GDP and PCE, Rates May Be Bottoming, CalHFA Suspends All Lending

Rates Affected by Market and Lender Forces
Is it a safe bet to say that, “rates in the short term will be choppy as the market adjusts to all this news, but then slowly trending lower”? Somewhat – but the downside is limited, since short term Treasury rates are already near 0%. Yes, mortgage rates seem to be taking a pause in the high 4’s or low 5’s, and given historical rates should be lower. And there continues to be that pesky problem that in 2008 the darned borrower and property actually have to qualify to make their payments…

And what about price compression? Investors are worried about their recently purchases inventory with rates in the 6’s. Does anyone want to pay a premium for a car that won’t work after it goes off the lot, or a camera that will soon be obsolete, or a mortgage that is refinanced after 3 months? Large investors have their hands full between going back to smaller originators for repurchases and soon-to-be early pay-off penalties.

Do low Treasury rates really matter anyway? Japan had historically low rates, and it took their economy years to come back. Yes, lower rates are better than higher rates, but financial institutions are not going to start lending money because of lower rates. As analysts point out, they will either have to want to lend it, or liquidity will have to come from the US Government, which is what we’re seeing, through the Federal Reserve and Treasury. The Fed can create money by printing it, and the Treasury can borrow money to buy debt. See how that works?

CalHFA Loan Programs Suspended
Low rates have not helped the budget dilemma here in California. CalHFA is suspending (temporarily, we hope) all of their programs, including 30-Year Fixed Mortgage products, for moderate income, low income, “Nonprofits & Affordable Housing Partnership Program (AHPP), Extra Credit Teacher Program (ECTP), California Homebuyer’s Down Payment Assistance Program (CHDAP), Extra Credit Teacher Program (ECTP), and School Facility Fee Down Payment Assistance Program (SFF).” This is the result of the action taken by the Pooled Money Investment Board (PMIB) last week – the PMIB loans money to state agencies to advance program funds which will later be repaid through bond issuances. CalHFA uses a PMIB loan to initially fund its Conventional 30-Year Fixed Mortgage and down payment assistance programs. The recent PMIB action froze all such PMIB loans.

Utah Fastest Growing State
The Census Bureau released state population estimates as of July 1, 2008. Utah is the fastest growing state, with its population climbing by 2.5% in the prior year. It was followed by Arizona, Texas, North Carolina and Colorado. Two states actually lost population: Michigan and Rhode Island.

GMAC Loan Modifications
GMAC defines a restructured loan as, “A mortgage loan in which the terms of the original transaction have been changed resulting in either absolute forgiveness of debt or a restructure of debt through either a modification of the original loan or origination of a new loan.” This can result in forgiveness of a portion of principal and/or interest on either the first or second mortgage, application of a principal curtailment by or on behalf of the investor to simulate principal forgiveness, conversion of any portion of the original mortgage debt to a “soft” subordinate mortgage, or conversion of any portion of the original mortgage debt from secured to unsecured debt. GMAC goes on to say that, “Fannie Mae and Freddie Mac will not purchase or accept delivery of a restructured loan refinance. Therefore, all restructured loans are ineligible for conforming loan financing.” And in addition, “Restructured loans are ineligible for non-conforming loan financing.”

GDP Unchanged for Q3, PCE Down
Now for something completely different – like economic news. Yesterday the treasury auctioned off $38 billion of 2-yr notes. The results were mixed, with a bid-to-cover of 2.13 and with indirect bidders comprising 30.4% of the participation. But nonetheless rates worsened. Today we already had Gross Domestic Product, which was unchanged in Q3, still falling at a 0.5% annual rate. Personal Consumption during the 3rd quarter was -3.8%, and the GDP price index was +3.9% – both near estimates. Still ahead, to give air travelers stuck in airports something to watch, will be the housing figures for November New Home sales in November are expected to show a decline of -4.2% month over month adding to last month’s 5.2% decline which brought the index to a 17-year low. Existing Home sales are expected to have fallen -1.2% in November. After GDP, and pre-housing, we have the 10-yr Treasury at 2.20% and mortgage prices worse than yesterday afternoon by about .250 in price.

Daily Humor
Two guys, one old timer and one young, are pushing their carts around Lowe’s Building Supply when they collide.
The old timer says to the young guy, “Sorry about that. I’m looking for my wife, and I guess I wasn’t paying attention to where I was going.”
The young guy says, “That’s OK. It’s a coincidence. I’m looking for my wife, too. I can’t find her and I’m getting a little desperate.”
The old guy says, “Well, maybe we can help each other. What does your wife look like?”
The young guy says, “Well, she’s 24 yrs old, tall, with long blonde hair, big blue eyes, long legs, big chest, and she’s wearing tight white shorts and a skimpy halter top. What does your wife look like?”
The old timer says, “It doesn’t matter — let’s look for yours.”