What are these guys at Barclays thinking?

Okay, you recall the chart I put up the other day about increasing delinquencies in Fannie’s portfolio?

And you recall the fact that Fannie Mae recently rolled out new guidelines that tightened down their underwriting guidelines (the memo took 20 pages).

And you know that FHA recently announced that they intend to go to Congress by the end of January with rules and changes to bring them back within compliance (that’s a fancy way of saying that they need a LOT more cash).

Oh and on Christmas Eve, the Treasury pulls the Thursday night massacre and essentially hands their checkbook to Fannie and Freddie and said, “Here, take how much you need so that you can stay above water.”

And now Barclays says that in the 2nd quarter of 2010 we’re going to see credit restrictions easing on mortgages?   How is that going to happen?

Oh, it does mention that there is a substantial portion of the population with low loan to value and good credit scores who aren’t being taken care of.    A couple of responses to that:

• In certain areas of the country, prices have fallen up to 50%.    So, it takes a LOT of equity for someone to still have a LOT of equity in their house.
• If you know someone who has a good chunk of equity in their house and needs a mortgage but isn’t getting taken care of, I’ve got two items of information I’d like you to pass on to them.   My phone number is (616) 292-7559 and my e-mail address is tvanderwell@straighttalkaboutmortgages.com.   I’d love to talk to them about how I can help them out.

Have a good day!

Tom Vanderwell

Origination Funding May Increase as Credit Restrictions Ease in 2Q10, Analysts Predict : HousingWire

A recent set of research focusing on 2010 strategies for investors of agency mortgage-backed securities (MBS) by analysts at Barclays Capital finds that credit availability for mortgage originations may increase in the next six to 12 months.

However, the situation will remain tight in the next three to six months, they add, as the market grapples with ongoing risk aversion sentiments, loan repurchases stabilization and new regulatory procedures that will need this time to take hold.

“In particular, in H210, there could be a meaningful extension of conventional credit to currently under-served segments,” write the analysts in their Agency MBS Outlook 2010, such as “the substantial population of borrowers with low LTV but only mid-range FICOs (700-740).”

Technorati Tags: Mortgage Market, Mortgage Rates, Housing Wire, Barclays

More on Fannie, Freddie and the Christmas Eve “Checkbook”

Tim Duy has a very solid explanation of what happened with Fannie and Freddie over the Christmas holiday when it gave them an open checkbook.   A couple of “points” from his article:

• After December 31, they would have had to get Congressional approval.    That would have been messy at best and they didn’t want to do that.
• They expect the financial reports from Fannie and Freddie to continue to be bad for quite some time.
• Without doing this, the markets perception of Fannie and Freddie would have been “shakier” than it already is.   That would have caused the likelihood of increased rates due to fear of default by the two entities.    

So, the losses continue and continue to climb and the government continues to throw more money at it.    Doesn’t seem to be making things better yet, even if it is slowing down how “less bad” things are.

Tom Vanderwell

Tim Duy’s Fed Watch: Why Christmas Eve?

In short, there are plenty of ulterior motives for Treasury’s expansion of the Mae and Mac bailouts. My favorite is the desire to expand the ability of the GSEs to absorb principle reductions for housing modifications. But the simplest explanation is likely the correct one – the financial damage to the GSEs continues virtually unabated, and the Treasury simply needs to make explicit what was implicit: Mae and Mac are backed by the US government’s full faith and credit, regardless of the level of losses in those institutions.

Technorati Tags: Fannie Mae, Freddie Mac

Jobs, Jobs and More Jobs

I got this chart from Calculated Risk (my favorite chart master).    It shows the relationship between house prices and the unemployment rate over the last years.   A couple of points to make about this chart:

• In the past, there has been a “general trend” linking unemployment and house prices.
• The current “bubble” shows that almost exactly when unemployment started rising is when house prices started falling.

Now a case could be made for the “chicken and the egg” question (which came first – a drop in house prices or an increase in unemployment?)   But to me, it’s pretty clear that the unemployment is the driving force in the equation.   Why?   It’s pretty simple – if you don’t have a job, it’s pretty hard to make your mortgage payments.   If you can’t make your payments, you end up either selling your house or the bank ends up owning it.   An increase in inventory pushes prices down.

So, what do we need in order to turn the housing market around?   Do we need more artificial tax credits and unbelievably low interest rates?   Nope.   What we need is jobs.   Plain and simple, we need jobs that people can feel comfortable with and that allow them to keep making their payments and to keep living their lives.

That will solve the housing problems and stabilize house prices, not at the inflated “bubble” prices but at a price that is in line with current wages.

What do you think?

Tom Vanderwell

Technorati Tags: House Prices, Unemployment

Munchin’ on the Numbers

12-30-09

MUNCHIN’ ON THE NUMBERS

So, finally the last post of the MUNCHIN’ for the year. It has been a very quiet holiday, overall, but if you will review the last seven or eight MUNCHIN’s you will see that there were several very important financial events to hit the street, top of the list of which is the Fanny and Freddy bottomless pit of money that was opened by the Administration on Christmas Eve. This one will have long range impact, just wait and see. I hope it is not as difficult a corner to be in as it seems to me to be at the moment. Not a good development.

But, to the other closing comments for the year. It saw a terrible March low, then one of the most dynamic rallies in history – ranking with the top five ever, as I see it – and our form of government took a decidedly less capitalistic turn. Seems that we will have to get used to investors being demonized, although they are the ones that create jobs. And those that speak out will have to have a thicker skin, it appears. And the taxes you will be paying, yeah even the “middle class,” will be higher by a good measure come next New Years Eve, if Washington continues on its current course.

These observations here are not political, but monetary. I have lived in a capitalistic country all my life. That seems to be changing. I see that the stock market is slowly changing the way it responded to the new way of doing things. That concerns me a great deal. My sincere hope is that somewhere along the way we see less animosity toward the risk taking, investing public and a more balanced approach to regulations that might otherwise curb growth of investment opportunities. The balance is there somewhere. I just hope 2010 proves we can find it.

So, here is to your having a prosperous and happy 2010 and may all your good wishes come true. My goal is still the S&P 1220-40 (about Dow 11,500 or so) and hope that the bonds move back above their Super Chart Keyline, soon. Lastly, buy gold, buy gold, buy gold. In 2010, it may see a big move higher unless, somehow, we get our national deficit under control or demonstrate that we, as a country, are making credible efforts to do so.

So, I’ll be back next year (only get to say that once a year, you know) with a new web site, new ways to use the Keyline to make a profit, and some daily gab that will help keep you abreast of “what is going on out there!” Truly hope your year was a profitable one. Will be back Monday, bright eyed and bushy tailed, Lord willin’ and the creek don’t rise.

NEED SOMETHING TO TALK ABOUT TONIGHT?

SIX MAJOR IMPACTS ON THE MARKET TODAY

1. Time Warner made an 11^th hour bid to not lose all the Fox cable shows. Late in the day. Hope it works.

2. Dollar rises to a 3 month high, as more carry trade investors head for the Yen. Blunts year end trading.

3. Oil price closes to within $.70 of $80 a barrel, as cold weather closes in on U.S major cities.

4. Options trading in the U.S. set a new record of over 3.5 billion contracts in 2009. WOW!

5. Most treasury dealers say that 2010 will see higher long term bond yields, lower bond prices. I agree.

6. Oh, yeah. Chicago PMI rose 3^rd month in row. Next ISM report to follow? Ho Hum. Another report.

#6 is one I don’t want to slough off too easily, but where is the employment improvement that these numbers should be improving? Until we see that, these are just numbers. No help at all. And if you have Time Warner cable – like I do – you may not see some of your favorite shows unless Time decided to cave in and pay a higher price for shows that EVERYONE likes. Next year my cable bill is clearly going up – your too likely. Ugh! And #5 should be good news for the seniors and bad news for those that pay interest on loans – like the U.S. on its debt. Serious problem. Hummmmm.

THE NUMBERS SECTION

DAILY CHANGES DAILY WEEKLY

Closes as of Wed. 12-30-09 CHANGE (cash) KEYLINE# ABV/BLW

DOW INDU. 10,548.51 +3.10 points 9,846.18 ABV +702.33

S&P 1,126.42 +0.23 points 1,059.95 ABV +66.47

30 YR BONDS 115 26/32 +11/32 ticks 116 25/32 BLW -1 11/32

NASDAQ 2,291.28 +2.88 points 2,107.45 ABV +183.83

GOLD $1,092.10 -5.30 $932.26 ABV +$165.01

OIL $79.31 +$0.62 $84.70 BLW -5.39

DOLLAR INDEX 77.90 +$.04 79.75 BLW -1.85

COPPER $3.3415 +$0380 $2.6670 ABV +.6745

DOW DAILY PRICE RANGE 45.05 points

S&P DAILY PRICE RANGE 4.8 points (really, really low!)

EOD BOND YIELDS 1 YR. 0.41% -.012 10 YR. 3.79% -.010 30 YR. 4.61% -.026

Note: All closes at 4pm using continuous cash contract results

*The name Super Chart Keyline is a registered Trademark of Max Whitmore.

Well, of course they do….

Okay, call me Captain Obvious, but this doesn’t surprise me at all.   Let me lay it out:

• TARP cost taxpayers $787 Billion (or it will eventually).
• There was a huge public backlash and anti-banker sentiment was running rampant during the time that this was put into place.
• The rules regarding TARP cost bank executives (aka bankers many levels up the food chain from me) a LOT of money because of salary caps and bonus caps.

So, of course the majority of them are going to say that it didn’t have a positive impact.   It cost the bankers money, cost them public prestige and made them “not liked” by people.    Of course they don’t like it.

The second part of this is a similar type of statement.    Let me explain:

• As part of the banking crisis last year, the FDIC increased the insurance on deposit accounts to $250,000, from $100,000.
• They did so because many people were concerned (and rightly so) about their banks.
• The banking executives said, “We think that was a very good thing to do!”   

Well, why would they say that?    A couple of potential reasons:

• By increasing the limit, it kept their clients from moving their money elsewhere.
• That made these executives’ banks more profitable.
• That made the bonuses that they could get larger.

Unexpected?   Nope.    But you need to ask yourself the questions that you didn’t know you should ask.   It puts a different spin on things.

Tom Vanderwell

Only 12% of Bank Execs Think TARP Leaves Positive Impact : HousingWire || financial news for the mortgage market

While larger financial institutions complete full repayment of the Troubled Asset Relief Program (TARP), as is the case with the $45bn repaid last week by Citi (C: 3.31 -1.78%) and Wells Fargo (WFC: 26.6101 -0.26%), a bank survey completed by the Bank Administration Institute (BAI) claims only 12% of respondents feel the program positively impacted their operations.

The BAI & Finacle Bank Executive Index tracked the opinion of banking executives from the top 100 financial institutions in the United States. The executives, who staff commercial and savings banks, as well as credit unions, filled out an online survey regarding questions on the overall health of the economy as well as factors that improve customer satisfaction.

While respondents feel negative towards TARP, 87% of those surveyed said the government’s action to raise FDIC insurance to $250,000 helped drive confidence in consumer bank deposits.

Technorati Tags: Markets, Banks, FDIC

Are Houses Finally “Cheap Enough?”

I’ve seen quite a bit lately going out on the web and other places that is saying basically:

• Houses have never been cheaper!
• Mortgage Rates have never been lower!
• So it’s a great time to buy a house!

I think it’s necessary to take a look at what’s going on and the facts behind the numbers to dispel some myths and make some solid decisions about things.    Let’s take a look at a couple of charts that Calculated Risk had in their recent article about whether homes are cheap enough now…….

Look at the price to median household income numbers and you can see that it’s been fluctuating between 1 and 1.1 on a national basis from 1987 to 2001.   It then started the increase that spiraled out of control until 2007 when the bubble popped.     Where is it at as of the 3rd quarter of 2009?   It appears to be on it’s way back up and its higher than it has been any time in the last 20 years.    Hmmm, are prices as cheap as they should and need to be?

This chart shows the ration between house prices and “owner’s equivalent rent.”   Owner’s Equivalent Rent can best (and most simply) be described as the cost to rent compared to owning a comparable property.

Guess what?   If you look at the last 22 years, the cost compared to rent is higher than any time prior to the current “bubble” that has burst.   So, are houses cheap enough?

One of the things that a lot of mortgage lenders and Realtors will tell you is, “buy it now while interest rates are low!”    Well, a couple of thoughts on that:

• Let’s say that you decide you can afford to spend $1,000 per month on a mortgage (plus taxes and insurance).    In today’s market, that gets you a $184,000 (round numbers) in a mortgage.    So, you go out and buy a house based on those numbers and then 7 years from now, decide to sell.    Well, along comes someone similar to what you were at  7 years earlier and they are comfortable with a $1200 payment.    So, they should be able to buy your house right?   Well, let’s say that interest rates, rather than being at 5.25%, are at 9.25%.   That means that rather than being able to afford $184,000 for a mortgage, they can afford $145,000.     How are they going to make up that difference?    So, from a long term standpoint, mortgage rates that are at historic lows make the market more affordable now, but what does it do to those buyers when they attempt to sell in a higher rate market?
• I have a certain friend out in California (and he knows who he is) who is going to come back and say two things in response to this post:    1) These graphs only show the last 22 years.     What would the difference be if you looked at the last 50 or 100 years?     The answer to that is, “I don’t know, but I expect that the trend would be the same.”  2) Real estate is local.    That’s absolutely true as well, but I believe that the overall trend would show the same, though maybe on varying degrees, throughout the country.

So, tell me.   Are houses “cheap enough?”   If not, where do you think they’ll go from here?

Tom Vanderwell

Technorati Tags: Housing, Price to Rent Ratio

Since when did $3.5 Billion become “no big deal?”

The announcement came out that the Treasury is going to be giving $3,500,000,000 to GMAC.    It’s pretty much being treated as a non-event in the markets.  

So what does this tell me?   A couple of things:

• $1 Billion sure ain’t what it used to be.
• If the government thinks that they need to give any additional funding to a mortgage company, that tells me that the government doesn’t think this is done yet.

I’ll have more as time goes on.

Tom Vanderwell

Treasury plans to inject around $3.5 billion into GMAC | detnews.com | The Detroit News

The Treasury Department plans to announce as early Wednesday afternoon that it will give GMAC Inc. around $3.5 billion in additional capital, sources told The Detroit News.

Detroit-based GMAC and the Treasury Department have been in talks for months to finalize the amount of money the company would receive. The Treasury Department said earlier this year it would invest up to $5.6 billion more in GMAC — on top of $13.4 billion GMAC has received over the last year.

Technorati Tags: GMAC, Treasury, Bailout

Munchin’ on the Numbers – by Max Whitmore

12-29-09

MUNCHIN’ ON THE NUMBERS

Pretty much a nothing day in the numbers arena. And other financial news was pretty sparse, too. There was one report at 10am, the Consumer Confidence Report that showed that consumers were feeling better about the economy, but that is still a feeling. What counts are the numbers and until the fourth quarter corporate reports begin to appear the middle of next month, the Big Guys are not going to respond to confidence reports or any other kind of reports.

My S&P Keyline chart just held its own today, as you can see in the Numbers Section below. Most other numbers were very quiet too, except bonds. Today, bond market buyers clearly outnumbers sellers, as bonds rose 15/32 or nearly ½ point. That is not a bad day considering the nervousness about inflation possibilities. But, here too we need to wait until the Big Guys get back and start to throw their money at stocks and bonds.

The dollar also firmed, as they say, but that is a function of the holiday, not any “real” activity. Gold was a bit softer, oil was flat, dollar was also a bit higher, and Dr. Copper was off a tab. All in all a very lack luster session.

I will have a Daily Munchin’ Report tomorrow, but that will be the last for this week. I will have a Weekly Keyline Report and a Daily Munchin’ Report next Monday (1-4). I am sure you can understand that this week is rapidly winding down, even though it is only Tuesday. Everyone, including me, is looking to Thursday night and the New Year. So, in the spirit of that event, do have a very Happy New Year, drive safe, and if you can help root Ohio State to victory in the Rose Bowl!! Thanks.

So, as ever, I do hope your trading day was a profitable one. Will be back here tomorrow, the Good Lord willin’ and the creek don’t rise.

NEED SOMETHING TO TALK ABOUT TONIGHT?

SIX MAJOR IMPACTS ON THE MARKET TODAY

1. While Consumers still appeared a bit upbeat, Consumer Confidence report was lower than expected.

2. Russia’s Putin still objects to U.S. sea-based missile shield. Obama didn’t give enough. Oh, come on!

3. Foreign currencies continue to weaken against the dollar. Greece may default on its bonds.

4. South American currencies under pressure also. Chile, Columbia, and Venezuela all weaker on data.

5. UC of Davis (Ca.) says Tiger Woods endorsement companies lost $12 billion in share price, collectively!!

6. Pimco (Ca.) says that corporate bonds will likely outperform Treasuries in 2010. No kidding.

#6 is a near no-brainer. With the supply of Treasuries to be enough to fill the ocean, corporate supply will actually decline. Less corporate supply will result in higher prices. True. Putin is working our President again. Still not enough given to him to satisfy him. Now, that was a no-brainer, too. And Tiger may really fall down when he realizes that his name cost investors near $12 in lost stock prices for the companies he endorses. What price glory. In this case we know. Oh, me.

THE NUMBERS SECTION

DAILY CHANGES DAILY WEEKLY

Closes as of Mon. 12-28-09 CHANGE (cash) KEYLINE# ABV/BLW

DOW INDU. 10,545.41 -1.67 points 9,846.15 ABV +699.26

S&P 1,126.19 -1.59 points 1,059.95 ABV +66.24

30 YR BONDS 115 +15/32 ticks 116 24/32 BLW -1 9/32

NASDAQ 2,288.40 -2.68 points 2,104.57 ABV +186.91

GOLD $1,097.40 -13.30 $932.31 ABV +$165.01

OIL $78.69 +$0.46 $84.69 BLW -6.00

DOLLAR INDEX 77.86 +$.23 79.75 BLW -1.89

COPPER $3.3035 -$.0105 $2.6666 ABV +.6367

DOW DAILY PRICE RANGE 36.05 points

S&P DAILY PRICE RANGE 5.7 points

EOD BOND YIELDS 1 YR. 0.43% -.010 10 YR. 3.80% -.041 30 YR. 4.64% -.051

Note: All closes at 4pm using continuous cash contract results

*The name Super Chart Keyline is a registered Trademark of Max Whitmore.

Anyone think that Fannie and Freddie are “out of the woods?”

Then check out this chart marking delinquencies at Fannie Mae.  

Calculated Risk: Fannie Mae: Delinquencies Increase Sharply in October

Fannie Mae reported today that the rate of serious delinquencies – at least 90 days behind – for conventional loans in its single-family guarantee business increased to 4.98% in October, up from 4.72% in September – and up from 1.89% in October 2008.

‘Twas the Night Before Christmas

and all through the country, people were paying more attention to Christmas than they were to the government and to the financial mess that is making our country struggle.

So what did the Treasury do?   They did two things:

• They expanded the nationalization of Fannie Mae and Freddie Mac from $200 Billion each (that’s $200,000,000,000) to an unlimited amount of funding.   In other words, the US Treasury just handed their checkbook to Fannie Mae and Freddie Mac.
• They did it on the day when no one was watching and they did it 9 days before it would have required congressional approval.

How nice and how timely.

Nothing to see here, move along, move along……

Tom Vanderwell

Heard on the Street: Fannie and Freddie – WSJ.com

That was a nice holiday gift to taxpayers.

As expected, the Treasury on Christmas Eve increased the amount of money it can plow into Fannie Mae and Freddie Mac to keep them solvent. Before, the U.S. had pledged up to $200 billion to each. Now, over the next three years, the Treasury can spend as much as is needed to prevent their net worth going negative. Such a change would have required congressional consent after Dec. 31. Given that each U.S. household had effectively committed $3,800 to both firms, the Treasury should have waited till the New Year so the people’s representatives could have had their say.

Technorati Tags: Fannie Mae, Freddie Mac

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