Trading activity in the mortgage market during this last business day of February is relatively light. Investors are taking a breather after they were called upon to absorb a record $94 billion of government debt this week. Uncle Sam won't return to the credit markets for another major feeding frenzy until the second week of March.
With market participants growing accustomed to grim economic headlines price action in the mortgage market over the coming week or two will likely be most influenced by trading activity in the stock markets and reaction to headline news - particularly to anything related to the issue of Congressional approval of the proposed law that would allow bankruptcy judges to reduce the financial strain for some struggling borrowers.
Let's look at each of these two mortgage market influences individually.
Should the stock market collapse into one last final leg down (a fairly high probability event in most opinions - probably occurring before the end of March) the flight of capital from stocks to the relative safe haven of Treasury obligations will not only provide a buttress for the massive amount of government debt on the auction block - it should also be supportive of steady to perhaps fractionally lower mortgage interest rates.
Democratic leaders of the House have postponed until next week a vote on a controversial measure to let bankruptcy judges unilaterally reduce mortgage debt for certain borrowers. It appears that influential members of Congress are beginning to see the light - recognizing that giving bankruptcy judges sweeping power to modify home loans could cause mortgage investors to price-in a whole new dimension of risk to their mortgage-backed security purchases. If the risk structure on these investments rises - their prices will fall - and in our world falling prices equal higher mortgage interest rates. This issue is expected to come to vote on the House floor on Tuesday - if it passes - look for mortgage investors to register their strong disapproval by pushing mortgage interest rates higher.
Speaking of next week, the economic calendar offers everything from the Fed's favorite reading of inflation at the consumer level (contained in the Personal Income and Spending report on Monday) to an analysis of the depth of the woes in the labor sector on Friday with the release of the February nonfarm payroll report. Investors have already priced-in expectations for gruesome economic data -- so the only risk is that the news is better-than-expected. While such an event is possible - it is certainly not very probable.
Friday, February 27, 2009
Thursday, February 26, 2009
Thursday, February 26, 2009
A prospective deficit of as much as $1.75 trillion in President Obama's proposed budget for this fiscal year combined with the final auction in this week's record series of government debt sales are generating stiff-headwinds for the prospect of steady to fractionally lower mortgage interest rates in this morning's early going.
Earlier economic reports showing a weaker-than-expected decline in durable goods in January, higher-than-forecast weekly jobless claims figures and sagging New Home Sales last month have once again largely been ignored by mortgage investors as they deal with the massive credit market supply challenges created by Uncle Sam's unprecedented borrowing spree.
Currently, market participants are awaiting the results of the first 7-year note auction since 1993. The Treasury is looking to borrow $22 billion via this security. The success of this auction is clouded with uncertainty because no one knows how eagerly investors will flock to it. This instrument was used heavily as a hedging vehicle by the mortgage industry during its previous life - and it will be interesting to see if mortgage investors choose to use it for that purpose again.
Are people going to re-adapt to the 7-year note with enough immediate enthusiasm to take down $22 billion worth? Quite frankly, a tough one to predict right now. A solid 7-year note auction together with post-auction relief that Uncle Sam is out of the credit market - at least temporarily - will probably be enough to support steady to perhaps ever so fractionally lower interest rates through the end of the week. It is "wait-and-see" time until the 7-year note auction concludes at 1:00 p.m. ET today. Stay Tuned and hoep for the better...
Earlier economic reports showing a weaker-than-expected decline in durable goods in January, higher-than-forecast weekly jobless claims figures and sagging New Home Sales last month have once again largely been ignored by mortgage investors as they deal with the massive credit market supply challenges created by Uncle Sam's unprecedented borrowing spree.
Currently, market participants are awaiting the results of the first 7-year note auction since 1993. The Treasury is looking to borrow $22 billion via this security. The success of this auction is clouded with uncertainty because no one knows how eagerly investors will flock to it. This instrument was used heavily as a hedging vehicle by the mortgage industry during its previous life - and it will be interesting to see if mortgage investors choose to use it for that purpose again.
Are people going to re-adapt to the 7-year note with enough immediate enthusiasm to take down $22 billion worth? Quite frankly, a tough one to predict right now. A solid 7-year note auction together with post-auction relief that Uncle Sam is out of the credit market - at least temporarily - will probably be enough to support steady to perhaps ever so fractionally lower interest rates through the end of the week. It is "wait-and-see" time until the 7-year note auction concludes at 1:00 p.m. ET today. Stay Tuned and hoep for the better...
Wednesday, February 25, 2009
The mortgage market is sagging under the combined weight of this afternoon's Treasury auction of $32 billion of 5-year notes, Fed Chairman Bernanke's continued aversion to suggesting the Fed is any closer to expanding its securities-purchase operations into government debt and investors disappointment that President Obama's address to Congress did not contain more in terms of concrete details regarding his administration's dual objective of stimulating the economy and slashing the federal deficit.
Mortgage investors completely shrugged off this morning's Existing Home Sales report that showed a much larger-than-expected 5.3% decline in the pace of sales last month. Under more "normal" market conditions a decline in the pace of existing home sales would tend to be supportive of steady to slightly lower mortgage interest rates. The current period is obviously anything but normal - and this bit of macro-economic data drew nothing more than a passing glance from most traders.
Continuing with the theme of unexpected weakness in the housing sector the Mortgage Bankers of American reported this morning that their seasonally adjusted index of mortgage applications, a value which includes both purchase and refinance requests, dropped by 15.1% during the week ended February 21st after posting an outsized 45.7% gain the previous week. Purchase applications fell 2.6% during the period while refinance applications sank 19.1%.
Mortgage investors completely shrugged off this morning's Existing Home Sales report that showed a much larger-than-expected 5.3% decline in the pace of sales last month. Under more "normal" market conditions a decline in the pace of existing home sales would tend to be supportive of steady to slightly lower mortgage interest rates. The current period is obviously anything but normal - and this bit of macro-economic data drew nothing more than a passing glance from most traders.
Continuing with the theme of unexpected weakness in the housing sector the Mortgage Bankers of American reported this morning that their seasonally adjusted index of mortgage applications, a value which includes both purchase and refinance requests, dropped by 15.1% during the week ended February 21st after posting an outsized 45.7% gain the previous week. Purchase applications fell 2.6% during the period while refinance applications sank 19.1%.
Tuesday, February 24, 2009
Tuesday, February 24, 2009
Mortgage investors have grown increasingly concerned about the government's rising tide of red ink, which could ultimately lead to sharply rising mortgage interest rates. The counterbalance to these concerns is that investors the world over have few safe harbors in which to park their cash - a condition which will likely create solid demand for this week's trio of Treasury offerings. If this assessment proves accurate, look for mortgage interest rates to hover very near current levels for the week.
Right Now - Fed Chairman Bernanke has completed the prepared text portion of his semi-annual monetary policy testimony and is now heavily engaged in a question and answer session with members of the Senate Banking Committee. In his testimony he told the committee, "If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability - and only in that case, in my view - there is a reasonable prospect that the current recession will end in 2009 and 2010 will be a year of recovery."
Bernanke reiterated his pledge that the Fed will keep short-term interest rates exceptionally low for an extended period of time and renewed his commitment to use "all available tools" to stimulate and revive the financial markets. Credit market investors were slightly disappointed that Mr. Bernanke made no mention of the likelihood the Fed was seriously considering becoming a direct buyer of Treasury obligations. Market participants were not totally surprised by Bernanke's aversion to this particular discussion - since he has tip-toed away from "the Fed as a direct-buyer of Treasury debt" concept in every public address since initially raising the possibility in December.
Right Now - Fed Chairman Bernanke has completed the prepared text portion of his semi-annual monetary policy testimony and is now heavily engaged in a question and answer session with members of the Senate Banking Committee. In his testimony he told the committee, "If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability - and only in that case, in my view - there is a reasonable prospect that the current recession will end in 2009 and 2010 will be a year of recovery."
Bernanke reiterated his pledge that the Fed will keep short-term interest rates exceptionally low for an extended period of time and renewed his commitment to use "all available tools" to stimulate and revive the financial markets. Credit market investors were slightly disappointed that Mr. Bernanke made no mention of the likelihood the Fed was seriously considering becoming a direct buyer of Treasury obligations. Market participants were not totally surprised by Bernanke's aversion to this particular discussion - since he has tip-toed away from "the Fed as a direct-buyer of Treasury debt" concept in every public address since initially raising the possibility in December.
Monday, February 23, 2009
Monday, February 23, 2009
It is going to be a busy week for investors. Uncle Sam will sell a record $94 billion of notes this week -- $40 billion of 2-year notes tomorrow, a record $32 billion of 5-year notes on Wednesday, and a record $22 billion of 7-year notes on Thursday.
Should it become necessary for the government to borrow billions more to nationalize one or more money-center banks - global investors will likely demand that the Treasury pay significantly higher yields for the required capital. The credit markets are already struggling under the weight of Uncle Sam's estimated $2.5 trillion borrowing need for fiscal year 2009.
The banking sector in general and Citigroup specifically will be one of the central focus points for mortgage investors as the week progresses. The Wall Street Journal reported this morning that Citigroup is in talks with the government that may lead to the U.S. converting its preferred shares in the lender into common equity, in an effort to help Citigroup reinforce its capital. Government officials are quick to say they have no interest in nationalizing any bank - but market participants aren't so sure partial state ownership is that much different from complete state ownership. Is it possible to be just a little bit pregnant? I'll keep you posted on this developing story and what its ramifications may have in store of the mortgage market.
Federal Reserve Chairman Ben Bernanke will be on Capitol Hill tomorrow and Wednesday for his semi-annual grilling on monetary policy issues by Congress. The members of the Senate Banking Committee and the House Finance Committee will once again engage in a round of huffing and puffing on a subject few of them know much about - while Bernanke remains unflappable and unlikely to make any new announcement about the Fed's extensive financial rescue efforts. Expect a ton of theater here - but substance will probably be limited if not completely absent.
As I mentioned on Friday - I think it will take an event -- like a major swoon in the stock markets -- to create enough "flight-to-quality" buying interest to support a move to notably lower conforming mortgage interest rates.
A bounce from current DJIA lows into the 8000 to 8400 price range followed by a plunge back through the 7300 level will, in my judgment, set up one final down-leg for the stock market that will likely carry the Dow into the mid- to low-6000's range. Should this event occur (most likely within the next 30-days) look for a large part of the dramatic amount of capital that will flee stocks to find its way into the conforming mortgage-backed securities market -- temporarily creating a environment supportive of steady to fractionally lower rates. There is no need to front-run this projection - if this event actually occurs -- the positive impact on your investors' rate sheets will be abundantly clear.
Should it become necessary for the government to borrow billions more to nationalize one or more money-center banks - global investors will likely demand that the Treasury pay significantly higher yields for the required capital. The credit markets are already struggling under the weight of Uncle Sam's estimated $2.5 trillion borrowing need for fiscal year 2009.
The banking sector in general and Citigroup specifically will be one of the central focus points for mortgage investors as the week progresses. The Wall Street Journal reported this morning that Citigroup is in talks with the government that may lead to the U.S. converting its preferred shares in the lender into common equity, in an effort to help Citigroup reinforce its capital. Government officials are quick to say they have no interest in nationalizing any bank - but market participants aren't so sure partial state ownership is that much different from complete state ownership. Is it possible to be just a little bit pregnant? I'll keep you posted on this developing story and what its ramifications may have in store of the mortgage market.
Federal Reserve Chairman Ben Bernanke will be on Capitol Hill tomorrow and Wednesday for his semi-annual grilling on monetary policy issues by Congress. The members of the Senate Banking Committee and the House Finance Committee will once again engage in a round of huffing and puffing on a subject few of them know much about - while Bernanke remains unflappable and unlikely to make any new announcement about the Fed's extensive financial rescue efforts. Expect a ton of theater here - but substance will probably be limited if not completely absent.
As I mentioned on Friday - I think it will take an event -- like a major swoon in the stock markets -- to create enough "flight-to-quality" buying interest to support a move to notably lower conforming mortgage interest rates.
A bounce from current DJIA lows into the 8000 to 8400 price range followed by a plunge back through the 7300 level will, in my judgment, set up one final down-leg for the stock market that will likely carry the Dow into the mid- to low-6000's range. Should this event occur (most likely within the next 30-days) look for a large part of the dramatic amount of capital that will flee stocks to find its way into the conforming mortgage-backed securities market -- temporarily creating a environment supportive of steady to fractionally lower rates. There is no need to front-run this projection - if this event actually occurs -- the positive impact on your investors' rate sheets will be abundantly clear.
Friday, February 20, 2009
Friday, February 20, 2009
Mortgage investors seem to be dividing into two distinct groups. One group is fretting that disinflation within the economy may soon morph into deflation, a condition which erodes profits and makes debts of all kinds harder to repay. The other group is becoming increasingly concerned that the unprecedented fiscal stimulus and the Fed's policy of buying more assets and pumping money into the financial system will reignite inflation.
I don't think it matters much which group you choose to align yourself with - the 800 pound gorilla in the living room is Uncle Sam - who is currently on track to borrow a record $2.5 trillion dollars in the fiscal year that ends September 30th. That amount of new debt issuance doesn't just exceed the previous record of roughly $650 billion - it obliterates it by multiples.
The old rule of supply and demand states that in a competitive market place once supply exceeds demand (the point of equilibrium for you Econ 101 purist) -- price will fall. Like the law of gravity - the law of supply and demand is unbendable. Granted, there may be short periods of time when the level of supply and demand is being recalibrated during which price may temporarily rise - but ultimately the law must be obeyed. In our world when the supply of treasury obligations exceeds the global demand level prices fall - causing interest rates (including mortgage interest rates) to rise. From this point forward expect rallies to lower mortgage rates to be short-lived -- especially in comparison to the period of time mortgage interest rates will spend trudging to fractionally higher levels.
In my judgment it will take an event - like a major swoon in the stock markets - to create enough "flight-to-quality" buying interest to support a move to the 4.5% 30-year fixed-rate level for conforming mortgages. A bounce from current DJIA lows into the 8000 to 8400 price area followed by a plunge back through the 7300 level will, in my judgment, set up one final down-leg for the stock market into the mid- to low-6000's range. Should this event occur (most likely within the next 30-days) look for a large part of the dramatic amount of capital that will be fleeing stocks to find its way into the conforming mortgage market -- temporarily creating a environment of steady to fractionally lower rates.
Looking ahead to next week the macro-economic data will take a distant back-seat to the record breaking issuance of $94 billion of Treasury obligations in the form of 2-, 5- and 7-year notes. On Tuesday (10:00 a.m. ET), Fed Chairman Bernanke will be on Capitol Hill presenting his semi-annual testimony on monetary policy before the Senate Banking Committee. Investors will listen intently to Mr. Bernanke's comments for any mention of the Fed's possible intervention as a direct buyer in the Treasury markets. If the Chairman continues to remain mum on that issue - Treasury yields will likely rise - dragging mortgage interest rates higher as well.
There are a number of very volatile cross-currents washing through the credit markets right now. Stay Tuned...
I don't think it matters much which group you choose to align yourself with - the 800 pound gorilla in the living room is Uncle Sam - who is currently on track to borrow a record $2.5 trillion dollars in the fiscal year that ends September 30th. That amount of new debt issuance doesn't just exceed the previous record of roughly $650 billion - it obliterates it by multiples.
The old rule of supply and demand states that in a competitive market place once supply exceeds demand (the point of equilibrium for you Econ 101 purist) -- price will fall. Like the law of gravity - the law of supply and demand is unbendable. Granted, there may be short periods of time when the level of supply and demand is being recalibrated during which price may temporarily rise - but ultimately the law must be obeyed. In our world when the supply of treasury obligations exceeds the global demand level prices fall - causing interest rates (including mortgage interest rates) to rise. From this point forward expect rallies to lower mortgage rates to be short-lived -- especially in comparison to the period of time mortgage interest rates will spend trudging to fractionally higher levels.
In my judgment it will take an event - like a major swoon in the stock markets - to create enough "flight-to-quality" buying interest to support a move to the 4.5% 30-year fixed-rate level for conforming mortgages. A bounce from current DJIA lows into the 8000 to 8400 price area followed by a plunge back through the 7300 level will, in my judgment, set up one final down-leg for the stock market into the mid- to low-6000's range. Should this event occur (most likely within the next 30-days) look for a large part of the dramatic amount of capital that will be fleeing stocks to find its way into the conforming mortgage market -- temporarily creating a environment of steady to fractionally lower rates.
Looking ahead to next week the macro-economic data will take a distant back-seat to the record breaking issuance of $94 billion of Treasury obligations in the form of 2-, 5- and 7-year notes. On Tuesday (10:00 a.m. ET), Fed Chairman Bernanke will be on Capitol Hill presenting his semi-annual testimony on monetary policy before the Senate Banking Committee. Investors will listen intently to Mr. Bernanke's comments for any mention of the Fed's possible intervention as a direct buyer in the Treasury markets. If the Chairman continues to remain mum on that issue - Treasury yields will likely rise - dragging mortgage interest rates higher as well.
There are a number of very volatile cross-currents washing through the credit markets right now. Stay Tuned...
Thursday, February 19, 2009
Thursday, February 19, 2009
The credit markets continue to sag as the weight of additional forthcoming government debt supply continues to mount. Yesterday the White House pledged up to $275 billion to help stem another wave of home foreclosures. This new round of debt comes on top of the $787 billion economic stimulus plan that was signed into law on Tuesday.
Debt that generates a meaningful return is one thing - while borrowing efforts that send capital to the same place that a sock goes in the dryer is a completely different financial concept. Global investors are keenly aware of data from the Office of the Comptroller of the Currency shows that more than 53% of loans that were modified in the first-quarter of 2008 went into default again within six months. Nearly 36% of those modified loans went bad within just three months. And on top of all of that -- this loan performance was registered when the economy was in better shape than it is today - with employment at a considerably higher level.
As Reuter's News columnist James Saft points out it is certainly possible that those earlier loan modifications were granted to the wrong people under the wrong circumstances and the new plan will address and resolve all of that - but judging by current price action in this morning's debt markets - most investors remain very skeptical of this new housing initiative from the government. Let's keep our fingers crossed that traders are simply proving to be too pessimistic with respect to the Housing Recovery & Reinvestment Act. It would add insult to injury if it turns out governmental efforts to speed recovery in the housing sector for up to 9 million homeowners -- wound up delaying the recovery by months (if not years) while simultaneously contributing to higher mortgage interest rates for everybody.
Mortgage investors were unpleasantly surprised by a report on the level of inflation at the producer level delivered by the Labor Department this morning. The headline January producer price index rose 0.8% as a slowdown in auto production pushed prices higher. Makers of pharmaceuticals and communication equipment pushed through price increases during the first month of the year even as sales slumped. Excluding the more volatile food and energy components, the so-called core rate of producer inflation rose 0.4%, also more than anticipated. These producer price increases may not stick since the this morning's initial jobless claims report for the week ended February 12th confirmed the employment sector is performing at its worst levels since 1964.
Debt that generates a meaningful return is one thing - while borrowing efforts that send capital to the same place that a sock goes in the dryer is a completely different financial concept. Global investors are keenly aware of data from the Office of the Comptroller of the Currency shows that more than 53% of loans that were modified in the first-quarter of 2008 went into default again within six months. Nearly 36% of those modified loans went bad within just three months. And on top of all of that -- this loan performance was registered when the economy was in better shape than it is today - with employment at a considerably higher level.
As Reuter's News columnist James Saft points out it is certainly possible that those earlier loan modifications were granted to the wrong people under the wrong circumstances and the new plan will address and resolve all of that - but judging by current price action in this morning's debt markets - most investors remain very skeptical of this new housing initiative from the government. Let's keep our fingers crossed that traders are simply proving to be too pessimistic with respect to the Housing Recovery & Reinvestment Act. It would add insult to injury if it turns out governmental efforts to speed recovery in the housing sector for up to 9 million homeowners -- wound up delaying the recovery by months (if not years) while simultaneously contributing to higher mortgage interest rates for everybody.
Mortgage investors were unpleasantly surprised by a report on the level of inflation at the producer level delivered by the Labor Department this morning. The headline January producer price index rose 0.8% as a slowdown in auto production pushed prices higher. Makers of pharmaceuticals and communication equipment pushed through price increases during the first month of the year even as sales slumped. Excluding the more volatile food and energy components, the so-called core rate of producer inflation rose 0.4%, also more than anticipated. These producer price increases may not stick since the this morning's initial jobless claims report for the week ended February 12th confirmed the employment sector is performing at its worst levels since 1964.
Wednesday, February 18, 2009
President Obama is set to unveil his much anticipated Homeowner Affordability and Stability plan today in Phoenix, Arizona. He is expected to pledge a total of $275 billion to help curtail home foreclosures and to build additional support for the residential housing sector of the economy. The plan includes $50 billion from funds already committed along with an additional $75 billion to reduce monthly mortgage payments for an estimated 3 million to 4 million homeowners who are stuck in sub-prime mortgages with skyrocketing interest rates. At part of the overall plan, the Treasury said it will be increasing its capitalization of Fannie Mae and Freddie Mac to $200 billion each from the current level of $100 billion each.
Lenders are less than enthusiastic about the part of the plan where the government says it will to match reductions in interest payments that the lend makes to effectively decrease the borrowers' payments to 31% of the borrowers' monthly income. To bad the term "match" was not replaced by the term "cover." In this case the term "match: indicates lenders will forego a portion of the payment they would have otherwise be entitled to receive. The government's plan to "split-the- ticket" as it were -- has added a new dimension of risk to the forward pricing of mortgage-backed securities - a condition that is serving to put upward pressure on mortgage interest rates.
The following is verbatim an article produced by Bloomberg News that overviews the Homeowner Affordability and Stability plan from the borrower's perspective. I think you may find it a useful guide to help you formulate answers to questions your clients may soon begin asking.
Feb. 18 (Bloomberg) -- The following is a reformatted version of questions and answers on the Obama administration's housing plan released today by the U.S. Treasury in Washington.
Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan
Borrowers Who Are Current on Their Mortgage Are Asking:
1. What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?
Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.
2. I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.
3. How do I know if I am eligible?
Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.
4. I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the
new payment terms on the first mortgage.
5. Will refinancing lower my payments?
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.
6. What are the interest rate and other terms of this refinance offer?
The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
7. Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
8. How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.
9. When can I apply?
Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.
10. What should I do in the meantime?
You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes: . information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources . your most recent income tax return . information about any second mortgage on the house . payments on each of your credit cards if you are carrying balances from month to month, and . payments on other loans such as student loans and car loans.
Borrowers Who Are at Risk of Foreclosure Are Asking:
1. What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?
The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.
2. Do I need to be behind on my mortgage payments to be eligible for a modification?
No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
3. How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.
4. I do not live in the house that secures the mortgage I'd like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?
No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.
5. I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.
6. I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both?
Only the first mortgage is eligible for a modification.
7. I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?
The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender's discretion modifications may include upfront reductions of loan principal.
8. I heard the government was providing a financial incentive to borrowers. Is that true?
Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
9. How much will a modification cost me?
There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.
10. Is my lender required to modify my loan?
No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.
11. I'm already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?
Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.
12. How do I apply for a modification under the Homeowner Affordability and Stability Plan?
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.
13. What should I do in the meantime?
You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes: . information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources . your most recent income tax return . information about any second mortgage on the house . payments on each of your credit cards if you are carrying balances from month to month, and . payments on other loans such as student loans and car loans.
14. My loan is scheduled for foreclosure soon. What should I do?
Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility. We support this effort.
Lenders are less than enthusiastic about the part of the plan where the government says it will to match reductions in interest payments that the lend makes to effectively decrease the borrowers' payments to 31% of the borrowers' monthly income. To bad the term "match" was not replaced by the term "cover." In this case the term "match: indicates lenders will forego a portion of the payment they would have otherwise be entitled to receive. The government's plan to "split-the- ticket" as it were -- has added a new dimension of risk to the forward pricing of mortgage-backed securities - a condition that is serving to put upward pressure on mortgage interest rates.
The following is verbatim an article produced by Bloomberg News that overviews the Homeowner Affordability and Stability plan from the borrower's perspective. I think you may find it a useful guide to help you formulate answers to questions your clients may soon begin asking.
Feb. 18 (Bloomberg) -- The following is a reformatted version of questions and answers on the Obama administration's housing plan released today by the U.S. Treasury in Washington.
Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan
Borrowers Who Are Current on Their Mortgage Are Asking:
1. What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?
Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.
2. I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.
3. How do I know if I am eligible?
Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.
4. I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the
new payment terms on the first mortgage.
5. Will refinancing lower my payments?
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.
6. What are the interest rate and other terms of this refinance offer?
The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
7. Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
8. How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.
9. When can I apply?
Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.
10. What should I do in the meantime?
You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes: . information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources . your most recent income tax return . information about any second mortgage on the house . payments on each of your credit cards if you are carrying balances from month to month, and . payments on other loans such as student loans and car loans.
Borrowers Who Are at Risk of Foreclosure Are Asking:
1. What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?
The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.
2. Do I need to be behind on my mortgage payments to be eligible for a modification?
No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
3. How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.
4. I do not live in the house that secures the mortgage I'd like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?
No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.
5. I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.
6. I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both?
Only the first mortgage is eligible for a modification.
7. I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?
The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender's discretion modifications may include upfront reductions of loan principal.
8. I heard the government was providing a financial incentive to borrowers. Is that true?
Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
9. How much will a modification cost me?
There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.
10. Is my lender required to modify my loan?
No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.
11. I'm already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?
Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.
12. How do I apply for a modification under the Homeowner Affordability and Stability Plan?
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.
13. What should I do in the meantime?
You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes: . information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources . your most recent income tax return . information about any second mortgage on the house . payments on each of your credit cards if you are carrying balances from month to month, and . payments on other loans such as student loans and car loans.
14. My loan is scheduled for foreclosure soon. What should I do?
Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility. We support this effort.
Tuesday, February 17, 2009
Tuesday, February 17, 2009
President Obama will officially sign into law one of the largest pieces of legislation in American history at approximately 1:00 p.m. Mountain Standard Time. (The signing ceremony will be conducted in Denver, Colorado - the place Mr. Obama officially accepted his party's presidential nomination.) The economic stimulus package, a $787 billion assortment of tax breaks and government spending, is designed to re-ignite the engines of economic growth in the United States.
While the impact may not be immediate, this event will likely mark the beginning of the end of the dramatic move to lower mortgage interest rates that began in August of last year. I am not suggesting that mortgage interest rates will soon begin touching double digit levels - but I do want you to be aware that the prospects of a 4.50% 30-year fixed-rate mortgage is rapidly fading from sight.
Consider the following two scenarios: 1) If the Obama administration's stimulus package works as advertised economic growth will begin to accelerate sooner rather than later, driving up the demand for capital -- which in-turn will push-up interest rates of every description (including mortgage interest rates). 2) On the other hand, should the package fall woefully short of providing the necessary financial stimulus to grease the gears of the economy the government will be forced to borrow more money - or print more money - or create some kind of blend of these two revenue generating activities. In any case - returning to the credit markets to borrow massive amounts of additional capital (beyond the gargantuan sums already outstanding) and/or simply printing up enormous piles of new dollars will do nothing but put more upward pressure on mortgage interest rates.
As in the case with prospective homeowners - there is a limit to the amount of outstanding debt they can have in place beyond which lenders will either demand significantly higher interest rates because of the increased risk of default - or if the lender deems the risk of default to be too large -- the loan request will simply be rejected. While Uncle Sam currently enjoys a reputation as the most creditworthy governmental borrower in the world - there is a point where his sovereign credit score will begin to degenerate significantly and with it his ability to easily access relatively cheap amounts of capital.
Should the government chose to simply print cash instead -- each dollar that runs off of the government printing presses will directly reduce the value of each dollar you have in your billfold or purse. As this erosion of the value of the dollar continues suppliers of goods and servicers will find it necessary to increase their prices to offset the declining purchasing power of each dollar in revenue they generate. As you probably already know, Superman lost all his strength when exposed to kryptonite, and so it is with mortgage investors when they are exposed to rising levels of inflation. As inflation pressures rise -- so do mortgage interest rates.
As I mentioned earlier in this commentary I am not suggesting mortgage interest rates will soon begin touching double digit levels - but I do want you to be aware the prospects for a conforming 4.50% 30-year fixed-rate mortgage being a common sight on investor rate sheets is rapidly fading from the realm of realistic expectations
While the impact may not be immediate, this event will likely mark the beginning of the end of the dramatic move to lower mortgage interest rates that began in August of last year. I am not suggesting that mortgage interest rates will soon begin touching double digit levels - but I do want you to be aware that the prospects of a 4.50% 30-year fixed-rate mortgage is rapidly fading from sight.
Consider the following two scenarios: 1) If the Obama administration's stimulus package works as advertised economic growth will begin to accelerate sooner rather than later, driving up the demand for capital -- which in-turn will push-up interest rates of every description (including mortgage interest rates). 2) On the other hand, should the package fall woefully short of providing the necessary financial stimulus to grease the gears of the economy the government will be forced to borrow more money - or print more money - or create some kind of blend of these two revenue generating activities. In any case - returning to the credit markets to borrow massive amounts of additional capital (beyond the gargantuan sums already outstanding) and/or simply printing up enormous piles of new dollars will do nothing but put more upward pressure on mortgage interest rates.
As in the case with prospective homeowners - there is a limit to the amount of outstanding debt they can have in place beyond which lenders will either demand significantly higher interest rates because of the increased risk of default - or if the lender deems the risk of default to be too large -- the loan request will simply be rejected. While Uncle Sam currently enjoys a reputation as the most creditworthy governmental borrower in the world - there is a point where his sovereign credit score will begin to degenerate significantly and with it his ability to easily access relatively cheap amounts of capital.
Should the government chose to simply print cash instead -- each dollar that runs off of the government printing presses will directly reduce the value of each dollar you have in your billfold or purse. As this erosion of the value of the dollar continues suppliers of goods and servicers will find it necessary to increase their prices to offset the declining purchasing power of each dollar in revenue they generate. As you probably already know, Superman lost all his strength when exposed to kryptonite, and so it is with mortgage investors when they are exposed to rising levels of inflation. As inflation pressures rise -- so do mortgage interest rates.
As I mentioned earlier in this commentary I am not suggesting mortgage interest rates will soon begin touching double digit levels - but I do want you to be aware the prospects for a conforming 4.50% 30-year fixed-rate mortgage being a common sight on investor rate sheets is rapidly fading from the realm of realistic expectations
Thursday, February 12, 2009
Thursday, February 12, 2009
As you are probably aware, Congress is expected to pass, as early as tomorrow, a $789 billion stimulus package intended to revive the struggling economy. The stimulus package is split 36% for tax cuts and 64% in spending and other provisions. "Combine this new spending and borrowing it will require with the trillion of dollars still needed for the banking system, and we are about to test the outer limits of our national balance sheet," the Wall Street Journal said in an editorial this morning.
In apparent concert with the assessment of the Wall Street Journal editorial staff, credit market participants are simply treading water as they await the results of the Treasury's auction of $14 billion of 30-year bonds this afternoon.
This event will wrap-up a week of record-setting borrowing by Uncle Sam. Many market participants are hoping that yesterday's relatively firm demand for a $21 billion offering of 10-year notes from the government suggests today's 30-year bond sale will receive equally solid buying interest from the global investment community. Unfortunately there is little evidence to indicate a sharp correlation between 10-year note auction results and that of the 30-year bond.
The surprising 1.0% improvement in the January retail sales figure -- together with the likelihood that Congress will approve a major spending initiative before the week is over - provide reason enough to believe global investors will be hesitant to "bid-up" the price at the government's 30-year bond sale. If this assessment proves accurate, it will be difficult, if not impossible for mortgage interest rates to move notably lower today.
In apparent concert with the assessment of the Wall Street Journal editorial staff, credit market participants are simply treading water as they await the results of the Treasury's auction of $14 billion of 30-year bonds this afternoon.
This event will wrap-up a week of record-setting borrowing by Uncle Sam. Many market participants are hoping that yesterday's relatively firm demand for a $21 billion offering of 10-year notes from the government suggests today's 30-year bond sale will receive equally solid buying interest from the global investment community. Unfortunately there is little evidence to indicate a sharp correlation between 10-year note auction results and that of the 30-year bond.
The surprising 1.0% improvement in the January retail sales figure -- together with the likelihood that Congress will approve a major spending initiative before the week is over - provide reason enough to believe global investors will be hesitant to "bid-up" the price at the government's 30-year bond sale. If this assessment proves accurate, it will be difficult, if not impossible for mortgage interest rates to move notably lower today.
Wednesday, February 11, 2009
Wednesday, February 11, 2009
Mortgage investors are milling around nervously this morning as they await the results of the Treasury Department's record-breaking auction of $21 billion worth of 10-year notes.
This auction is viewed by many as a major litmus test of global investor's appetite for longer-dated government debt. With Uncle Sam's debt burdened (currently estimated at $1.5 to $2.5 trillion in fiscal 2009) expected to escalate as Congress hammers out an economic stimulus package and the Treasury Department and the Federal Reserve tally the cost to rescue the crumbling banking system, solid buying appetite from investors, especially overseas investors is critical if mortgage interest rates are going to remain steady to fractionally lower.
Mortgage investors fret that foreign investors will pare their purchases of longer-dated Treasuries as concerns grow that the Untied States will find it difficult, if not impossible to repay the massive debt burden it has piled up to finance the programs intended to end its year-old recession. If Uncle Sam is forced to raise the yield on his debt obligations to attract the required capital because of these creditor concerns -- you can "take-it-to-the-bank" that mortgage interest rates will likely rise as well.
I have heard some analysts suggest were the yield (interest rate) on 10-year notes to rise - Fed Chairman Bernanke and his band of merry central bankers would ride to the rescue as a direct buyer of Treasury obligations. That idea sounds great on its face - but the money the Fed would require for this purpose would be created by turning on the printing presses. While this strategy would certainly provide the near-term funds the Fed would need to become a major player in the Treasury markets -- it would immediately reduce the value on every dollar you have in your pocket - directly creating significant inflationary pressures for us all down the road.
I think it is telling that Fed Chairman Bernanke said little about buying Treasuries in his testimony to Congress yesterday. My bet is he hopes he and his fellow central bankers will be able to avoid being called upon to employ this "last-ditch" option to hold rates down. Keep your fingers crossed the Fed finds it possible to keep their hands in their pockets at upcoming Treasury auctions.
This auction is viewed by many as a major litmus test of global investor's appetite for longer-dated government debt. With Uncle Sam's debt burdened (currently estimated at $1.5 to $2.5 trillion in fiscal 2009) expected to escalate as Congress hammers out an economic stimulus package and the Treasury Department and the Federal Reserve tally the cost to rescue the crumbling banking system, solid buying appetite from investors, especially overseas investors is critical if mortgage interest rates are going to remain steady to fractionally lower.
Mortgage investors fret that foreign investors will pare their purchases of longer-dated Treasuries as concerns grow that the Untied States will find it difficult, if not impossible to repay the massive debt burden it has piled up to finance the programs intended to end its year-old recession. If Uncle Sam is forced to raise the yield on his debt obligations to attract the required capital because of these creditor concerns -- you can "take-it-to-the-bank" that mortgage interest rates will likely rise as well.
I have heard some analysts suggest were the yield (interest rate) on 10-year notes to rise - Fed Chairman Bernanke and his band of merry central bankers would ride to the rescue as a direct buyer of Treasury obligations. That idea sounds great on its face - but the money the Fed would require for this purpose would be created by turning on the printing presses. While this strategy would certainly provide the near-term funds the Fed would need to become a major player in the Treasury markets -- it would immediately reduce the value on every dollar you have in your pocket - directly creating significant inflationary pressures for us all down the road.
I think it is telling that Fed Chairman Bernanke said little about buying Treasuries in his testimony to Congress yesterday. My bet is he hopes he and his fellow central bankers will be able to avoid being called upon to employ this "last-ditch" option to hold rates down. Keep your fingers crossed the Fed finds it possible to keep their hands in their pockets at upcoming Treasury auctions.
Tuesday, February 10, 2009
Tuesday, February 10, 2009
Mortgage investors have been keenly attuned this morning to Treasury Secretary Timothy Geithner’s unveiling of a revamped rescue plan for the nation’s financial system.
The renamed “Financial Stability Plan” will, among other things, devote $50 billion to try to stem home foreclosures.
In addition, the Treasury Secretary said a public-private investment fund will be established, seeded by government money, to provide a mechanism that will allow banks to clear “toxic” loans from their books so that they may resume lending to small business and consumers.
The legislation includes significant new regulation and disclosure requirements banks will comply with to ensure that tax-payer money is being used to its highest effect. It all sounds good – but mortgage investors will likely remain skeptical until these strategies have been implemented to until there are actual measurable results to consider.
Until the nation’s banking system returns to health – the success of the $800+ billion financial stimulus package currently working its way through Congress will have little chance of success. Without the ability to borrow to invest in new business projects, or continuing education, the purchase of homes, cars and countless other goods and services -- the American consumer will not be able make their vitally important contributions to the revitalization of our economy.
Mortgage investors nervously await the results of this week’s record breaking government borrowing spree. The Treasury is scheduled to borrow $32 billion in the form of three-year notes today (event concludes at 1:00 p.m. ET), followed by $21 billion in 10-year notes tomorrow and concluding with $14 billion of 30-year bonds on Thursday. The Treasury has said it plans to borrow $1.5- to $2.5-trillion in this fiscal year. It is important to note that this estimate does not include the cost of the proposed federal stimulus package on its way from Congress, currently valued in the neighborhood of $800 billion, and the ultimate cost of financial rescue package for the banking system outlined earlier today.
As you might imagine, the United State’s perceived creditworthiness is beginning to be tarnished by the global investment community’s worries about the unprecedented total costs stemming from our bailout programs.
The trend trajectory of mortgage interest rates for the next week or so will largely depend on overseas demand at this week’s three Treasury auctions. If demand is strong -- mortgage interest rates will likely remain steady to fractionally lower -- while poor demand will almost certainly lead to fractionally higher mortgage interest rates before the week is over. I’ll provide an update on the result of each of this week’s Treasury auctions as soon as possible following their conclusion.
The renamed “Financial Stability Plan” will, among other things, devote $50 billion to try to stem home foreclosures.
In addition, the Treasury Secretary said a public-private investment fund will be established, seeded by government money, to provide a mechanism that will allow banks to clear “toxic” loans from their books so that they may resume lending to small business and consumers.
The legislation includes significant new regulation and disclosure requirements banks will comply with to ensure that tax-payer money is being used to its highest effect. It all sounds good – but mortgage investors will likely remain skeptical until these strategies have been implemented to until there are actual measurable results to consider.
Until the nation’s banking system returns to health – the success of the $800+ billion financial stimulus package currently working its way through Congress will have little chance of success. Without the ability to borrow to invest in new business projects, or continuing education, the purchase of homes, cars and countless other goods and services -- the American consumer will not be able make their vitally important contributions to the revitalization of our economy.
Mortgage investors nervously await the results of this week’s record breaking government borrowing spree. The Treasury is scheduled to borrow $32 billion in the form of three-year notes today (event concludes at 1:00 p.m. ET), followed by $21 billion in 10-year notes tomorrow and concluding with $14 billion of 30-year bonds on Thursday. The Treasury has said it plans to borrow $1.5- to $2.5-trillion in this fiscal year. It is important to note that this estimate does not include the cost of the proposed federal stimulus package on its way from Congress, currently valued in the neighborhood of $800 billion, and the ultimate cost of financial rescue package for the banking system outlined earlier today.
As you might imagine, the United State’s perceived creditworthiness is beginning to be tarnished by the global investment community’s worries about the unprecedented total costs stemming from our bailout programs.
The trend trajectory of mortgage interest rates for the next week or so will largely depend on overseas demand at this week’s three Treasury auctions. If demand is strong -- mortgage interest rates will likely remain steady to fractionally lower -- while poor demand will almost certainly lead to fractionally higher mortgage interest rates before the week is over. I’ll provide an update on the result of each of this week’s Treasury auctions as soon as possible following their conclusion.
Monday, February 9, 2009
Monday, Febraury 9, 2009
It will be another day of finger-pointing and political squabbling as the Senate tries again to wrap up efforts to craft a version of a financial rescue package for the nation. Currently, the price tag stands at roughly $827 billion. Some Senators believe this figure represents a value that it is far too high - while others believe the current sum is woefully too small. Let's keep our fingers crossed that calmer, cooler heads prevail to achieve a value that is just right - because once the capital is committed - we sure don't want to wind up going back to the global investment community and ask for more.
International financiers are already beginning to questioning the nation's sovereign creditworthiness - and any sign of further fiscal incompetence on our part will almost certainly lead to notably higher required yields on government debt obligations. If that scenario were to develop -- you can bet that mortgage interest rates will rise as well.
Uncle Sam will be splashing around in the credit markets this week looking to borrow $32 billion in the form of 3-year notes tomorrow followed by $21 billion in the form of 10-year notes on Wednesday and concluding with $14 billion in the form of 30-year bonds on Thursday.
International financiers are already beginning to questioning the nation's sovereign creditworthiness - and any sign of further fiscal incompetence on our part will almost certainly lead to notably higher required yields on government debt obligations. If that scenario were to develop -- you can bet that mortgage interest rates will rise as well.
Uncle Sam will be splashing around in the credit markets this week looking to borrow $32 billion in the form of 3-year notes tomorrow followed by $21 billion in the form of 10-year notes on Wednesday and concluding with $14 billion in the form of 30-year bonds on Thursday.
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