Following is a great recap of the market and the mortgage industry as originally distributed by Shane Price with Houston Capital Mortgage
MARKET RECAP - FEBRUARY 18, 2008
Scheduled economic news was scarce last week; actual economic news was another matter. Not surprisingly, the mortgage and housing markets garnered most of the headlines on what was reported.
Fortunately, more help is on the way. Congress passed an economic stimulus plan that raised the maximum loan sizes for some conforming and Federal Housing Administration-insured mortgages. The new conforming limit will vary by metropolitan area. In some places it will remain $417,000; in pricier areas, like
Project Lifeline, a federal government and mortgage-servicer sponsored program for people on the verge of losing their homes, offers additional hope. Project Lifeline is unique in that unlike previous government programs, the benefits won't be confined to borrowers with adjustable rate mortgages.
On the other hand, it will exclude anyone who is currently bankrupt, who hasn't missed more than three months of payments, or who is less than 30 days away from foreclosure. It will also exclude vacant or investment properties.
Economic
|
Release
|
Consensus
|
Analysis
|
Housing Market Index |
Tues. Feb. 19, |
19 |
Important. The index is showing signs of forming a bottom. |
Mortgage Applications |
Wed. Feb. 20, |
None |
Important. Purchase applications continue to improve in a lower-rate environment. |
Consumer Price Index |
Wed. Feb. 20, |
All Goods: 0.3% |
Very Important. A decreasing rate of inflation provides more opportunity for interest-rate cuts. |
Housing Starts |
Wed. Feb. 20, |
996,000 (annualized) |
Important. Housing starts continue to drop, but at a declining rate. |
Federal Reserve FOMC Minutes |
Wed. Feb. 20, |
None |
Important. The minutes are expected to show heightened recession concerns. |
Leading Indicators |
Thurs. Feb. 21, |
0.1% |
Moderately Important. Indicators will support recent data on a slowing rate of economic growth. |
|
Thurs. Feb. 21 |
10.6 |
Moderately Important. Survey is expected to show moderating, but still positive, economic growth. |
KILLING PATIENTS WITH CURES?
When things go wrong, the first response from politicos is to “do something.” Unfortunately, doing something usually means doing something that will only exacerbate the problem. Senator Hillary Clinton's proposal to freeze all subprime mortgages, and possibly all ARMs, at their teaser rates for five years.
Senator Clinton's proposal is good news for people who bought more house than they could afford. But it's bad news for the rest of us: It virtually assures that mortgage funds will dry up and rates will soar. Higher mortgage rates, in turn, will mean still lower home prices, which will mean a spike in the number of mortgagees sitting on negative equity. In short, Senator Clinton's proposal will instigate a viscous downward spiral that could easily decimate the mortgage and housing markets for the next decade.
The fact is that the mortgage industry is actively addressing its problems. The Mortgage Bankers Association reports that “repayment plans and loan modifications were put in place for 869,000 homeowners in the second half of 2007, including 545,0000 subprime borrowers who entered into 395,000 repayment plans and 150,000 loan modifications. Based on 1,446,000 average monthly delinquencies of 60 days or more past due during the second half of 2007, 45.3% received a formal repayment plan.”
The best prescription for what ails us still might be lower rates. Prime 30-year fixed-rate mortgages remain 25 basis points below 6% on average, while 15-year fixed-rate loans hover just above 5%. Additional interest rate cuts by the Federal Reserve will likely push these rates even lower, providing additional relief for a sick housing market.
