***Weekly Mortgage & Business Update May 14, 2010***
How I see it : I don’t want to sound like an alarmist but what is happening in Europe scares the heck out of me. While there was some short term relief after the IMF and EU committed to a bailout package the enormous European debt load has been increased. Earlier this week the Euro against the dollar sank to a level not seen since before Lehman Bros. collapsed and it is quite evident that the bailout package did not relieve investor concerns. The head of the ECB (similar to Ben Bernanke as head of our Federal Reserve) has warned Europe is facing “severe tensions” and markets are fragile. Those sentiments played out this week as markets in Europe and the U.S. saw sharp declines over concerns about the EU and economy in general albeit with some improvement Friday. Finally, the German parliament approved its portion of the EU/Greek bailout package on Friday.
In a related story the IBD (International Institute for Business Development) reported that government debt will be a major problem for Japan until 2084 and Italy until 2060. It went on to say that the U.S. debt as percentage of GDP will be 60% by 2033 assuming we are deficit free by 2015. The IBD report also said that Germany, Great Britain and France would be at the U.S. level by 2028, 2028 and 2029 respectively. If you have any comments or thoughts please e-mail me at burt@gosfm.com. Finally, if you would like to view any of the articles I have written click on the link http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner.
Interest Rates
The average 30 year fixed rate for a conforming loan was 4.75% at mid week based on a survey of a dozen wholesale lenders in the valley. By the end of the week rates had moved down to around 4.5%. Note that the 10 year Treasury yield declined by almost one quarter point this week which pushed mortgages rates down. For now all of the uncertainty in the world is really helping mortgage rates.
When Rate
This Week 4.84%
Month Ago 5.07%
Year Ago 4.82%
2 Years ago 5.98%
Note that actual market rates vary geographically and by lender, credit score and Loan to Value. Source: Federal Reserve Statistical H.15. http://www.federalreserve.gov/releases/h15/data.htm
Mortgage Industry
• The Treasury Department released its April HAMP (loan modification) report this week. For the month of April 68,000 homeowners were converted to a permanent loan mod bringing the program total to 295,348. This brings the total permanent modifications to 24.6% of the eligible borrowers up from 19.8% in March. Still there were 122,000 trial modifications cancelled in April bring the program total of cancellations to 277,640. Note that there are two new initiatives coming later this year. One encourages servicers to reduce loan balances to 115% of the home’s value and the other will allow qualified borrowers who are current on their mortgage to refinance to 97.75% of the home’s value with a new FHA loan.
Good News
• Housing starts were up 5.8% in April to the highest level in 18 months (Commerce Department).
• CPI (aka core inflation rate) was down .1% in April the first monthly decline in a year. Also, compared to April last year core inflation rose only .9% the smallest year over increase since January 1966.
• U.S. homebuilder confidence in May increased to 22 the highest level since August 2007 (NAHB/Wells Fargo Housing Market Index).
• The Producer Price Index (PPI) declined by .1% in April after an increase of .7% in March (Labor Department).
• Bank of America said that its delinquency on credit cards fell in April to the lowest level since November 2008 to 6.73%. Other large credit card issuers saw their rates decline as well (Bloomberg).
Statistics of Interest/Concern
• The delinquency on U.S. Commercial Mortgage Backed Securities (CMBS) increased to 7.02% in April and was the second biggest increase on record (Moody’s Investor Services-DQT). The value of CMBS loans in need of special servicing increased to $81.7 Billion in first quarter 2010 a new record from $74 Billion in fourth quarter 2009 (Fitch Ratings).
• Housing permits for April were down 11.5% from March (Commerce Department).
• The leading economic indicators index was down .1% in April the first decline since March 2009 (Conference Board).
• Problem banks in the U.S. increased by 10% in the first quarter of 2010 over fourth quarter 2009 and the number of banks insured fell below 8,000 for the first time in 76 years (FDIC).
• The Empire State Index fell from 31.86 in April to 19.1 in May. However, employment grew for the fifth consecutive month to the highest level since 2004 (NY Federal Reserve).
• Household debt was 69% of GDP in 1998 but had increased to 97% of GDP by the end of 2009 (Commerce Department/Federal Reserve).
Foreclosure Headlines
• There are 2.5 million homes in foreclosure today and the number of homes at least one month behind is 5.4 million. Half of the 5.4 million are 90 days behind that is on the verge of foreclosure (Capital Economics).
• Loans in foreclosure or at least 30 days delinquent declined to 14.01% in the first quarter of 2010 compared to 15.02% in fourth quarter 2009. Homes in foreclosure in the first quarter were a record 4.63% up from 3.85% a year earlier.
Jobs Update
• Initial weekly jobless claims increased 25,000 to 471,000 (Labor Department).
• The four week moving average for weekly jobless claims increased by 3,000 to 453,500 (Labor Department).
• Continuing jobless claims fell 40,000 to 4.63 million (Labor Department).
• In April 34 states had a decrease in their unemployment rates a modest improvement from March. Nevada saw its rate hit an all-time high at 13.7%. Michigan had the highest rate at 14.0% down slightly from March (Labor Department).
Key Indicators
Indicator 5/14/10 5/21/10 Change
Dow 10,620 10,193 -427
10 year yield 3.46% 3.23% .23%
Crude oil 71.90 70.24 -1.66
Dollar (vs Euro) 1.2361 1.2579 +.0218
Gold 1232.3 1176.9 -55.4
Source: www.cnbc.com/markets/commodities