009 by admin
The stock market failed to finish the day in positive territory. This week has been especially volatile for the equity markets as growing concerns over the end to the economic recession have resurfaced, following economic reports that show weakness remains in the job markets. The volatility has benefited mortgage rates, which have moved lower for the second straight week as bond yields have followed the stock market lower.
The Treasury held an auction on Thursday for seven year bonds, which resulted in much stronger demand than most market observers, had anticipated. The positive auction demand helped bring in yields on all of the treasuries, and the ten year bond has dropped below 3.6% and finished the Friday at 3.54%, over forty basis points lower from its peak earlier this month. The drop in yields has helped to benefits rates on long term mortgages. Fixed rate thirty year mortgage loans are now in the lower to mid five percent range, and back under five percent for fifteen year loan terms.
Earlier in the week investors pulled sharply out of the equity market as news of existing jobless claims were higher than anticipated. Clearly, all eyes of the economic recovery will be focused on how soon the job market finds a bottom. Since the current economic recession has begun, over six million Americans have lost their jobs and the national unemployment rate is likely to pass ten percent by the end of the summer. Stabilizing the job markets was a major focus of the Obama administration and the government stimulus programs.
Consumers continue to ratchet up their level of savings. The national savings rate is closing in on seven percent, which would be the highest level it has reached in the last fifteen years. Consumers are likely to continue to increase their savings levels through the balance of 2009, as the market continues moving into more conservative financial positions.
Looking ahead, the market will continue to focus on corporate earnings and fresh economic data. The fear over the rapid increase of debt for the U.S. Treasury seems to have passed, helping to ease the pressure on Treasury yields and mortgage rates. Oil prices continue to hover near $70 per barrel and the equity markets will likely remain volatile as investors gauge the timing of the end of the current recession. The upcoming June jobs report could set the tone for the markets for the balance of the summer.
Recent housing reports are not overwhelming
June 24, 2009 by admin
The long climb up out of the housing bottom hole will take a good deal of time. This week the existing and new home sales reports for the month of May were released and both reports indicated a continued weakness in the market. The existing home sales report, released from the National Association of Realtors, indicated home sales edging up about 3% for the month of May. The new home sales report for the month of May fell approximately .6% for the same period.
The housing market is continuing to struggle to find a bottom. The market which has been hit hard with home foreclosures and job losses, was optimistic that the governments tax rebates, combined with historically low mortgage rates would bring more buyers into the market. The stock market, which appears to have bottomed out in March, has provided some optimism that the economic slow down would begin to ease in 2009 has also failed to inspire home buyers. The only properties that appear to be selling aggressively are bank owned homes and foreclosed properties. Home values have declined in excess of 15% nationally and the median sales price is now well below $200,000.
Foreclosed properties appear to be the markets Achilles heal. As these distressed properties pile up, they continue to pressure the broader real estate market to lower sales prices. The housing market has noticed a large increase in the number of home buyers who simply are walking away from their existing properties, and sending their keys back to their mortgage lenders.
The government rolled out a loan modification and refinance program aimed at reducing bank foreclosures earlier this year. The effectiveness of these programs is hard to gauge, but has done little in the short term to reduce foreclosures and provide needed stability. Mortgage rates have moved higher in May and June and could provide additional downward pricing pressure on the housing markets. The Obama administration will closely follow the housing news and could push for the tax rebate to be extended for another one or two years, as it appears a recovery for housing is a minimum of twelve months away based on the current sale levels.
June 22, 2009
June 22, 2009 by admin
The World Bank sunk the stock market on Monday. The equity market sold off sharply following a report released prior to the market opening from the World Bank, which indicated the economic recession would likely last a minimum of the next twenty four months, with a retraction in growth for 2009 and minimal growth in 2010. The grim economic news was a key catalyst in driving down the stock market by over 200pts and sending international stock markets on a path downward. The banks report was based on their projections of further challenges in the U.S. where the rate of unemployment is expected to top ten percent in 2009 and the slowdown of growth from emerging market economies.
The stock market has dropped over five hundred points in the last as more investors believe that the economic challenges are going to linger well into 2010. This week, the FOMC meets to discuss interest rates and could be a catalyst for additional market movements, based on their discussions on monetary policy. Energy prices, are one of the lingering areas in the market that could pose a problem by adding and element of inflation this year. Oil prices have almost doubled since bottoming in early March and this could weigh on the minds of policy makers. One of the key areas the Fed will likely spend time on is the state of the U.S. housing market. The Fed took an active role late in 2008 by announcing their decision to begin purchasing mortgage backed loan securities, a move that immediately led to a significant drop with mortgage interest rates and one that has set off a refinance boom for the banking industry. The Fed is more likely to focus on the data on home buying trends, to see how significant their impact has been as they have attempted to help stabilize the downward spiral of home prices. Early reports from the housing industry still show significant challenges as now one in every eight homes across the country is delinquent on their mortgage payment, thanks largely to the surging unemployment. The governments loan modification program, has done little to slow down foreclosures and the Fed may look at new opportunities to further impact the housing market in a positive way.
The broad sell off in the equity markets has been good for long term fixed mortgage rates. The yield on the ten year bond has dropped below 3.7%, sending fixed rate loans to the mid five range on thirty year loan terms. Investors have looked past the growing U.S. debt to take advantage of the stability bonds are offering, helping to send yields lower and benefit homeowners with lower mortgage rates.
Government loan modification program gets mixed reviews
June 21, 2009 by admin
The government’s home loan modification program has many home owners still searching for a refinance solution. The loan modification program, announced earlier this year was designed to help stabilize the housing market and slow down the pace of foreclosed properties hitting the market. An initial report, released in May, indicated about 55,000 home owners have been able to successfully refinance their mortgages under the program. The program was the first collaborative finance program announced by the government that combined the efforts of Fannie Mae, Freddie Mac and loan servicing companies. The mortgage loan modifications were available to home owners who have conventional finance loans, and whose current loan to value ratio was under 105%.
Numerous critics quickly pointed out the flaws in the government modification program. They questioned the ability to impact the hardest hit real estate markets such as California, Arizona and Nevada when the loan to value caps were set at 105% and many home owners in these markets have seen the values of their homes drop by 40-70% in the last twelve months, fueled by hundreds of thousands of foreclosed homes and bank owned properties.
Individual success stories from the governments relief program appear to be as commonplace as the challenges from home owners who have failed in their attempt to refinance or modify their loans. A growing number of home owners are reporting struggles with their servicing organizations, as they deal with banks that are understaffed to handle the volume of inquiries or prioritize their customers based on delinquency level.
The governments move earlier this year to purchase mortgage backed loan securities, set off a refinance bonanza for mortgage lenders. It would be hard to imagine that many of the banks and loan servicers have not diverted resources to handle mortgage refinance applications. Companies such as Wells Fargo and JP Morgan both reported strong earnings from the mortgage divisions in the first quarter of the year. A recent report from Money.Cnn.com highlighted the challenges of individual home owners who are struggling with the bureaucracy of loan servicing companies and the governments program. The market has also been challenged by unscrupulous companies taking advantage of homeowners by posing as loan modification organizations. Home owners who are pursuing loan modifications, would work directly with their loan servicing companies and avoid paying a third party company upfront for the promise of modifying their mortgage loan.
Despite, delinquency rates that are fast approaching ten percent of all home owners and surging unemployment, the ability for a streamlined approach to modifications or broad based refinance for struggling home owners appears far from reality. Fixing the housing market is a top priority of the current government, however there does not appear to be a solution in place that streamlines the process and eliminates the anxiety of providing aid to the people who need help the most in the midst of the worst economic recession the country has faced in the last fifty years.
Market volatility helps bring rates lower
June 18, 2009 by admin
The volatility in the stock market has helped mortgage rates to reverse course and move lower. The stock market has rallied strong, since touching a low point in early March, climbing almost thirty six percent heading into June. The dramatic increase in the market, combined with rising commodity prices have been a major factor in driving long term fixed mortgage rates to move higher. The yield on the ten year treasury bond rose just above four percent this month, but has now dropped over thirty basis points, helping to bring down long term rates in the process.
The housing market has been a major benefactor of the historically low rates available this year. Fixed rate loans were at or below the five percent range for almost the entire first quarter of the year, spurring a refinance boom in the mortgage market while providing another piece of ammunition to help fix the housing crisis. The dramatic drop with interest rates could be directly tied into the Fed’s decision to begin purchasing mortgage backed loan securities and the rapid drop in the equity markets.
Historically, today’s mortgage rates are amongst the lowest levels recorded in the past thirty years. The economy continues to provide mixed signals as to how quickly we can expect the current recession to come to a close. Job losses, totally over six million in the last year and a half will continue to pressure growth. Recently, the stock market has surged, as investors have regained confidence in the prospects of future growth opportunity. Eliminating the fear of failure for many investors has been a critical factor in their return into the equity markets, as well as inflationary concerns driving up yields in the bond market. The improvement in the stock market has also lifted oil prices sharply, to over $70 per barrel. These factors have played a role in helping to raise interest rates from their historic low levels.
The recent pullback in the market has been expected by a number of market analysts who believe the record rally will lead investors to pull in profits and begin to view the market more cautiously moving forward. Today, more investors are reading the critical reports (housing starts, CPI, etc) and analyzing corporate earnings as they move in and out of equity positions. The recent drop in the market has helped bring down fixed rate loans by almost ½ percent and should provide a good baseline for trading in the near future. Expect they equity markets to remain volatile and mortgage rates to move between 5.5% on the low end 6% on the high end, while the market awaits the next critical news that could move it past one of these critical levels.
June 17, 2009
June 17, 2009 by admin
The stock market looked to regroup following two days of strong selling. The major economic news of the day was the release of the CPI report for the month of May. Consumer level inflation rose slightly more than expected, thanks in large part to the rapid increase with energy prices. Inflationary concerns have reemerged in the market only recently as economists weigh the implications of rising oil prices in a struggling economy. During the past twelve months, total CPI has actually declined at the fastest level in the last forty years as the worlds global economy fell into the current recession. Stocks have broken back under the 8500 point level, and are the next floor appears to be 8000 on the low end. Investors are also turning there attention to corporate earning reports to gauge the prospects of an economic recovery. A report released today from FedEx was a factor in early selling, and it is likely more investors will begin to review earnings and guidance reports in determing their short/long term equity positions.
President Obama is promising more regulations and changes to the financial markets. The President is working hard to put into place additional measures to prevent the opportunity of another mass financial meltdown in the market. There are a number of concerns being raised over the proposals, including the idea a newly created resolution authority, created to oversee large interconnected banks and financial firms. The concerns are mostly centered on the makeup of the regulatory firms and there ability to comingle within the Fed, Treasury or current banking industry. The idea of regulatory reform is likely to be welcome news to main street, as ordinary Americans want to eliminate the potential for companies such as AIG (too big to fail) from ever being created again.
The pullback in the stock market has helped to push investors back into the bond market, as a result interest rates on fixed mortgage loans have moved lower. The yield on the ten year Treasury bond has dropped almost 40 basis points over the last week, and fixed rate mortgages have move closed to 5.5% for thirty year terms. It is too early to predict if the rapid rise with interest rates in late May or the current pull back to today’s rates will last. Oil continues to pressure the market as seen with today’s CPI report and long term threats of inflation have a history of causing lending rates to increase.
June 15, 2009
June 15, 2009 by admin
The stock marker sold off sharply in trading on Monday as investors looked to take some profits off the table among growing concerns with bank credit card and commercial loan losses. The day was light on economic reports, but a gauge of home builder confidence showed further erosion in the housing markets may be in the future as home builders have grown yet more pessimistic of a housing recovery in the next twelve months.
The stock market sell off has been anticipated for some time as investors look to reallocate their investments following a record forty percent broad market rally over the last three months. Oil prices dipped on Monday, which could help the broader market as the price of oil has doubled since March, sending gasoline prices surging to nearly 43 per gallon.
Speculation over the health of the banking industry could grow a bit cloudier as the record number of credit card delinquencies surged last month. Credit card holders have begun to default on their card obligation in record numbers, as the job losses and dismal economy have strained budgets across the country. Reports released from American Express, Discover, Capital One and Bank of America all indicated that credit card delinquencies have jumped in the last few months, at a time when banks are raising rates and consumers are searching for new financing options, a combination that will likely take its toll on the economy and lending industry. Commercial loans and the credit card market are believed to be two areas in the banking industry that will become the next major financial challenges for lenders. The banking industry is desperate for some positive news and received a small increase in revenue from record low mortgage rates, which helped fuel a mini refinance boom. The banking industry, has also benefited from the uptick in the stock market as many of these companies are also invovled in with investment brokerages as they offer a wide variety of customer solutions.
Yields on bonds have started to drop, following a sharp rally in early June. The yield on the ten year bond broke below 3.75% and has helped to keep mortgage rates from eclipsing the six percent level. Fixed rate mortgage loans have dropped to the mid five percent range on thirty year loan terms, aided by successful government bond auctions last week and the broad sell off in the stock market. Concerns over the U.S.’s ability to finance its debt weighed heavily on the record increase in bond yields, but investors are gaining more confidence, that despite the heavy debt load to continue to finance, their remains a very attentive market for treasury bonds.
Treasury yields drop lower, mortgage rates follow
June 12, 2009 by admin
The Treasury bond market has been under extreme pressure over the past three weeks and anxious investors and economists were anxious to see the results of three government bond auctions this week. The early results are good for the Treasury market and great for long term fixed rate mortgage loans which finally have pulled backed from their sharp climb up. The Federal reserve held three auctions this week that help to reassure nervous investors that despite the rapid climbing rate of debt that the government is adding to its deficit their was enough demand for bonds to help bring yields lower.
Most investors closely follow the yield on the ten year bond as this often best reflects the direction that long term mortgage rates for thirty and fifteen year loans are heading. Treasury yields dropped dramatically earlier this year as investors pulled out of the stock market in record waves and looked to invest in bonds, believing these to be safer investment vehicles. The yield on the ten year treasury bond dropped to as low as 2.26% in March, before beginning to move higher in lockstep with the stock market. The yield on the ten year bond reached a high point of 4% this past week, which created a large amount of anxiety in the marketplace. On Friday, yields on the ten year treasury dropped below 3.8% and now appear to be in trading in a channel between 3.75% and 4%. The sharp rise in the yield can be attributed directly to the fear that the U.S. debt load has climbed at a pace that is certain to result in significant inflationary pressure in the future. The impact on inflation with investing in bonds directly impacts the way a bond instrument is priced. If investors are concerned that inflation will grow in the future, it diminishes the value of their current investment, requiring them to seek a higher rate of return to help insure their profitability.
The pullback with treasury yields to end the week should help to drop long term mortgage rates by as much as .25%. Fixed rate mortgage loans have jumped over 100 basis points in the last month and were fast approaching the six percent level for thirty year loan terms. The pullback with bonds, should help to position long term rates in the mid to high five percent range heading into next week. The housing market is significantly impacted when long term fixed rate mortgage loans move higher. A one percent increase in rates on a two hundred thousand dollar mortgage equates to a payment that is $120 higher per month and $43,200 worth of additional interest for the life of the mortgage loan. Rates in the low to mid five range are very close to historical lows and help provide great incentive for buyers to continue to purchase and finance new homes. The drop with the yields should also benefit jumbo mortgage loans, which are available in the mid to high six percent range with most national lenders, but are much more difficult to qualify into and many lenders have simply stopped issuing these mortgages entirely as they are not eligible for resale to Fannie Mae, Freddie Mac or the FHA. Investors and economists will closely follow the rise of oil prices as this could have damaging consequences on bonds and be a factor in creating rates to increase.