U.S. Existing Home Sales Fell in January to 4.49 Million Rate

Feb. 25 (Bloomberg) -- By Courtney Schlisserman

HIGHLIGHTS

Issues of interest:

• National Association of Realtors: Stated purchases fell 5.3 percent to an annual rate of 4.49 million, the fewest since 1997, from 4.74 million in December. The median price dropped 15 percent from a year ago, and distressed properties accounted for 45 percent of all sales.
• Resales: Of single-family homes decreased 4.7 percent to an annual rate of 4.05 million. Sales of condos and co-ops dropped 10 percent to a 440,000 rate. Total sales were down 8.6 percent compared with a year earlier.
• Home Sales: have been falling since 2005 and prices peaked in 2006. The S&P/Case-Shiller home-price index of 20 metropolitan cities was down 18.5 percent in December from a year earlier, a record decline, the group said yesterday.
• RealtyTrac Inc: Stated home foreclosures were up 17.8 percent in January from a year earlier. A total of 274,399 properties got a default or auction notice or were seized by banks, the 10th straight month that foreclosures topped 250,000.
• Fed Chairman Ben S. Bernanke: Stated on 2/24/09 the U.S. economy is in a “severe” contraction, and warned the recession may last into 2010 unless policy makers can stabilize the financial system.

COMMENTS

Another dismal report on the housing front. Get use to it. The housing market ran for years on speculation and on unstable funding practices. It is going to take a number of years for this market to stabilize.

What's a savvy financial novice to do. Right now, my advise is to do nothing. Understand the meaning of patience and timing. Why because:

• The Federal, State, and local laws and taxes our in flux.
• Rising Unemployment.
• Continuation of falling families net worth.
• Home prices have not demonstrated a bottom.

Don't worry about missing the boat, cash is king and will continue to be so for the rest of 2009 plus.

James Monachino

Homeowner Affordability and Stability Plan - Executive Summary

EXECUTIVE SUMMARY - FROM THE PRESS ROOM OF THE DEPT OF TREASURY

February 18, 2009
tg-33

Homeowner Affordability and Stability Plan

Executive Summary

Read the Homeowner Affordability and Stability Plan Fact Sheet HERE
Read Support Under the Homeowner Affordability and Stability Plan: Three Cases HERE

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

• Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
  
  
• Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
  
  
• Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

The Homeowner Affordability and Stability Plan is part of the President's broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:

1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices

· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:

o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today's low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

• Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
  
  
• No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
  
  
• Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
  
  
• Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
  
  
• Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
  
  
  • A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
    
    
  • "Pay for Success" Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive "pay for success" fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
    
    
  • Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
    
    
  • Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
    
    
  • Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
    
    
• Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC's pioneering work. The Guidelines will be used for the Administration's new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans' Affairs and the Department of Agriculture.
  
  
• Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
  
  

  • Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
    
    

  • Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
    
    

  • Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
    
    

  • Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

• Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
  
  
  • Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
    
    
  • Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
    
    
• Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
  
• Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs' retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
  
• Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
  
• No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.
  

OBSERVATIONS:

A work in progress, the arrow is pointing in the right direction with this program. In addition:

Implementation: Knowing how slow the government is on enacting laws, it will be interesting to watch how quickly this ambitious outreach program can be implemented given the complexity.

Agencies Involvement: Freddie Mac and Fannie Mae are a resource that have the institutional reach and capacity to help make this program work. (Good Choice)

What's Not Addressed: Jumbos, underwater housing equity, and the voluntary nature of the law. The point is, this is not a single silver bullet.

Refinancing: Plan will limit homeowners from qualifying if they owe more than 105 percent of their homes value.

U.S. Housing Market: lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes’ worth (according to a Feb. 3 report from Zillow.com).

Clearly this is phase one of a multi-phase program. Stay tune, more to come.


James Monachino

U.S. Jobless Rate Soars as Payrolls Plunge by 598,000 (Update2)

By Shobhana Chandra

Feb. 6 (Bloomberg)

HIGHLIGHTS:

• Unemployment Rate: Rose to 7.6 percent from 7.2 percent in December - the highest level since 1992.
  
• Payrolls Fell: 598,000, the biggest monthly decline since December 1974. Losses spanned almost all industries, from construction and manufacturing to retailing, trucking, media and finance.
  
• James Galbraith: Economics professor at the University of Texas in Austin stated, "We are in the middle of a very severe, a violent, collapse in activity and it could go on for months,” today on Bloomberg television.
  
• Since the Start of the Recession: In December 2007 , 3.57 million of job losses marks the biggest employment slump of any economic contraction in the postwar period.
• Average Work Week: remained at 33.3 hours in January. Average weekly hours worked by production workers fell to 39.8 hours from 39.9 hours, while overtime decreased to 2.9 hours from 3 hours. Average weekly earnings rose by $1.67 to $614.72.
  

Comments

Rising Unemployment Rate: No surprise there. Everyday we hear more and more companies trimming back to adjust to the new economic realities of a deflationary negative feed back loop. The opposite of prosperity, you cut than they cut and like a virus it spreads resulting in the immediate solution becoming part of the big problem.

Where is all the Money? Waiting on the sidelines. Yes, that may be partially true but what about:

• 401k Holders: They have taken a real equity and Dividend /Interest Rate hit regarding payout values.
• Home Owners: How much equity do I have in my home? Less - alot less depending on where you live with no immediate relief in sight.
• De-leveraging and Saving: As the economy tries to right itself we are seeing the de-leveraging of financial institutions and consumers increasing savings. Sounds reasonable, however, the result is less money is available for lending combined with the consumer now trying to build up their savings. Suggesting -- a negative short term implications for the economy as it adjusts to the new dynamics.
  
• Job Losses: Many of those well paying jobs in Real Estate, Banking, Auto, and Financial Services have disappeared and will never come back. A plan B is clearly needed to help bump us all in another direction and slow the free fall.
  

Conclusion

It should be obvious to all of us that we need to take a new direction with fresh faces, ideas, along with a dash of imagination. It will not be easy with full recovery down a long dusty road.

We need to explore and execute innovative solutions to help get people back to work and productive. That will cost us - - no tax cut will generate the depth and breathe of job creation that will be needed.

Finally, fear is quickly becoming our biggest enemy. Folks, we need to try and pull together on this one. We are all on the same economic ocean liner that is sinking, even if you think first class is higher up and you won't get wet - - Please realize that the rip in the bow of this wonderful ship is huge and needs all hands on deck to repair.

James Monachino