When Will Housing & Rate Markets Come Back?

It was one year ago today that First Magnus threw in the towel. Hopefully all those folks have landed on their feet, either through StoneWater Mortgage or other lenders…

“I’m a vegetarian not because I love animals, but because I hate plants.” Can’t investment banks just get along? Goldman Sachs Group was downgraded to “hold” from “buy” by a Deutsche Bank analyst, who said Goldman was not immune to capital market pressures, especially given its exposure to weaker European growth. This resulted in Goldman Sachs downgrading Morgan Stanley, due to their exposure to global credit concerns and not having casual Friday’s. An analyst with Morgan quickly issued a downgrade of Lehman Brothers, who was hoping to stay above the fray. Morgan said that they were downgrading Lehman due to exposure to the housing market and the great stock options they’ve had. At that point Lehman threw in the towel and decided to lash out against Barclay’s Capital, who they said was, “over-leveraged in a tight credit market”. Barclays then issued a press release claiming that they were downgrading Cantor Fitzgerald due to “questionable hiring practices and offering free trading desk lunches to lure Barclays’ employees away”. With no news, I figured I’d make some up…

Everyone asks everyone else, “When is the market going to come back?” First, one has to specify which market: the “interest rate market” or the “housing market”? Of course they are linked, but what difference do rates make if your borrower or the property can’t qualify? As we all know, the market for securitization, through which mortgages (and other debt) are packaged and sold as securities, is stuck in the mud and almost totally dependent on government support. Investors feel cheated by the rating agencies, investment banks, shady originators, and by borrowers who stretched the truth. Unfortunately bond investors first stopped buying private home mortgage deals, have stopped buying commercial mortgages, and now are nervous about credit card & auto debt. By some estimates, the securitization of debt, which helps the flow of capital, is 10% of where it was a year ago!

Maybe this will help. SIFMA (The Securities Industry and Financial Markets Association) ok’d pools containing higher balance loans as TBA-Eligible, and therefore pools may contain up to 10% of higher balance loans. In theory, this will help the overall liquidity of the mortgage securitization process, which, once again in theory, should help rates of high-balance conforming loans. Newly originated loans, to borrowers in high cost areas as defined in the Housing and Economic Recovery Act of 2008, will qualify for incorporation into To-Be-Announced (TBA) eligible mortgage-backed securities (MBS). SIFMA’s recommendation comes on the heels of the passage of H.R. 3221 which permanently increased the loan limits for high cost areas, up to a maximum of $625,550.

The economic news out this morning has helped the markets – the 10-yr is down into the mid-3.80’s, and 30-yr mortgage prices are roughly .250 better than yesterday afternoon. Let’s hope it holds on a summer Friday! The Federal Reserve reported that U.S. industrial production was +0.2% in July, boosted by the best gain in manufacturing output in 10 months. Interestingly, the market has improved in spite of July’s production increase beating forecasts. At least businesses are utilizing their capacity to a greater degree: businesses ran at 79.9% of maximum operating capacity in July, slightly ahead of the 79.8 percent rate they operated at in June. Later on we’ll have the “Mid-Aug Reuters/University of Michigan Sentiment Index – not exactly a market moving number. Looking ahead to next week, Monday & Wednesday there is no news, but Tuesday we have the Producer Pricing Index and Housing starts.

Thank you Nick W –
A man and a woman who have never met before find themselves in the same sleeping carriage of a train. After the initial embarrassment, they both manage to get to sleep; the woman on the top bunk, the man on the lower.
In the middle of the night the woman leans over and says, “I’m sorry to bother you, but I’m awfully cold and I was wondering if you could possibly pass me another blanket.”
The man leans out and with a glint in his eye said “I’ve got a better idea … let’s pretend we’re married.”
“Why not,” giggles the woman.
“Good,” he replies. “Get your own blanket.”