Housing Doesn’t Need Any More “Bold” Ideas

The New York Times’ Gretchen Morgenson is really unhappy with the un-meddled dynamics of the nation’s ongoing housing market correction and wants the government to step in and buy roughly $530 billion in NONPRIME mortgages in an effort to stem the suffering.

Her “boldly thought out” idea has Fannie Mae and Freddie Mac, the two massive and financially defunct government sponsored enterprises that did more to drive/sponsor delinquency and foreclosure than any other government boondoggle in history, buying, AT PAR, all performing “non-prime” loans from private mortgage pools and refinance the loans at lower interest rates and presumably better terms.

The way Morgenson sees it, the only way the government can lose is if “some” of these loans go bad.

To add a little perspective consider that this $530 billion of “currently” performing non-prime loans (as of last June) represents one third of the total $1.6 trillion loans in private mortgage pools, the other two thirds of which have already gone into foreclosure/serious delinquency.

Apparently, in Morgenson’s "bold" mind, this is a sort of win-win.

Banks/Investors walk away with 100 cents on the dollar for billions of junk mortgages and the hapless households servicing these monstrosities get a new lease on life, so to speak.

Of course, any further losses on these junk mortgages would then be borne by the taxpayer but that slight drawback seems to not even warrant a footnote by Morgenson.

No… she is so certain that taking this “bold” step is good policy that she is willing to overlook the obvious likelihood that many of these junk borrowers would go delinquent no matter what the rate/terms of their mortgages while paying top tax dollars to banks/investors for the opportunity to be the recipient of their losses.

Gretchen Morgenson is a fool.

This is yet another absurd bailout whereby the government thrusts the tax payer in front of a locomotive of toxic financial engineering and loss while calmly ushering banks/investors to a position of complete safety all in the name of supporting the housing markets and helping households in need.

Banks/Investors need to realize their losses, households with junk mortgages need to learn their lessons… housing prices need to continue to slide lower.

Pending Home Sales: September 2009

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for September showing a whopping 21.2% year-over-year increase in pending home sales nationally coming largely as a result of the governments historic housing tax gimmick.

Meanwhile, the NARs chief economist Lawrence Yun reports that there has been a “rush” of first-time “buyers” racing for a chance to jump at the governments housing tax carrot… the result… wealth stabilization for middle class families?

“What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month, … Home values will stabilize sooner rather than over-correcting. That, in turn, will mean wealth stabilization for the vast number of middle-class families and lay the foundation for a durable economic recovery.”

The following chart shows the national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).

Look at the seasonally adjusted pending home sales results:

• Nationally the index increased 21.2% as compared to September 2008.
• The Northeast region increased 16.9% as compared to September 2008.
• The Midwest region increased 17.8% as compared to September 2008.
• The South region increased 22.8% as compared to September 2008.
• The West region increased 23.7% as compared to September 2008.

Reading Rates: MBA Application Survey – August 05 2009

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage decreased 19 basis points since last week to 5.17% while the purchase application volume increased 0.9% and the refinance application volume increased 7.2% compared to last week’s results.

It’s important to recognize that while the Federal Reserve’s “quantitative easing” measures held down rates for a time and spurred a notable boom in refinance activity, the recent activity appears to have come to a close.

Even with historically low lending rates both refinance and purchase application volume look to be headed back to the lows of the fall of 2008 and an overall declining trend.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).