March 27th, 2010
Mortgage Bankers Association’s new Concept to Help HomeOwners??
MBA proposes forbearance program
The Mortgage Bankers Association (MBA) says it has developed a concept for a new forbearance program that would allow qualified borrowers who had lost their jobs to remain in their homes while they seek new employment. According to the proposed program, loan servicers would reduce the borrower’s mortgage payment to an affordable amount for up to nine months while the homeowner looked for employment. “The vast majority of new distressed borrowers we are seeing involve the loss of income,” said John A. Courson, MBA’s President and CEO. “This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification.” Loan servicers who participate in this program would reduce monthly payments to an affordable level based on household income, and borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months of losing his or her job at 75 percent of the borrower’s previous salary. The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once reemployed, the borrower would be evaluated for a modification under the Obama Administration’s Home Affordable Modification Program (HAMP). “Recent statistics show that the average unemployed U.S. worker stays unemployed for between six and seven months,” added Courson. “That is a long time for a borrower with a dramatic drop in income to stay current on their mortgage. Further, borrowers with such a precipitous drop in income can’t qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job.”
Mortgage rates to rise?
The Fed has been buying mortgage-backed securities since late 2008. But next month it plans to finish its purchase of $1.25 trillion in mortgages, and that could be bad news. There is wide agreement that the removal of this support will mean higher mortgage rates, which could hit housing prices and sales hard. Some even worry that it could cause the broader economic recovery to stall. The program was the largest single injection of cash into the economy by the Fed during the financial crisis, and it will be the longest-lasting source of funds as well. Even though the Fed intends to stop buying mortgages, few people expect that the central bank will start selling them to private investors any time in the next few years. even if the Fed holds onto the mortgages it has already purchased, the act of no longer buying additional mortgages is likely to raise mortgage rates in the coming weeks.
Experts say a jump of at least a quarter to a half percentage point is likely. San Francisco Federal Reserve President Janet Yellen warned of higher rates in a speech Monday. Fed Chairman Ben Bernanke is likely to take questions about the Fed’s mortgage program when he testifies about economic conditions on Capitol Hill Wednesday and Thursday. The worries about the Fed pulling back support for housing are compounded by the end of up to $8,000 in tax credits for home buyers. To qualify, buyers face an April 30 deadline to sign a sales contract. Dean Baker, co-director of the Center for Economic and Policy Research, argues that the Fed’s program and tax credit for home buyers “ended the free fall in home prices.” But he thinks that the removal of this support could mean that home prices could start to drop by as much as 1% a month again. He also thinks mortgage rates could climb by as much as a percentage point in the coming months.
Fed raises discount rate
The Federal Reserve said yesterday it is raising the rate it charges banks that borrow from the central bank when they run short of funds by a quarter percentage point, or 25 basis points, to 0.75%. The central bank said in a statement it made the move in response to improving financial market conditions. Don’t everyone panic here, because the move is largely symbolic – banks do little borrowing at the discount window and the discount rate has no effect on the more widely watched federal funds rate, which measures the rate banks charge each other for overnight loans. That rate is expected to remain between 0% and 0.25% for the foreseeable future, given the slack in the labor market and the still fragile state of the economy. But raising the discount rate allows Federal Reserve chairman Ben Bernanke to take another small step toward normal monetary policy, after the past two last years of financial firefight. The Fed also shortened the term of some discount window loans and raised the minimum bid in the term auction facilities it uses to supply overnight funds to banks. The central bank said Thursday’s increase should “encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds” and added that it will “assess over time whether further increases in the spread are appropriate.” It added: “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”
Fed raises discount rate
The Federal Reserve said yesterday it is raising the rate it charges banks that borrow from the central bank when they run short of funds by a quarter percentage point, or 25 basis points, to 0.75%. The central bank said in a statement it made the move in response to improving financial market conditions. Don’t everyone panic here, because the move is largely symbolic – banks do little borrowing at the discount window and the discount rate has no effect on the more widely watched federal funds rate, which measures the rate banks charge each other for overnight loans. That rate is expected to remain between 0% and 0.25% for the foreseeable future, given the slack in the labor market and the still fragile state of the economy. But raising the discount rate allows Federal Reserve chairman Ben Bernanke to take another small step toward normal monetary policy, after the past two last years of financial firefight. The Fed also shortened the term of some discount window loans and raised the minimum bid in the term auction facilities it uses to supply overnight funds to banks. The central bank said Thursday’s increase should “encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds” and added that it will “assess over time whether further increases in the spread are appropriate.” It added: “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”
House prices up for the month, down for the year
S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose 1.6 percent in July from June — more than triple the estimate of a 0.5 percent rise found in a recent Reuters poll. The monthly price increases helped the annual rates, with the yearly pace of declines in home prices slowing to a 12.8% drop in the 10-city index and 13.3% downturn in the 20-city index. “These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the Federal First-Time Buyer’s Tax Credit in November, anticipated higher unemployment rates and a possible increase in foreclosures,” said David Blitzer, chairman of the index committee at S&P. Despite the overall improvement, annual rates for all metro areas and the two composites remain in negative territory, with 14 of the 20 metro areas and both composites in double digits, S&P said.
Tax credit lures nearly half of all first-time buyers
According to a survey conducted by Harris Interactive on behalf of Zillow.com, 18% of prospective first-time homebuyers said extending the credit from Dec. 1, 2009 to Nov. 30, 2010 would be the “primary influence” in their decision to purchase a home. An additional 25% said it would be a “significant influence,” 27% said it would have “some influence,” and 31% said it would have “no influence.” Zillow projects 1.86m homebuyers stand to take advantage of the program if it is extended, and if all potential buyers took the full tax credit, extending the program could cost $14.86bn. Zillow.com chief economist Stan Humphries said of all homebuyers expected under the 12-month extension through 2010, only one in five homebuyers will enter the market specifically because of the extended tax credit. In other words, 334,000 mortgages will open because of the tax credit extension. “While 334,000 may seem like a small number relative to the total number of homebuyers who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year,” Humphries said.
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