Delaying Inevitable Foreclosures, How Much Is Quantitative Easing Priced Into Market?
Delaying Inevitable Foreclosures
President Obama just vetoed a foreclosure-related bill, making it make it more difficult for banks to complete paperwork and speed the foreclosure process, and could give homeowners more time to rework loans. And news broke last Friday that Bank of America would immediately halt foreclosure sales in all 50 states, a development that for the first time impacts California (CA has a nonjudicial foreclosure process). Other large loan servicers have frozen foreclosures “only” in the 23 states that have a “judicial foreclosure” process, citing concerns about how legal documents were processed. And in Houston, Litton Loan Servicing, owned by Goldman Sachs, halted some foreclosures and evictions so it can review its process for handling foreclosures.
One reader wrote, “The borrowers were either making their payments or they weren’t. What difference does a form or a signature, make?” (One could answer that it makes a difference whether or not the bank actually owns the mortgage!) What if there was a nationwide freeze on foreclosure sales and new evictions by all servicers? Most believe that this only delays the inevitable sale of these foreclosed properties, giving the press and the markets something to talk about in the meantime. Whether the servicers clear this up in a few weeks, or a few months, ultimately these foreclosed properties will hit the market some six to twelve months from now and further add to the inventory of unsold homes.
How Much Is Quantitative Easing Priced Into Market?
I have never been good at repeatedly and precisely forecasting rates, but there is little reason to believe that rates are going higher in the near future. Here’s what MBSQuoteline had to say: “The Fed’s recent announcement that it may purchase additional Treasury securities (quantitative easing) to stimulate the economy has magnified the importance of economic news and increased daily volatility. Investors now evaluate each fresh piece of data in terms of its expected impact on Fed policy, and mortgage rates receive an extra benefit from weaker than expected data. In general, weaker economic growth leads to lower future inflation, which is favorable for mortgage rates. In addition, investors now expect higher levels of bond purchases by the Fed after weak data, and the increased demand also would be positive for mortgage rates.”
Minds smarter than mine believe that the relevant question is no longer if or when the Fed is going to launch QE2, but rather what it will look like and what will be the effect on the economy and markets. The FOMC doesn’t meet until November, but the press will be full of news on what traders and economists think. The Fed has made clear that the current level of inflation is not consistent with their mandate, and so the inflation news will be one of the key themes of this week’s data docket.
Rate & Market Update
For less conjecture and something more concrete, the bond markets were closed yesterday, leading one to wonder how investors set their prices, besides conservatively. That aside, going back to Friday, $3.4 billion in MBS’s crossed the wires, and the supply, combined with bonds selling off, resulted in numerous investor price changes and pushed current coupon mortgages worse about .625 in price. There were no scheduled economic announcements yesterday and none today of much consequence. Tomorrow we have some import and export price data, but Thursday things heat up with the Producer Price Index, Jobless Claims, and some trade figures. Friday we have the Consumer Price Index, Retail Sales, and one of the University of Michigan surveys. And let’s not forget the Treasury auctions today, tomorrow, and Thursday. With things pretty quiet, we find the 10-yr down at 2.35% and rate sheet mortgage prices expected better by .125-.250.