Although Austin has done well overall during the real estate crisis, it has still been affected by it. A recent listing of foreclosures showed the rate in Travis County increased by 50%. This places the county second in Central Texas just behind Bastrop County, which was up by 78%. Loan modification requests by many homeowners are believed to be the reason for such a high increase.
In the last several years, banks and lenders moved away from traditional lending practices and many people who previously would not think of buying a home became eligible. The result was ARM mortgages with increased payments over time that the new homeowners had not been expecting. As the homeowners began to fall behind, the real estate market nationwide took a dramatic downturn. While lenders are now getting back to basics with regard to lending, those already in debt are feeling the burn. Many lenders have vowed to work with occupants to help through the crisis, but too many are behind and the loans are not being paid. Homeowners looking for ways to refinance are unable to meet new terms in regard to credit. These homes are set for foreclosure beginning January 9, 2009.
It is obvious that lending institutions are doing their best to modify loans when applicable and possible, however it may take months to be approved. It seems that they are overloaded with requests. The best thing for homeowners to do is start the process as soon as it becomes apparent that there will be a problem with staying current. The Federal Bailout plan was designed to help lenders assist in keeping many people in their homes.
The Federal Bailout plan continues to help banks and investment companies meet their obligations. The good news is recent reports show that less money has been needed in the last few weeks. Federal help is still much higher than it was during this same time last year, but this decline brings new hope to the current credit crunch that created the need for the bailout plan.
The Federal report stated that it lent banks $2.1 billion less last week than the previous week. The total was $86.3 billion daily during the week ending this past Wednesday, down from $88.4 billion. Last year, during this same time frame, banks had only borrowed $4.8 billion. Investment firms borrowed $45.7 billion for the week ending December 24th, down from $50.5 billion the week before. The Federal Reserve also stated that the central bank has increased its net holdings of commercial papers to $325.8 billion. Commercial papers are used meet obligations for everyday expenses. Beginning in late October, the Federal Reserve began to buy these in order to help banks meet those needs. All of this assistance is in response to the credit crunch, which has made it difficult for banks to receive loans.
The economy continues to slow and consumer spending has reached record lows. People are holding off on buying homes due to the credit crunch. Regardless of the fact this is the best market for the buyer, it is still a difficult road right now. The Federal Reserve will continue to help lenders as needed with the hopes that the economy will begin to pick up within the next one or two years.
The recent mortgage crisis and ensuing credit crunch has reached another milestone. As of December 18th, the rate for a 30-year fixed mortgage fell to 5.19%. This is the lowest rate on record since 1971 when records for rates began being surveyed. Just the week before, the average rate was 5.47% and last year at this time the rate was 6.14%. The dropping rates further show all too well the current economic state, especially in regard to real estate.
Austin has been a city that has managed to keep out of the national economic hardships very well. The city has never gone through a huge jump in property values, so when the real estate market began to falter, Austin had nowhere to fall. Home sales remained steady, if a bit slowed. Austin has not been hit nearly as hard as comparable cities nationwide. The city has been deemed a recession-proof city by Forbes online. While current market news does show for sale homes on the market for longer times, they are still selling. Those who have the credit available to purchase a new home are looking for places where the economy is still strong. Austin is at the head of this list. Unemployment here still remains low, despite the national rate increase. Companies are still looking to Austin for expansion, bringing more jobs to the area.
While the nation looks for more ways to help the economic structure of the country, Austin continues to lead the way. More mixed use properties are under development, creating more working and living space in the much desired downtown area. Home buyers are looking for a place that will be worth the investment, and Austin is certainly proving to be it.
As the recession strengthens its grip on the economy across the nation, Texas realizes that we won’t buck the trend. Kimball Hill Homes filed for bankruptcy earlier this year. Now, Kimball Hill Homes has decided to shutter operations. Yep, bankruptcy will not solve its problems. This is the first, in what appears to be a long line, of failures awaiting the local housing industry. I hope someone is able to buy the company and resume operations. It is a bit disconcerting to see such a large builder go down.
Here is a link to the full story.
http://www.chron.com/disp/story.mpl/headline/biz/6144784.html
The mortgage crisis and housing slump that has taken the US by storm had created serious financial losses for the Fannie Mae Corporation, as well as the Freddie Mac program. These losses are not only detrimental for the companies themselves, but also for those in the market for mortgages, as the costs for using these programs will increase significantly to help make up for the losses.
Reports from the second quarter that were recently released showed an increase in revenue for Fannie Mae, but the expenses incurred swallowed them up, and then some. There was a loss expected by analysts, however the $2.3 billion in losses that was incurred was many times greater than anyone could have anticipated. Freddie Mac’s projected loss was much less than the actual damage, as well.
These programs are in place to buy higher risk mortgages from lenders and resell them to investors, guaranteeing the repayment of the loans. In order to keep the companies operational, the federal government is working on an emergency plan to add billions of dollars in funding to the companies. The funding has been passed, but has not yet been enacted.
As these two institutions are connected with more than half of the open mortgages in the country, keeping them operational is crucial. The companies plan to decrease operating costs over the coming months, hoping that this, combined with the federal help will help them to keep their heads above water.
Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair surprised Congress with a proposal bypassing the Federal Housing Administration to make use of the Treasury as a financial resource for cash strapped mortgagees. The low cost “gap” financing would help to reduce the principal balance on a loan as much as 20 percent over the next five years. Ms. Bair announced the plan at the end of April 2008, just as the House and Senate were negotiating with the FHA for a proposal that would assist the troubled homeowners with their unaffordable mortgages.
Ms. Bair’s plan would be limited to those borrowers who are determined to stay in their homes and avoid foreclosure proceedings and wouldn’t cost the Treasury anything as the five years worth of interest would be paid up front by participating lenders. The borrower would then begin to pay down the principal with no interest for five years. After five years, the borrower would begin to pay off the FDIC loan at the low Treasury rate for the rest of the mortgage. The mortgage would hold a lien on the property and it would be paid off first should the borrower sell or succumb to foreclosure.
The program would be limited to those borrowers who could qualify for a lower fixed rate mortgage. The home owner’s mortgage lender would apply for the gap loan on the home owner’s behalf.
The idea is to lower the borrower’s debt-to-income ration to a more manageable 35 percent and to take advantage of lower Treasury borrowing rates to assist homeowners into more affordable fixed-rate loans. This plan is not for everybody, but Ms. Bair thinks it could make a difference for up to a million homeowners who don’t qualify for any other relief plans. It’s certainly something worth looking into.
What Did Interest Rates Do This Week?
** according to Freddie Mac **
30-yr Fixed - Higher
This Week: 6.03%
Last Week: 5.88%
1yr Ago: 6.16%
15-yr Fixed - Higher
This Week: 5.62%
Last Week: 5.40%
1yr Ago: 5.87%
5/1 ARM - Higher
This Week: 5.68%
Last Week: 5.48%
1yr Ago: 5.88%
Highlight of This Week’s Major Economic Reports
Not-so-bad economic news and continued fears of inflation sparked a jump in mortgage rates this week. This has led to many downgrading their beliefs that the Fed will cut rates much - if at all - when it meets next week.
While economic growth remains subpar, recent data shows that things may not be as bad anymore as feared. Unemployment claims were down last week. Manufacturing isn’t as down as it had been earlier in the year. Overall economic activity was less negative - a possible sign that the downturn is leveling off.
On the housing front, home sales fell again in March. Existing Home Sales fell 2% last month, while New Home Sales tumbled 9%. The good news to these bleak numbers is that the declines were softer than expected, and the average price for existing homes did go up slightly by 0.9%. With demand continuing to stay low, inventory remains at higher levels, but many economists expect for inventory to come back down in the not too distant future.
The relentless spike in food and oil prices (hello, $5/gal?) are weighing heavily on our checkbooks, so the government has decided to start shipping the “stimulus checks” earlier than expected. We probably shouldn’t expect for this to do much to actually stimulate the economy, as this extra money will likely just go towards paying for gas and food.
The market has set the expectation that the Fed will cut short-term rates by 0.25% next week. It is also anticipated that they will note stability in the financial markets and will shift their focus back to inflation - a sign that this may be the end (at least for now) to the rate cuts. Don’t take this as bad news, however, as the Fed’s rate cut will only impact the Prime Rate. Mortgage rates, remember, are separate and follow longer-term bond yield movement.
What to Look for Next Week
The Fed’s monthly policy meeting and the April Employment Report will be the headliners for the week.
We will likely see a 0.25% rate cut from the Fed (perhaps the last one for now), which has already been priced in to current mortgage rates. And, many expect for the unemployment rate to tick up slightly in April.
Odds aren’t great for us to see any improvement in rates.
Short-Term Rate Outlook
Slightly Higher
Tools to Help Your Buyers & Sellers
Rates on the rise? It doesn’t matter! With Pre-Purchase Rate Protection from PHH Mortgage, you can protect your purchasing power with the ability to cap your interest rate for up to 90 days at no cost while still offering a “float down” option to take advantage of possible rate improvements. So, whether rates go up or down, you will win!
Call Marie Funston - PHH Mortgage - (512) 691-6757
Recently released by Freddie Mac, the Primary Mortgage Market Survey (PMMS) figures for the week ending April 10 reveal a distinctive lack of change in 15- and 30-year fixed rate mortgages (FRM) during that time. Additionally BankRate.com’s weekly market assessment confirmed the rates appear to have plateaued. This is despite the Fed’s action in lowering rates for adjustable rate mortgages (ARM). Fifteen-year FRMs averaged 5.42 percent over the past two weeks, and 30-year FRMs averaged 5.88 percent. Vice president and chief economist for Freddie Mac, Frank Nothaft, surmises the steady rates are due to the stagnant economy and lower existing home sales, as well as the loss of jobs.
This article in the Statesman looks at the unchanged FRM rate as a bad sign: that the banks are holding back on lowering rates for long-term loans, such as mortgages. This would be attributed to the “skittishness” resulting from the high rate of foreclosures as a result of loan defaults. While it appears that the mortgage rates are low, a potential mortgagee is expected to pay an average of more than 2 percentage points, rather than the traditional 1.5, for a 30-year FRM. This translates to a higher initial out of pocket expense for the borrower.
Some see the steady rates as a good sign. In the Austin area, house prices have risen slightly, in contrast to much of the nation. Banks are cautious in the aftermath of the sub-prime debacle, and understandably so. As mortgage rates remain low, a potential home buyer can find encouragement in obtaining a loan to purchase a home and sellers can be ensured that they will receive a competitive price for their family home.
In light of the current epidemic of mortgage foreclosures, the Hope Now Alliance wants to help make sure home owners have the tools and resources to avoid the pain and embarrassment of losing their investments.
Originally developed to help those subprime mortgagees avoid foreclosure when faced with skyrocketing payments, Hope Now finds its mission changed to assist prime loan borrowers as well who find themselves 90 or more days behind in mortgage payments.
The Alliance is comprised of dozens of major lenders, including Bank of America, Citigroup, Countrywide, JP Morgan Chase and Co., Washington Mutual and Wells Fargo. Many aspects of the mortgage industry are represented - financial counselors, loan servicers, and the like - and Hope Now claims to have assisted about 870,000 home owners keep their properties in 2007.
Critics of the program are calling it “too little, too late”, claiming lenders should have been ready to act much sooner and with more urgency. But an underlying and somewhat sinister current to the whole debacle is the issue of fraud among lenders and borrowers alike. Director of research at the Lusk Center for Real Estate at the University of Southern California, Gary Painter, raised this specter, saying the industry needs to investigate questionable practices among mortgage brokers which he is convinced helped fuel the current real estate crisis.
Banks are more interested in helping their clients stay in their homes and continue mortgage payments rather than go through the expense of repossessing and reselling the property. Regardless of the criticism and uninvestigated issues, the Hope Now Alliance is at least attempting to offer home owners in crisis the means of retaining ownership of their hard earned homes.
Jumbo loans will be exempt from the secondary mortgage market where Fannie Mae, Freddie Mac, and the Federal Housing Authority (FHA) purchase mortgages. Those loans between $417,000 and $729,750 - ‘jumbo light’ loans - will not be traded on the ‘to be announced’ (TBA) market, it was announced in a February article at Inman.com, as well as several other sources, including a press release on the Fannie Mae site. The Securities Industry and Financial Markets Association (SIFMA) worry that the larger loans may raise rates on the smaller conforming loans because of performance uncertainties that would, in turn, raise costs or hinder the trading of all mortgage-backed securities.
Instead, this new class of mortgages will be traded under unique pool codes or included in alternative mortgage investment transactions, specifically the Real Estate Mortgage Investment Conduit (REMIC). SIFMA feels this process will be the least disruptive to the secondary mortgage market for these higher balance loans, creating greater liquidity and interest rate relief to the jumbo mortgagee.
A downside to this placing the jumbo loans in separate pools is that this could delay the lower interest rates Congress had hoped to achieve if Fannie Mae, Freddie Mac, and the FHA had been allowed to by these loans. In fact, interest rates on the jumbo loans have gone up, and are about 1 percent higher than conforming loans.
Guarantees from Fannie, Freddie, and Ginnie Mae backing conforming loans relieves investors’ fears about delinquent payments and defaults. The jumbo loans carry an inherent higher risk. SIGMA wants to keep these jumbo loans in separate trading to belay these risks. As investors get more comfortable with the jumbo loans and the collateral they carry, it’s predicted interest rates will drop on these larger loans over time as well.
