Government proclaims loan modification victory, experts cry foul
October 10, 2009 by admin
The jubilation from the government over the early success of the home loan modification push is not being shared by everyone in the industry. Late last week the government revealed that working with key national lenders and loan service companies, that over five hundred thousand mortgage loans have been modified in an effort to help keep struggling homeowners in their properties. President Obama, announced earlier this year that the Home Affordable Modification Program would target aiding three million homeowners over the next two years to rework their home loans and help stay in their homes.
The real estate industry has been one of the hardest hit areas of the economy over the last two years and one of the key factors in driving the country in the current recession. The rapid deterioration of home values, spurred a major spike in home foreclosures, forcing major lenders to write down their loan portfolios by tens of billions of dollars. The continued decline in home values has been accelerated by home owners losing their properties to foreclosure or simply walking away from their properties, further compounding the problem. The government has attempted to reach out to troubled home owners and help keep them in their homes, first through a program called Hope for Homeowners that was launched in 2007, which can be viewed as a complete bust. The failure of the Hope For Homeowners program has led to increased scrutiny of the governments latest attempt.
For months, home owners have proclaimed difficulties in working with their lenders to modify their home mortgages. Articles on MSNBC and CBSMarketwatch each highlighted the challenge of hundreds of applicants with different lenders who faced similar difficulties in processing their applications and receiving feedback from their servicers regarding their loan modification application. Earlier this summer, the nations top 20 loan service companies were called to Washington to address the challenges and work to improve the process to provide relief to struggling home owners. As the national unemployment rate continues to increase, home owners are continuing to face increased pressure to stay current with their homes further complicating the situation.
The true numbers behind the governments recent report have many experts crying foul. The rapid turnaround of assisting almost 400,000 borrowers in the past sixty days would be great news for the real estate market and housing industry, if only the results were not viewed as temporary. The underlying problem, is that the modification process involves a 90 day temporary window, before the home owners loan modification is supposed to become a permanent solution. The recent report indicated a large gap in transferring the temporary loan modifications to become permanent loan modifications.
The nations largest loan servicers have a financial incentive from the government to help homeowners with conventional loans, underwritten to guidelines originally written by Fannie Mae or Freddie Mac. In the past ninety days, the HUD announced their own program to help assist FHA mortgage loan holders in modifying their mortgage loans. The process of modifying an existing mortgage helps to reduce a struggling homeowners house payment to a level based on their income and debt ratios. Most critics who don’t believe the program will have a meaningful impact in helping to slow down home foreclosures point to the avoidance of addressing the more critical area, the homeowners principle loan balance. The belief is that a more beneficial model to address the home foreclosure crisis would be lowering the principle balance of the troubled mortgages, helping reduce the payments along the way and providing an incentive to keep homeowners in properties that are often tens to hundreds of thousands of dollars underwater.
The true impact in the government’s aid to help homeowners will become more evident if home foreclosures begin to slow down in 2010. The pressure from the lack of job creation could force policy makers back to the drawing board to try and further address this Achilles heal in real estate market.
Card companies choose different paths to recoup revenue
October 8, 2009 by admin
The back and forth battle between consumer groups and credit card companies is beginning to take shape. Over the past two weeks, major credit card issuers Bank of America and Wells Fargo have taken different approaches in trying to recoup lost revenue from their credit card divisions. The financial industry has taken many lumps, starting with the housing and mortgage markets. The next largest area of exposure for most lenders is within their personal lending portfolios (personal loans, credit cards, lines of credit) and the next major obstacle is likely to be the commercial loan business.
Consumer groups have been working for years to force credit card companies to change their marketing practices as well as their policy on handling late fees. Earlier this year, the consumer groups won a significant battle when the credit card industry agreed to a number of key reforms aimed at protecting consumers. Gone are the days of bait and switch advertisings, payments being applied to the lowest interest rate balances and card companies targeting kids right out of high school. The changes were welcomed by consumers across the country, which have seen balances on personal card debt increase by almost forty percent in the past five years. The credit card industry and leading banks have varied in their response to the legislation, but one trend has held constant, most lenders are now pursuing alternative methods to recoup their fees.
Traditionally, credit card balance transfers, have been a major marketing ploy by credit card companies to attract new consumers. Many card companies offered consumers low fixed interest rates and even zero percent rates as a way to attract new business. They were able to offset offering a below market rate by charging an upfront balance transfer fee between one and two percent of the transferred amount. Most card companies offering balance transfers today have increased this amount to five percent, greatly diminishing the potential savings for consumers. In addition, a large number of credit card companies have reduced the available credit lines for their existing customers and in many cases switched the type of cards that they have from fixed to variable rate finance cards.
This past week, Bank of America was in the news as it bucked the trend with raising rates for its card holders. The bank issued a statement that for the time being they would not be increasing rates for card holders, but would be pursing other methods to recoup losses and add revenue to this division of their company. This is the polar opposite approach that Wells Fargo has pursued, which will be increasing rates by as much as three percent for existing card holders. Credit card companies are likely to be under pressure from the economy for at least the next twelve to eighteen months. Personal bankruptcies have soared to historic highs as consumers struggle to balance their personal finances. The continued increase with rising unemployment will further pressure this area of lending as banks will have to revise their loss provisions within these groups.
The long term prognostication is that consumers appear to be positioning themselves to be less reliant on plastic and more focused on building their savings. The national savings rate has increased every month this year as consumers look to rebuild their balance sheets. The immediate challenge for both consumers and card holders is balancing the potential rate increases with the economy and personal finances. The free spending days of the past are almost certainly over as card companies look to put stricter underwriting guidelines in place to protect both themselves and their customer base. Credit cards are likely to be a more expensive method to finance purchases over an extended period of time and they appear more likely to give market share back to consumer debit and bank cards tied into personal checking accounts. Consumers are likely to see less advertising for new card offerings and may need to be more proactive in pursuing new credit card options if they are not satisfied with their current lender rates and terms.
October 6, 2009
October 6, 2009 by admin
The stock market surged for the second straight day in early trading on Tuesday, as the market is hoping to pull itself up for the month of October. Investors are piling back into equities, following a 600 point sell off over the last three weeks. In early trading on Tuesday, stocks jumped over 100 pts, looking to post consecutive 100pt increases in the Dow for the first time in the last thirty days. The market appears to be refocusing on corporate earnings, analyst upgrades and potential policy changes that could spur additional job creation.
Mortgage rates started the day moving higher. Bond yields have moved up slightly over the last week, following the sharp drop in yields as the market rebalanced during the recent stock market sell off. Yields on the Governments Ten Year Treasury Bond, have moved up approximately ten basis points and were hovering near 3.25% on Tuesday. The upward move in yields has lifted fixed mortgage rates on thirty year loan terms back above five percent with most national mortgage lenders. Fifteen year fixed rate mortgage loans remain below five percent, and you can pay points on either loan program to bring your interest rate lower. There remains little immediate concern for a spike with mortgage rates and all indications point to long term rates remaining at or around their current levels for the balance of the month of October. Historically, October has been a bearish month for the equity markets, which tend to help keep October mortgage rates attractive.
Today, investors are clearly looking at all of the corporate headlines and a series of upgrades in the financial sector from Goldman Sachs. The market is somewhat light on news with AIG back in the news. The beleaguered insurance company could finalize a deal to sell of an Asian based insurance entity over the next two weeks, provided a bit more capital as it works to repay the government and taxpayers.
The International markets have helped to influence the U.S. stock market this week as well. News from Great Britain that home prices have increased for the third consecutive month is great news for investors who are in international real estate funds, and a good sign for the global secondary market that invests in mortgage backed bonds. The other key headline for the day is the continued drop in value of the U.S. dollar and the historic rise of gold. Gold futures have now surpassed $1035 per ounce, a historic move up considering equities have also moved higher this week.
News from Washington policymakers has also been viewed positively by the markets today. Following last weeks dismal job report, there is growing pressure that the government will need to put additional resources to work towards creating jobs. There are early indications that the government would likely look towards tax cuts or potential spending programs, but no guarantees of another round of stimulus for the economy. To date, the governments focus to emphasize infrastructure spending (roads, bridges, etc) has yet to trickle through to the balance of the economy. The government has a number of issues in focus including health card and reform of the financial system, and has yet to make good on any of the early campaign promises and is facing more and more political pressure on a daily basis from both sides of the aisle.
October 2, 2009
October 2, 2009 by admin
Mortgage rates received another shot in the arm on Friday and continued to move lower for the month of October. Today’s economic news has initially sent the broad based equity markets lower, following a severe day of selling on Thursday. The headline news story of the day was the September non farms payroll report, which came in worse than most economists has predicted. For the month, the economy lost almost 270,000 more jobs and the national unemployment rates has moved up to 9.8%. This report is always one of the most influential reports that impact both the equity and bond markets. The immediate reaction in the bond market to the report was a drop in Treasury yields as investors looked for a safe have from equities. This action dropped the yield on the ten year bond down to 3.12%, the lowest level in the past eight months. The drop in yields is helping to further drive fixed mortgage rates below five percent for both thirty and fifteen year loan terms. The continued drop with mortgage rates is one of the bright spots with the pullback in the equity markets over the last two weeks.
The economy clearly is not going to recover as quickly as the most optimistic observers had hoped for. The challenge of growing an economy when unemployment continues to increase will be a major challenge and an issue the government and labor department will try to monitor closely. There was another key report released today which is impacting the markets. The report on factory orders dipped for the first time in the past five months, further indication that the economy will face some growing pains in the months ahead.
October 1, 2009
October 1, 2009 by admin
The month of October is starting on a down note for stock investors. The DOW Jones was off nearly 200 pts in trading on Thursday as Investors pulled back on equity investments following this mornings weekly job loss data. The market has been slowly falling over the last two weeks, after nearly surpassing the 10,000 level in mid September. Investors are becoming more concerned that the challenges in the economy will linger well into 2010 and this concern is pushing more investors to look into bonds, which has been good for mortgage rates.
The financial industry, one of the largest winners in the market since early March, is feeling significant pressure from a report released today from the American Bankers Association (ABA). Today’s news echoed concerns that many experts believed could become one of the economies Achilles heals, delinquencies. The association reported a record surge in delinquencies for credit cards and home equity loans. Consumers, have clearly drawn a line in the sand with paying only the bills necessary to survive in this economics tsunami and lenders are struggling to recover unsecured loans. The percentage of credit card delinquencies surged past five percent, the highest levels in recorded history for this report. These figures will likely carry through to the largest increase of personal bankruptcy fillings this decade. The news could not come at a worse time for CIT, one of the nations largest middle market lenders, which is on the verge of bankruptcy. The company, which has borrowed money from the TARP was struggling to restructure its debts with creditors and could be forced into BK in the near future.
The headline story of the day was the increase in unemployment claims for the week. Claims shot up by 20,000 applications, a figure that is sending shockwaves through the market. The sentiment that the labor markets were improving because job losses were slowing has helped to drive the equity markets. The larger challenge moving forward is the lack of job growth to help the over six million individuals who have lost their jobs in the last two years. The labor market, was one of the critical areas of the Presidents spending policy for this year and has yet to live up to the promises of job growth. Corporate America to date appears to be more focused on their bottom line costs, than positioning themselves for future growth opportunity.
The dismal day for stocks has a silver lining for mortgage brokers across the country. Interest rates for thirty year fixed home loans have now dropped below five percent with most national mortgage lenders. The drop in equities have pushed many investors back into bonds, as witnessed by the ten year treasury bond which is closing in on 3.2%, its lowest level since February of this year. The move by investors back into bonds could help fuel another refinance boom for the banking industry as well as provide a catalyst for home buyers to get off the fence before the governments tax rebate comes to an end in November. The pending home sales report released today from the National Association of Realtors indicated another month of improved figures. The real estate market could finish the year on a strong note if the low interest rates help to push sales forward. Long term thirty and fifteen year mortgage rates are officially at their lowest levels since January and remain well positioned to hover in this range for the near future.