The Mortgage Bankers Association's (MBA) Economic and Mortgage
Finance Forecasts project $1.1 trillion in residential mortgage
origination volume in 2011, roughly $100 billion more than
earlier forecasts, as low mortgage rates have brought in higher
than expected refinance volume, while purchase volume has been
less than anticipated. However, despite lower forecasted
mortgage rates, weaker projected economic growth in 2012 led to a
reduction in MBA's origination forecast for that year to $931
billion, which would be the lowest volume originated since 1997.
Jay Brinkmann, MBA's Senior Vice President of Research and
Education and Chief Economist said, "We have lived through a
series of unprecedented events over the past month: the debt
ceiling crisis, S&P's downgrade of US Treasury debt, the ongoing
sovereign debt crisis in Europe, a commitment by the Fed to keep
rates near zero for the next two years and stock market
volatility that has reached levels not seen since the fall of
2008." "While there is substantial uncertainty about how these
events will impact consumer and business behavior, we do not
believe that the economy is facing the same types of risks as in
2008. Given that both fiscal and monetary policymakers' options
are limited at this point, it would be difficult for policy
changes to soften any blow." "The silver lining in all the
turmoil for our industry is that mortgage rates are once again at
or approaching historic lows.
Lower rates continue to boost refinance volumes above our earlier
projections, even though refinance application volume remains
quite constrained by tight credit standards, the weak job market,
and the large number of underwater borrowers. For the market as a
whole, we are now projecting total mortgage originations to be
$1.1 trillion in 2011, up about $100 billion from our earlier
projection, and $931 billion in 2012," Brinkmann concluded.
Stocks poised for a bounce
U.S. stocks were poised for an early bounce Monday, following the
biggest four-week loss since March 2009. Dow Jones industrial
average, S&P 500 and Nasdaq futures were up more than 1% ahead of
the opening bell. Stock futures indicate the possible direction
of the markets when they open at 9:30 a.m. On Friday, U.S.Stocks
capped a difficult week, with the S&P 500 posting its biggest
four-week loss since March 2009, amid fears that the U.S. economy
is heading into another recession, and ongoing concerns about
Europe's debt crisis. The Dow, S&P 500 and Nasdaq fell between 4%
and 6% last week. The big event for investors this week will be
on Friday, when Federal Reserve Chairman Ben Bernanke will give
his keynote speech at the Kansas City Fed's annual retreat in
Jackson Hole, Wyo. "The Fed's annual gathering in Jackson Hole
this year presents yet another opportunity to calibrate Chairman
Bernanke's thoughts on the forces of structural weakness in the
economy and the appropriate Fed policy stance over the medium
term," said Marc Chandler, global head of currency strategy at
Brown Brothers Harriman. At last year's annual meeting, the Fed
chief prepared the market for QE2, a policy that is widely
credited for supporting stocks earlier this year.
Shadow inventory improves but still threatens housing recovery
Despite all those millions of distressed properties out on sale,
depressing home prices even further, there is one glimmer of hope
according Standard & Poor. According to the report the time it
would take for banks to purge all of this so-called "shadow
inventory" from the market (through foreclosure sales, mortgage
modifications and other measures) shrunk to 47 months during the
second quarter, a significant drop from the 52 months it
estimated for the first quarter of this year. The report also
found that the total dollar value of the loans on these
properties -- known as non-agency loans because they are not
backed by Fannie Mae, Freddie Mac or the Federal Housing
Administration -- also fell to $405 billion at the end of June
from $433 billion three months earlier. S&P said the decline was
helped by stabilizing liquidation rates and by fewer borrowers
falling behind on their mortgage payments as the economy slowly
recovered during the quarter.
S&P estimates that there are still a total of between 4 million
and 5 million homes, including those with agency-backed loans, in
shadow inventory, an amount that continues to jeopardize the
housing market's recovery. Nevertheless, Fannie and Freddie are
looking to rid themselves of a large percentage the shadow
inventory they do have -- and quickly. Earlier this month, the
Federal Housing Finance Agency (FHFA), the Treasury Department
and the U.S. Department of Housing and Urban Development were
seeking suggestions on how to dispose all the repossessed homes
now owned by Fannie Mae, Freddie Mac and the Federal Housing
Administration in a way that would benefit local communities.
Layoffs Slide Morale at Wall Street
Before layoffs began sweeping across Wall Street, the timing of
rampant job-cutting by organizations like Credit Suisse,
Barclays, HSBC, Goldman Sachs, Bank of New York Mellon,
illustrated the unanticipated dangers of such acts, which tend to
run in cycles on Wall Street. Employee morale often plummets at a
time when survivors are asked to pick up more responsibility and
customer relations can suffer as service and relationships
deteriorate. What's more, layoffs inartfully constructed can
come across to shareholders as Band-Aid solutions that at best
temporarily cut expenses and at worst pare away reserves of
talented people. "They finished cutting the fat and now they're
into the muscle and bone," said Tim White, a managing partner who
specializes in wealth management at the recruiting firm
Kaye/Bassman International in Dallas.
The planned cuts at Bank of America have pushed the number of
financial sector layoffs this year to 18,252 — 6 percent higher
than in the comparable period in 2010. That is not good for
morale. Hours have become longer, trading floors have more open
seats and fresh young faces are taking over offices where
high-level personnel once sat. The highest-paid people can be
easy targets for layoffs now, given the cost of keeping them
employed and the eagerness of younger workers to take on their
roles, even at less pay, executive recruiters said Changes in
pay structures mandated in part by the Dodd-Frank financial
reform laws have exacerbated the problem. "When people are getting
hired, fired, hired, fired, every two years, it's very difficult
to run a business," said Conrad Ciccotello, a finance professor
at Georgia State University who has studied the issue. "There is
precious human capital destroyed in vicious boom-and-bust cycles
that is costly to replace.
Diana Olick: Refinance Surge…Not so much
As mortgage rates hit new record lows, refinance applications
have surged accordingly. That, as always, is leading economists
to talk once again about what the effect of all that refinancing
might be on the greater economy. It's even bringing up an old
proposal by Columbia University's Christopher Meyer to have the
government blanket refinance all loans backed by Fannie Mae and
Freddie Mac, pumping billions of dollars of spending back into
the economy. But we have to take a look at the refinance picture
in today's market, since we all know that today's economic
reality is not usual. The value of refinance is around $1
trillion in mortgage debt annually, in normal times. If you
assume an average savings of one percentage point in the refi,
then you get about $10 billion in savings (including average
fees). But we have to remember that many borrowers are not
qualifying for refis now because they are underwater on their
mortgages (owe more than the homes are worth).
Fannie and Freddie have programs for underwater borrowers to
refi, but they have strict standards to meet. This from Dean
Baker at the Center for Economic and Policy Research: "To get
some rough numbers, we have around 12 million underwater
mortgages. Probably around 4-5 million are with Fannie and
Freddie. Assuming an average value of 200k, that gets you $800
billion to $1 trillion in debt. If we assume that by easing the
rules we get half of these people to refi (probably way high) and
the average saving is 1.5 pp, this saves between $6-7.5 billion a
year in interest. It's something, but it's not going to be some
huge stimulus." Even for those not underwater, most already
refinanced last year, and some argue, due to that, mortgage rates
have to go far lower than 4 percent to make a second refinance
worthwhile.
Commercial property prices inch higher in June
The price of commercial property inched up in June, representing
a firming up of the bottom as continued market turmoil and less
lending keep any significant gains at bay, according to Moody's
Investors Service. The ratings agency said its commercial
property price index increased 0.9% in June from the prior month.
Analysts said the 254 repeat-sale transactions in June were the
highest non-year-end level in about three years. Tightening of
10-year Treasury yield "has largely offset widening loan spreads,
helping maintain attractive financing costs and increasing
transaction volume." Distressed transactions accounted for 28.7%
of all sales, higher than the two-year average of 25.9%. "The
broad middle portion of the commercial real estate market
(neither trophy nor distressed) continues to perform well,
helping sustain positive movement in the aggregate index,"
according to analysts. Three of the four Moody's property type
indices showed prices gains in the second quarter led by office
space with a 8.9% gain, industrial 2.5% and apartments 0.6%. The
retail space index fell 0.3% for the second quarter.
Real estate sales down in July as lack of lending hampers
recovery
Sales of residential property declined in July with experts
blaming a lack of lending that is holding back the real estate
recovery. But although sales were down they are still higher than
a year ago, according to the latest monthly reports from the
National Association of Realtors. Total completed sales fell 3.5%
to a seasonally adjusted annual rate of 4.67 million in July from
4.84 million in June, the NAR figures show. But they are 21%
above the 3.86 million unit pace in July 2010, which was a
cyclical low immediately following the expiration of the home
buyer tax credit. Lawrence Yun, NAR chief economist, said it is a
lack of lending that is holding the market back from recovery.
‘Affordability conditions this year have been the most
favourable on record dating back to 1970, but many buyers are
being held back because banks are offering financing to only the
most highly qualified borrowers, ignoring a large share of
otherwise creditworthy buyers,’ he said. According to Ron
Phipps, NAR President, an unacceptably high number of potential
home buyers are unable to complete transactions. ‘Beyond the
tight credit problems, all appraisals must be done by valuators
with local expertise and using reasonable comparisons, it
doesn’t make sense to consistently see so many valuations
coming in below negotiated prices, often below replacement
construction costs,’ he explained.
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