Can taxpayers begin to get off the hook?
This week’s attempt by the FDIC (Federal Deposit Insurance Corp.) to sell securities backed by residential mortgages and construction loans marks a huge milestone in the road back to normalcy for the financial markets this week. Let’s hope the markets pass the test.
The FDIC has bundled together some of the mortgages and loans it owns after taking over failed banks into a mortgage-backed security of the kind that was the mainstay of the mortgage market before the financial crisis.
That market has been essentially closed for new business since the crisis with only Fannie Mae (FNM) and Freddie Mac (FRE) willing to buy these securities with funds provided by taxpayers. Banks use this market to sell mortgages that they have originated so they can put the proceeds back into new mortgages. When this market is frozen, banks have to hold onto the mortgages they’ve originated and that reduces the money they have available for new mortgages. If banks know they can’t securitize and sell their mortgages, they become more reluctant to lend. And that reduces the availability of mortgages.
Because private investors haven’t been willing to buy these securities post-crisis, taxpayers through Fannie Mae and Freddie have been left as the only buyers. That’s been necessary to keep the market functioning at all, but Fannie and Freddie can’t keep expanding their books forever. At some point private investors need to step back into this market.
The mortgage-backed securities that the FDIC will offer for sale this week are designed to entice private investors back into the market.
Household wealth rises and foreclosure rate hits a record–what kind of recovery is this?
Put these two headlines together from Bloomberg today and you’ve got a good snapshot of the U.S. economic “recovery” to date.
“U.S. Foreclosures to Reach 3.9 Million in Second Record Year.”
“Household Net Worth in U.S. Increases by $2.67 Trillion.”
Mortgage deliquency rate projected to inch–and I mean inch–downward in 2010
Reassuring news on the home mortgage front: the tide of mortgage delinquencies will start to recede in 2010—unless you live in Arizona, California, Florida, New York or Virginia. Those states will see delinquencies continue to climb next year.
That’s the forecast from TransUnion, the big credit rating company, based on an analysis of credit trends over the last few months.
TransUnion isn’t talking about a big turnaround in the national trend in 2010. Just that mortgage delinquencies will peak in 2010 and then decline slightly.
The mortgage crisis shifts to the FHA and Congress wants to make the problem permanent
Another of the “emergency” measures enacted to stop of the financial crisis from plunging the economy into a depression looks like it’s on the road to becoming “permanent.”
And this one could really blow up on us taxpayers—again—not so far down the road.
I’m talking about the “emergency” change in the rules for Federal Housing Administration (FHA) qualified loans that let the agency insure housing loans for as much as $729,000. The temporary change went into effect in two stages in March 2008 and in February 2009. Up until then, the FHA could not insure loans of more than $362,790. That lower limit was in line with the agency’s original mission of helping low-income families who couldn’t make the traditional 20% down payment required by private lenders get a mortgage.
The logic of the higher “temporary” limit was that the FHA would now be able to insure loans in the hard-hit, high-priced housing markets of states like California. The higher limits would enable buyers in these markets to get loans to buy houses that would otherwise sit unsold. The loans would thus support housing prices and the home building industry in high-priced real estate markets.
The FHA has certainly insured lots of loans in these markets. So far in 2009, the agency has insured 107,000 loans in California alone.
Jobless numbers tomorrow–and on them hangs the trend in this market
The U.S. Bureau of Labor Statistics releases the July payroll and unemployment numbers tomorrow before the stock market opens. It’s a chance to give some badly needed new life to the “We can see the turn in the economy coming” optimism that has fueled the rally in stocks off the March 9 bottom. Or to push the market a little deeper into what is a developing case of the blahs.
The consensus among economists is that we’ll see a big improvement in unemployment in the July numbers. Or to be more precise, a big slowdown in the number of people who lost jobs in July. Nobody is calling for job growth, mind you. But the consensus projection is that payroll numbers will show a decline of just 328,000 jobs in July. I say “just” because in June job losses ran to 467,000.
Even a smaller drop than last month will still keep the official unemployment rate headed up. If the consensus is right, July’s jobs loss will push the unemployment rate to 9.6% from 9.5% in June. In other words, we’re still on our way to the 10% plus unemployment rate that the Federal Reserve is predicting before any recovery begins.
Wall Street will be watching these numbers especially closely.
