Job losses continue, government changes refinance mortgage terms
July 2, 2009 by admin
The month of July has started with a flurry of major news, including a major change to the governments refinance initiative with Fannie Mae and Freddie Mac as well as a disappointing employment report. The clear evidence is that the economic downturn that began at the end of 2007 is likely to continue its impact on all aspects of the market for the balance of the year.
The government’s June non farm payroll report is likely to send the stock market into a tailspin. The report showed job losses of 467,000 for the month of June, almost 100,000 higher than many economists were predicting. The national unemployment rate has passed 9.5% and is on a collision course with passing the ten percent level by years end. The healthcare industry appears to be one of the few isolated areas where job growth is continuing. As unemployment continues to increase, every area of the economy will continue to be under pressure and the chances of a realistic recovery starting this year appear to be disappearing. Average earnings and hours worked are also continuing to trend downward, placing enormous pressure on growth in consumer spending.
The housing industry has been struggling for the better part of the past two years. Surging home foreclosures and mounting job losses are fueling an unprecedented drop in home values. The Obama administration has tried a few tactics to help slow down this decline. The government announced in early February a program to help home owners modify their home loans through a government sponsored loan modification program. This program was designed to streamline the modification process for struggling home owners whose loans were serviced by Fannie Mae or Freddie Mac. The government also set up a refinance program, allowing homeowners whose values were higher than their property value to refinance up to 105% of their property value.
The government’s goal for their modification and refinance initiative was targeted at helping five million home owners. The early results showed very poor results amid consumer criticism that the loan servicers were not cooperating and the loan to value ratios were not generous enough to help homeowners most desperate for aid. The Obama administration announced this week further changes to their initial program and will now allow home owners to refinance up to 125% of their properties value. Home owners who have loans serviced through Fannie Mae or Freddie Mac (conventional home loans) may be able to refinance their mortgage loans and take advantage of the new programs. The proposals are still heavily criticized as many experts believe the only way to fix the underlying problem is to offer principal balance write downs to home owners who are dramatically overleveraged with their real estate.