I. Capital markets and economic updateThe past week saw continued stability in MBS markets, but continued deterioration in the economy. The markets seem to believe that the Fed and OFHEO have halted the seemingly endless downward spiral in MBS prices. Through its Bear Stearns bailout, the Fed has provided credible evidence that it will do whatever is necessary to prevent a major financial institution from collapsing.
II. How much risk-taking should be allowed?A big-picture theme starting to take shape is government's role in determining how much risk to allow back into the system. As I've said before, risk-taking needs to resume in order for MBS spreads to recover lost ground and mortgage rates to drop. (For an explanation of the relationship between MBS spreads and investor risk, see the section entitled "FYI" located at the end of this email.) In practice, the "right" amount of risk-taking in the system is decided through a balance of self-policing market forces and government regulations. Today's reality, however, is that the balance is likely to tilt toward regulation.
The dilemma facing the Fed is that the tools they're currently using — reducing short rates and making it easier for financial institutions to borrow money — have a nasty side effect of encouraging what might be called excessive risk-taking. However, they don't have much choice. Since low mortgage rates are a vital part of a housing recovery, they can either continue to promote leveraged purchases or buy MBS themselves.
Back in the Greenspan Fed era, we saw the unregulated development of what some call the "shadow banking system" — hedge funds and other investors in the alphabet soup of CDOs, CDS, SIVs, and other financial innovations. Unhindered by the regulatory oversight that governs banks, these new lenders were free to take as much risk as they liked. In the process, however, they became so large and so intertwined with banks that their failure put the regulated banking system at risk. In another macro development last week, Treasury Secretary Hank Paulson proposed to change the structure of market oversight by giving the Fed broader power over a wider array of financial institutions.
This massive a change may take some time to put in place, especially in an election year, but his proposal is a sign of current thinking on a subject that has an enormous impact on the amount of risk-taking in the system. Its message seems to be that if the Fed is going to be held responsible for cleaning up after the party, they want more of a say in who gets invited and how crazy things get.
Where will we end up? I certainly don't know the "right" amount of leverage in a financial system as complex and interconnected as ours has become. But any teenager who's used bad judgment can tell you that the price is almost always less freedom and more rules. The entire financial system recently suffered a major lapse in judgment, and we'll probably lose some freedom to determine for ourselves how much risk is the "right" amount. Increased regulation and oversight, along with what may well be significant changes in the models used to quantify risk, will lead to capping the amount of leverage in the system at some level lower than in recent years. The most likely result is a sustained period in which the cost of consumer credit will remain higher than in 2005-06.
III. Housing: what's being done to slow the fall?As home prices continue their slide, even investors who have access to leverage are reluctant to assume risk. Using FNMA and FHLMC as proxies for many would-be MBS investors who are still able to freely issue debt, you can see in the chart below that despite historically attractive MBS yields relative to their cost of funds (the line), these two GSEs actually have reduced their MBS holdings (the bars). Why? Because they need to raise capital to cover credit losses in the "g-fee" business resulting from falling home prices. Other investors are equally concerned that attractive MBS yields may be booby-trapped by further losses due to accelerating depreciation.
Lawmakers have devoted much attention to slowing the rate of defaults and foreclosures, with no fewer than eight housing rescue plans being discussed at the federal level and countless more in the states. Of the federal solutions, the two that seem to have the most momentum are sponsored by Rep. Frank and by Sen. Dodd. Both plans focus on heading off foreclosure so people can stay in their homes. For borrowers in trouble, participating lenders would forgive a portion of the existing loan equal to the difference between the old loan and 90% of the home's current market value. A new loan with a current LTV of 90% would replace the old loan. Who would make these new loans? You guessed it: the FHA.
The Senate plan that actually made it to the floor for debate last week was a scaled-down compromise providing, among other bits and pieces, tax benefits to home builders and homeowners buying foreclosed properties. If the Frank plan reaches the House floor in its current form, it would provide $300 billion in FHA funds for workout loans. Its major flaw is relatively broad eligibility requirements, which may encourage borrowers who can afford their payments to purposely default in order to reduce their debt. The Frank plan tries to prevent this by requiring that the original DTI be greater than 40% and by limiting the borrower's ability to participate in any future appreciation.
Some critics of these forgiveness plans will insist that they're a waste of taxpayer money, since there's no way to ensure that they reach borrowers at greatest risk of foreclosure. Others will argue that "bailing out" people who took more risk is unfair to those who were more prudent. These are reasonable arguments, but no plan can be perfect; and the consequences of no plan at all may cost a great deal more.
FYI: The inverse relationship of leverage to MBS spreadsThe rate spread between MBS and risk-free instruments might be considered a sort of inverse temperature gauge of the amount of leverage (i.e., risk) in the financial system. More leverage makes MBS spreads go down, while less leverage allows MBS spreads to increase. Here's an example:
Say the yield on MBS is 6.50% and borrowing the money to buy them costs me 6.0%. Therefore, my "spread" is 50 bps. If I borrow 90% of the cost of the MBS, the return on my 10% equity will be 11%:
(100% * 6.5%) – (90% * 6.0%)10%
If I'm able to borrow 95% of the cost, increasing my leverage from 10:1 to 20:1, I can buy twice as much and my return on equity will rise to 16%:
(100% * 6.5%) – (95% * 6.0%)5%
But if everybody else does the same thing, demand for MBS will increase and (assuming the supply remains constant) the yield spread will tighten. Instead of 50 bps, it will be something less. As we saw in 2005-06, more leverage in the system did cause spreads to tighten, mortgage rates to fall, and housing to become more affordable. Sadly, it later became clear that so much leverage was too much of a good thing.
Chart 1 – FNMA MBS Yield Spreads to Treasury YieldsBack to Top
Chart 2 – Non-Farm PayrollsBack to Top
Chart 3 – Continuing Jobless ClaimsBack to Top
Chart 4 – Libor vs. TreasuriesBack to Top
Chart 5 – Fed Funds Probability Distribution for 4/30 MeetingBack to Top
The markets had expected a more aggressive rate cut of a full point, but the main indexes pulled back only mildly in the immediate wake of the announcement.
The FOMC statement:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent. Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters. Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully. Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting. In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco. Sincerely, Heath B. Lefort
The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.
Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.
Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.
Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.
Sincerely,
Heath B. Lefort
Investors poured their money into bonds today due to one of the top investment banks Bear Stearn loosing roughly 80+% of its stock value. Investors do not trust the financial markets right now. The Federal Reserve meets tomorrow and I expect the Federal Reserve to cut 75-100 basis points off the short term prime rate to bring investor confidence back into the market. I expect long term mortgage rates to go up tomorrow due to this cut.
If you are in the market to refinance or purchase a home in the next 3-6 months, its important to get your loan in a position of approval so I can execute your rate when the market dips during these volatile periods.
New FHA Mortgage Limits
Fed Delivers, Financials Flounder
Most of the excitement in Wednesday's session happened in the last two hours of trading after the FOMC decided to cut both the fed funds and discount rates by 50 basis points and a CNBC report suggested downgrades of bond insurers were imminent.
Prior to these happenings the stock market traded in a narrow range, sporting relatively modest losses that were driven by disappointing earnings news from Yahoo! (YHOO 19.05, -1.76) and Merck (MRK 46.69, -1.32), and a fourth quarter GDP report that showed growth of just 0.6% versus the 1.2% consensus estimate.
The GDP report, frankly, wasn't as bad as the headline suggested considering a drop in inventories created a big drag. Final sales, which exclude the swing in inventories and offer a better read on underlying demand, increased 1.9% at an annual rate.
Separately, in a bit of encouraging news, the ADP Employment report showed an estimate of 130K for January private payroll growth. While this report doesn't correlate very strongly with monthly payrolls reported by the government, it has been a decent directional indicator. As such, it sparked some hope that the January employment report on Friday will contain better than expected news.
For the most part, though, the market remain preoccupied with the FOMC decision at 2:15 p.m. ET. It got exactly what it wanted, too, when the FOMC cut the fed funds rate 50 basis points to 3.00% and the discount rate 50 basis points to 3.50%. In turn, the policy directive noted that downside risks to growth remain and that the Fed will act in a timely manner to address growth risks. That acknowledgment was taken as a hint that more rate cuts may be coming.
The major indices rallied in the wake of the decision. The Dow, Nasdaq and S&P, which were all down ahead of the announcement, gained as much as 200, 38, and 24 points, respectively.
Then, the music stopped when CNBC ran a report that one of the two major bond insurers was going to be downgraded by a credit rating agency, perhaps as early as today. As it so happens, Fitch cut its rating on FGIC Corporation and its financial guaranty insurance subsidiaries.
Selling activity quickly accelerated in the wake of these developments and it was pretty much a one-way trade in the final 30 minutes of the session. The major indices all closed in negative territory, led lower by the financial sector, which dropped 1.1%.
The industrials sector, up 0.3%, was the best-performing of the economic sectors on Wednesday, having been propped up by the positive moves made in Boeing (BA 82.87, +1.91) and UPS (UPS 72.02, +1.10) following their earnings reports.
The Gov't cut short term interest rates hoping that the financial market's will improve and they also want to see if the short-term rate cut will affect the spending habit's of consumer's. Keep in mind that the reduction of 1.25 effects equity lines, credit cards, personal loans etc.
If the economy does not show signs of growth in the coming quarter's, we will see interest rates fall to records level's again. Interest rates are currently at a 4 year low and could approach the 2003 level's.
If you know of anyone who might benefit from meeting with me to discuss buying, selling, or refinancing their loan in the next 3-6 months, please let me know!
Heath Lefort-Personal Financial Advisor
401-461-9987
Mortgage Bankers Association weekly index of mortgage application activity for the week ended January 4, 2008 (Change from the previous week).
Four-week moving averages (change from the previous week):
Trend:Total mortgage demand soared, shaking off the holiday hangover and basking in lower interest rates, registering its first weekly increase in a month.
The purchase index also improved for the first time in a month to its highest level in three weeks.
The refi index which had tumbled 43.7% in just three weeks led the surge with but still fell short of its 2007 high of 2,879.8 for the week ended December 7.
The increases came as the rate for a fixed rate loan fell sharply after three steep weekly increases. At 6.07%, the rate for a 30-year fixed rate loan dropped to its second lowest level since October 2005 (6.03%, had dropped to 5.96% at the beginning of December 2007); the rate for a one-year had risen from 5.46% to 5.53% in the last three weeks of December.
The refi share of all applications jumped to the highest level since March 2004. What it means:
The sharp increase in overall mortgage demand is easy to misread with the noise of holiday shortened weeks, but the near seven percentage point increase in the share represented by refinance applications is the story here.
The jump in refi application activity comes on the heels of a sharp increase in credit card borrowing (in November) reported by the Federal Reserve Tuesday and a decline in personal savings (translation: borrowing) in November, the first since August 2006. The MBA application index still has noise in the background in the form of tighter lending standards which induce multiple applications from borrowers.
Since lenders often look to how applicants handled similar obligations in the past, the applications may not turn into loans with data showing increases in delinquencies in home equity loans and lines of credit. The bottom line remains cautionary for credit card lenders who are often paid off with the proceeds of refinances. That the spike in application activity didn’t come from an increase in purchase applications doesn’t suggest a quick recovery of the housing sector.
The mortgage industry has agreed on a plan to help some struggling borrowers keep their homes, Bush administration officials said Thursday. Elements of the plan include a five-year freeze on interest rates for certain subprime loans, many of which are expected to reset to higher rates in the months ahead. Treasury Secretary Henry Paulson said that the plan involves no government money, and that he expects companies that service loans to abide by guidelines for refinancing and modifying subprime mortgages for able borrowers. Speaking at the White House, President Bush said that the plan was not a bailout for investors.Under the plan, negotiated by the Treasury and White House with representatives from the private sector, borrowers will be able to refinance an existing loan into a new private mortgage or be moved into a loan from the Federal Housing Administration. In 2008 and 2009, about 1.8 million subprime mortgages will reset to higher interest rates, according to Paulson. Many foreclosures are expected to follow. The plan is estimated to help as many as 1.2 million homeowners avoid foreclosure, he commented. "It is in everyone's interest -- homeowner, servicer, investor -- to develop a market-based approach to avoid foreclosures that are preventable," Paulson said at a Thursday afternoon news conference. "The approach announced today is not a silver bullet." He added the administration would continue to work on the problems created by the slump in housing and credit markets. Five-year planThe five-year freeze, Paulson said, would give borrowers a chance "to work through this housing cycle." Speaking to reporters after the announcement, Wells Fargo Home Mortgage Co-President Michael Heid said that it would take "a matter of days" for a borrower to work out new terms on a loan. Servicers are modifying "today," according to Heid, a member of the housing-industry group that worked out the plan. Consumers must reach out and make contact with their servicer or a not-for-profit credit counseling agency to take advantage of Thursday's announcement, he said. The administration, lawmakers and the industry itself have been under intense pressure to aid strapped borrowers. The subprime problem is also beginning to emerge as a campaign 2008 issue, with Democratic presidential candidates trotting out their own plans to help borrowers. On Wednesday, Democratic front-runner Sen. Hillary Clinton said that Wall Street shares the blame for the subprime mortgage crisis and should get behind voluntary proposals to shield working families from a rising tide of foreclosures, or face the prospect of a legislative crackdown. See full story.Democrats want moreCongressional Democrats said they welcomed the plan, but that it was incomplete. "Not having a prepayment-penalty addressed, I think, is a flaw," House Financial Services Committee Chairman Barney Frank, D-Mass., said at a hearing Thursday. "There is much more that still needs to be done, most essentially the funding for nonprofit counselors that the president is threatening to veto," said Sen. Charles Schumer, D-N.Y., the chairman of the Joint Economic Committee.Record third-quarter foreclosuresBefore the administration's announcement, the Mortgage Bankers Association reported that the number of homes in foreclosure rose to a record level in the third quarter, with 1.7% of homes in foreclosure. The number of delinquent mortgage rose to 5.6%. In remarks prepared for the news conference, Comptroller of the Currency John Dugan also said the plan is a "safe and sound practice" for national banks that service mortgages. The administration's plan is a model "best practice" for the industry to address a number of competing interests, he added. "Most important, it constitutes another creative way to allow current borrowers to stay in their homes." The Center for American Progress, a liberal think tank, commented that the plan fails to address the needs of people whose rates have already reset, or creditworthy borrowers with negative equity in their homes. "The administration can and should do more," said Andrew Jakabovics, associate director of the center's economic mobility program. The White House also has proposed allowing cities and states to issue tax-exempt mortgage bonds to refinance existing loans. Bush is calling on Congress to approve the temporary measure quickly.
I want to let everyone know that I'm advising clients how this new law will work. I'm also helping clients get into an FHA or VA loan so they can lock into a low 30yr fixed loan. I am a direct endorsed FHA and VA lender and my expertise is associated with FHA and VA.
You can call me toll free 800-900-1241 ext 0 or you can e-mail me at www.alternativelendinggroup.com . My direct number is 401-461-9987
WASHINGTON (MarketWatch) -- Warning that the housing correction will intensify and slow growth, the Federal Reserve gave the economy another shot Wednesday, cutting short-term interest rates by a quarter-point.The reduction in the federal funds rate to 4.50% is meant to spur the economy through lower borrowing costs. Lower rates should also help Wall Street firms and banks.Stock markets sold off on the news, judging that the Fed could be finished cutting rates as the Federal Open Market Committee returned to a balanced view of the risks to the economy, with inflation a major concern again. The FOMC statement highlighted real risks to growth, but also suggested that the committee members believe they're on top of it. While growth has been solid, "the pace of economic expansion will likely slow in the near-term, partly reflecting the intensification of the housing correction," the Federal Open Market Committee said in a statement. Read the full statement. This rate cut, along with the September rate cut and other recent moves by the Fed, "should help forestall some of the adverse effects on the broader economy" from the disruption of financial markets and "promote moderate growth over time," the statement said.The statement suggests that the Fed "could be on hold for while," said Joe Carson, head of global economic research at Alliance Bernstein. The language of the statement shows the Fed is not contemplating a recession, said Mike Moran, chief economist for Daiwa Securities America. "They see growth moving below potential for a time and gradually moving back," Moran said. The FOMC said some inflation risks remain. Core inflation readings have improved modestly, "but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation," the FOMC said.The committee returned to a balanced risk assessment, judging that the upside risks of inflation "roughly balance" the downside risks to growth. In September, the committee said conditions were in such flux that it couldn't weigh the balance of risks going forward.Moran said the statement gave the central bank "maximum flexibility to cut rates again if financial conditions remain unsettled or if it appears the economy is slowing unduly. At the same time, the statement would allow them to reverse course if inflation flares up."The vote was 9-1, with Kansas City Fed President Thomas Hoenig voting to keep rates steady.Most analysts expected the quarter-point reduction. See full story.It was the second cut in the federal funds lending rate in the past six weeks.In its statement the Fed also said it was cutting the so-called discount rate, what the Fed charges banks for short-term loans, by a quarter point to 5%.Though the economy grew at a 3.9% rate in the third quarter, economists are worried about growth in the fourth quarter and the first part of next year. See full story.The Fed cut rates by a half point only six weeks ago on Sept. 18. At the time, Fed policymakers said the cut was designed "to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."In the weeks that followed, financial markets appeared to believe the Fed would hold rates steady at their two-day meeting this week.But a steady stream of poor economic indicators, coupled with continued financial market strains and the announcements of more than $30 billion in losses and write-downs by Wall Street brokerage firms from their holdings of sophisticated derivative products linked to subprime mortgages, seemed to convince investors that another rate cut was in order.Some analysts said Bernanke gave the clearest hint of a rate cut in his speech in New York mid-month. "The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year," Bernanke said. Read text of Bernanke's speechAlthough the votes at the Fed meetings had been unanimous, offering the veneer of unanimity, some nonvoting regional Fed bank presidents are thought to be wary of too many rate cuts out of a concern about the possibility of triggering inflation. Hoenig joined them on Wednesday, casting a vote to hold rates steady.Several presidents are known to be worried about the so-called "moral-hazard" issue, that the Fed is helping bail out some Wall Street players from their bad bets, thus encouraging more wasteful investments in the future.These presidents showed their dissatisfaction in a relatively obscure way, by voting against a reduction in the Fed's discount rate in mid-September. See full story.In Wednesday's meeting, only six of the 12 regional banks requested a cut in the discount rate, which could show little support for more aggressive action ahead, Moran said.The voting membership of the FOMC is on a rotating basis, with five of the 12 presidents voting in any given year. Economists said the Fed didn't want to go against markets that expected a rate cut. "They didn't want to create any surprises or confusion in financial markets," Moran said. At some point the Fed might have to push against market expectations, but Fed watchers saw no evidence of this in Fed speeches between meetings.
Happy Halloween to Everyone! Thank you for your business and referrals!
WASHINGTON - President George W. Bush today announced that HUD's Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing.
In addition, FHA will implement risk-based premiums that match the borrower's credit profile with the insurance premium they pay-i.e., riskier borrowers pay more. This common-sense, risk-based pricing structure will begin on January 1, 2008.
"Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled," said HUD Secretary Alphonso Jackson. "FHASecure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes."
The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today's cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market.
FHA has recently experienced a substantial increase in the number of conventional borrowers refinancing into FHA products. With FHASecure, it can help even more. The number of these refinancing transactions has tripled since the start of 2006. FHA's transactions are projected to surpass 100,000 loans by the end of the fiscal year. To date, these figures do not include refinances for delinquent borrowers.
The FHASecure initiativewill operate under the same safe guidelines as the FHA's existing mortgage insurance program without affecting FHA's financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA's insurance fund at no cost to the taxpayer.
The risk-based insurance premium structure will further expand FHA's reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA's overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.
FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.
To qualify for FHASecure, eligible homeowners must meet the following five criteria:
1. A history of on-time mortgage payments before the borrower's teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2009;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.
"FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates," said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery. "These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund and ultimately prevent risk to the taxpayer."
FHASecure will also bring much-needed liquidity to the mortgage market. FHA anticipates more lenders will offer FHA-insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. This guarantee makes Ginnie Mae's mortgage-backed securities the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.
Since its inception in 1934, FHA has helped almost 35 million people become homeowners, making it the largest insurer of mortgages in the world. The 109th Congress introduced the Expanding American Homeownership Act in June 2006 which would enable FHA to be a safe option for more underserved low- and moderate-income and minority families so they can achieve the American Dream of homeownership. Today, President Bush also urged Congress to quickly pass the Administration's FHA modernization proposal to help more families in need.
For more information about FHASecure, please just call or e-mail
CHICAGO (MarketWatch) - Mortgage rates dropped this week, with Freddie Mac attributing the fall to market concerns of continued weakness in housing demand.Data released Thursday showed the 30-year fixed-rate mortgage averaging 6.69% for July 20-26, down from the previous week's 6.73% average. The mortgage averaged 6.72% a year ago. The 15-year averaged 6.37%, down slightly from last week's 6.38% but above 6.34% a year ago. The softening rates came after further evidence of sluggish housing demand, Freddie Mac vice president and chief economist, Frank Nothaft, said Thursday. "For example, building permits fell last month to the slowest pace in a decade, and more recent data on June sales of existing home showed a fourth consecutive monthly decline," he said in a news release. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.30%, down from last week's 6.35% average and below 6.35% a year ago. The one-year Treasury-indexed ARM averaged 5.69%, down from last week's 5.72% and below 5.78% a year ago. To obtain the rates, the 30- and 15-year fixed-rate mortgages, along with the five-year ARM, required payment of an average 0.4 point. The one-year ARM required payment of an average 0.5 point. A point is 1% of the total loan amount, charged as prepaid interest.Rates easing from previous highsIncreases in mortgage rates last month may have contributed to the continued sluggishness in housing, Nothaft said."Several factors contributed to the softening in housing markets this spring," Nothaft said. "In addition to the tightening of lending standards earlier this year -- especially on subprime loans -- the 40-basis-point jump in rates on 30-year fixed-rate mortgages in June may have deterred potential buyers." According to a separate survey by the Mortgage Bankers Association, mortgage application volume was down a seasonally adjusted 3.6% last week, compared with the week before. See full story.So far this year, mortgage brokers have been closing fewer non-traditional or subprime loans than they did in 2006, according to a report earlier this week from the National Association of Mortgage Brokers.Subprime loans made up an 11% share of all mortgages offered in April, NAMB said, while in 2006, 13% of mortgage loans were subprime. Thank you for your business!
Heath Lefort
NEW YORK (MarketWatch) -- Treasury prices rose sharply Wednesday, pushing the yield on the benchmark 10-year note below 5%, on renewed concerns over the U.S. subprime mortgage market and after the Federal Reserve Chairman said that core inflation should edge lower.Two Bear Stearns Cos. hedge funds that made big bets in the subprime mortgage market are worth virtually nothing, according to a letter the investment bank sent to clients. Fed Chairman Ben Bernanke told Congress that the situation would likely get worse before getting better. See full story."Subprime jitters and worries of another credit meltdown are keeping yields in check," said Kevin Giddis, managing director of fixed-income at Morgan Keegan.The benchmark 10-year Treasury note ended 10/32 higher at 96 02/32, while its yield $TNX stood at 5.012%, down from 5.077% late Tuesday. Bond prices move inversely to their yields.In intraday trading, the 10-year's yield had dropped as low as 4.991%, the lowest level since July 3.The 30-year bond rallied 19/32 to 94 21/32 with a yield $TYX of 5.103%.On the short end, the 2-year note finished up 3/32 at 100 02/32 with a 4.835% yield.Bond-bullishBernanke, in prepared testimony to the House Financial Services Committee, said that core inflation "should edge a bit lower, on net, over the remainder of this year and next year.""If energy prices level off as currently anticipated, overall inflation should slow to a pace close to that of core inflation in coming quarters," he said. See full story.On growth, the Fed chairman said the economy should expand at a "moderate pace" over the second half of 2007 and "strengthen a bit" next year."In terms of marginal shift in rhetoric, the prepared testimony is bond-bullish," said T.J. Marta, fixed-income strategist at RBC Capital Markets."The statement expressed concern that housing correction might continue longer than expected and weigh on spending," he said.Subprime worriesThe ABX "BBB" 07-1 index, which measures subprime-related bonds, sank to a fresh low amid persistent worries about deteriorating loans in that industry. Following the reports on Bear Stearns, Punk Ziegel & Co. analyst Richard Bove downgraded the top Wall Street firms to sell from market perform, including Goldman Sachs (GS), Lehman Brothers (LEH), Merrill Lynch (MER) and Morgan Stanley (MS). In addition, credit-ratings agency Moody's put the ratings of 13 tranches of eight deals from Bear Stearns on review for possible downgrade. These deals are mostly backed by Alt-A mortgage loans, which are a step higher in quality from subprime loans.Consumer pricesEarlier, government bonds also found support after government reports showed as-expected core consumer prices. U.S. consumer prices increased a moderate 0.2% in June, with falling energy prices offsetting rising food prices, Labor Department data showed. Excluding volatile food and energy prices, the core consumer price index also increased 0.2%. Economists had been expecting the headline CPI to rise 0.1% and the core rate to rise 0.2%. See full story.Separately, the Commerce Department said U.S. housing starts rose in June, beating analysts' expectations, but building permits fell, pointing to a mixed housing picture last month. See full story.Starts of new homes rose by 2.3% to 1.467 million, the quickest pace since April. Building permits, considered a forward-looking housing indicator, sank by 7.5% in June to an annualized pace of 1.406 million. Analysts surveyed by MarketWatch had expecting starts to fall to 1.45 million and permits to drop to 1.48 million.
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