Somali Pirates Apply For TARP Funds, Oil 3-yr Low, Mortgage and LIBOR Rates Drop, Loan Modification Update
These are exciting times! This story just came across the news wires:
*SOMALIAN PIRATES APPLY TO BECOME BANK TO ACCESS TARP
*PAULSON: TARP PIRATE EQUITY IS AN `INVESTMENT,’ WILL PAY OFF
*KASHKARI SAYS `SOMALI PIRATES ARE ‘FUNDAMENTALLY SOUND’
*Moody’s upgrade Somali Pirates to AAA
*HUD SAYS SOMALI DHOW FORECLOSURE PROGRAM HAD `VERY LOW’ PARTICIPATION
*SOMALI PIRATES IN DISCUSSION TO ACQUIRE CITIBANK
*FED OFFICIALS: AGGRESSIVE EASING WOULD CUT SOMALI PIRATE RISK
*FED AGREED OCT. 29 TO TAKE `WHATEVER STEPS’ NEEDED FOR SOMALI PIRATES
Oil At 3 Year Lows
Speaking of foreign things, crude oil hit its lowest level since May 2005, hitting $50/barrel. And apparently $2/gallon gas is popping up in various parts of the US. Oil has fallen $100 per barrel from its July record as the world economic crisis reduced global demand growth to its weakest in 23 years. This is exciting news for anyone with a car or a heating bill, not such good news for those hoping for widespread public support for alternative energy sources.
Fannie/Freddie Halt Foreclosures
It was probably only a matter of time before Freddie Mac & Fannie Mae temporarily halted foreclosure sales and evictions. Fannie Mae, for example, issued Lender Letter 04-08 announcing that they are “halting all foreclosure sales on occupied single-family properties that are scheduled to occur from November 26, 2008 through January 9, 2009. This temporary halt also applies to eviction lockouts of occupied single-family properties.” Fannie & Freddie are working with their regulator and conservator, FHFA, to implement their streamlined loan modification program by December 15, 2008.
ING’s New Appraisal Policy
Yesterday I mentioned the current developments in appraisals. ING announced that they are now only accepting appraisals completed by certified appraisers. “Appraisals completed by trainee or licensed appraisers are acceptable only if also signed by a certified appraiser who has indicated on the appraisal report that he/she has inspected both the interior and exterior of the property.”
Goldman Sachs Downgrades Economic Outlook
How about this economy? Goldman recently marked down their forecasts for US real GDP in response to “continuing signs of falling domestic and foreign demand, labor market deterioration, renewed tightening in financial conditions, and an apparent impasse in fiscal policy pending the transfer of power to the Obama administration in late January.” They bearishly expect the rate of unemployment to hit 9% by the fourth quarter of 2009, real GDP to fall at a 5% annual rate in the current quarter with more declines ahead. That all means lower rates, right? Well, at least Treasury rates…
Mortgage and LIBOR Rates Drop on Weak Economic News
Yesterday’s market certainly bears that out. Jobless Claims were the highest since 1992, the four-week average of new claims, which aims to smooth volatility in the data, rose 15,750 to 506,500, the highest since January 1983. The Philadelphia Fed Factory Index fell to its lowest level since 1990. Leading Economic Indicators dropped .8% in October. Even the Fed minutes from the last meeting indicated that they were open to more rate cuts, and some officials expected that the economic weakness “could persist for some time.” Yesterday yields plummeted. 10-year note yields touched the lowest yield since 2003. LIBOR, a good indicator of banks’ willingness to lend to each other, continues to improve, with the one-month Libor at 1.41% Wednesday. Stocks have hit a 5-year low, basically wiping out the recent bull market gains.
Anyone watching the bond market yesterday just shook their head. For Treasuries, the 5-year was better in price by more than .5, the 10-year was better by over 3 points, and the 30-year was better by 3.5 points. What did mortgages do? Zilch. Treasuries appear to be the only place investors are comfortable placing bets right now. This morning the 10-yr yield is back up to 3.16%, and mortgages are…about unchanged! This is a total “de-coupling”–meaning that there is no correlation right now between Treasury bond yields and mortgage bond yields, the latter being what mortgage rates are tied to. There are no significant economic reports scheduled to be released today but several Fed officials are speaking. And watching the equities markets.
Update on Loan Modifications
Have you had your servicer cut your mortgage principal yet? Some mortgage companies are rumored to be cutting the amount that borrowers owe, deciding that a permanent cut in the loan balance may pay off if that helps teetering borrowers avoid foreclosure. A recent study by Credit Suisse found that roughly 12% of Ocwen borrowers who had their loan balances reduced in April were at least 60 days past due five months later. In comparison, the default rate on less-aggressive loan modifications was 22% or more. Loan-principal reductions might be more effective than other strategies partly because borrowers are likely to work harder to stay current on their loans if they aren’t underwater.
Update on Conforming Loan Limits
Yes, FHFA has announced that the conforming loan limit for one-unit properties will remain $417,000 for most areas, with specified higher limits for certain cities and counties, to be 115% of local median house prices and cannot exceed 150 percent of the standard limit, which is $625,500 for one-unit properties in 2009. Most, if not all, investors plan to phase out the “Jumbo-Conforming” mortgage products and replace with the “High-Balance” during December. What kind of loan fits into the eligibility criteria for the conforming high-balance loan features? Most are saying, “One- to four-unit properties, maximum loan-to-value (LTV) ratio of 90% for Purchase & Rate/Term Refinance transactions; Flexible mortgages and manufactured homes; MyCommunityMortgage, maximum LTV of 75% for Purchase or Rate/Term Refinance transaction with 2-unit principal residence; Cash-out refinance of 1- or 2-unit principal residence and Purchase of 2-unit investment properties, maximum LTV of 65% for cash out refinance transactions that are manufactured home properties. And of course there are corresponding pricing hits, which are generally investor specific.
Daily Humor
A farmer had five female pigs. Times were hard, so he decided to take them to the county fair and sell them. At the fair, he met another farmer who owned five male pigs. After talking a bit, they decided to mate the pigs and split everything 50/50. The farmers lived sixty miles apart. So they agreed to drive thirty miles each and find a field in which to let the pigs mate.
The first morning, the farmer with the female pigs got up at 5 AM, loaded the pigs into the family station wagon, which was the only vehicle he had, and drove the thirty miles.
While the pigs were mating, he asked the other farmer, “How will I know if they are pregnant?”
The other farmer replied, “If they’re lying in the grass in the morning, they’re pregnant. If they’re in the mud, they’re not.”
The next morning the pigs were rolling in the mud. So he hosed them off, loaded them into the family station wagon again, and proceeded to try again. This process continued each morning for more than a week.
The next morning he was too tired to get out of bed. He called to his wife, “Honey, please look outside and tell me whether the pigs are in the mud or in the grass.”
“Neither”, yelled his wife, “they’re in the station wagon. Four are in the back seat and one of them is in the front seat honking the horn.”