To "V" or not to "V" … that is the question.
The optimists see the steep far side, the middle-roaders see bottom nearby, and the skeptics see the economy still declining, just slower, with possible multiple bottoms ahead.
A 0.4 percent drop in April retail sales was less than the 1.3 percent dive in March, but the weakness still surprised the optimists, who are happy today with an "only" 0.5 percent decline in April industrial production. That is the smallest decline since October, but "capacity in use" fell 0.3 percent to a new post-Depression low of 69.1 percent.
The high week for new unemployment claims was April 4, with 668,000 ex-workers filing, and the cycle claims-top often precedes the recession bottom by a couple of months. From a late-April low at 604,000, however, claims popped back to 637,000 last week.
The National Federation of Independent Business’s small-business survey in April climbed a hair from all-time-low territory, but did so only on two "soft" sentiment indicators. The "hard" ones — sales, compensation, capital spending, employment — all headed lower.
Obama administration spinners point to improved credit markets with some truth. No large institution has collapsed this year. Survivors have been able to sell some new stock. Some spreads have narrowed. However, only the very best businesses can borrow at affordable rates; BBB-rated bonds are still 6 percent above Treasurys — normal is 1 percent.
The all-important effort to extract toxic assets from banks, recapitalize them and get them back in the game has stalled. Treasury Secretary Tim Geithner is the new opening-skit star on "Saturday Night Live," energetic and vacant while announcing new and wacky plans.
The greatest gap between credit reality and the authorities’ comprehension or effectiveness (not sure which is worse) is in housing.
This morning, Minneapolis Federal Reserve Bank President Gary Stern foolishly announced that "creditworthy mortgage borrowers" would be approved, "if not at the first bank, the second or third."
We are now almost two years without affordable jumbo loans, with fixed-rate spreads most places 1.5 percent above Fannie conforming. Jumbo down payments are 20 percent to 25 percent. From the 1970s on, these loans were available up to 95 percent — capped amounts, hyperqualified, but available. …CONTINUED
Thus, if you aspire to a $500,000 home, no matter how strong your income, credit and retirement savings, and have only $50,000 to put down … forget it.
Second-mortgage lending in just the last 60 days has receded to 85 percent maximum.
The last "common sense" loans disappeared almost a year ago. Fifty percent down, huge reserves in savings, but a quirky 1040 (tax form) — forget it. Almost every day I must explain to a startled mortgage applicant that today’s system cannot make a loan that my granddaddy would have been happy to make at his Ponca City, Okla., savings and loan in 1935. And he was tough.
The new "Market Conditions Addendum" to every Fannie appraisal has added a whole new layer of destruction to regional redlining. Even if value is there (if we can find recent comparable sales), we can’t make loans because the number of sales is down.
I have an 80 percent loan on my desk with a 674 FICO (low because of $1,000 in medical collections in an insurance dispute, co-borrower 740), and must tell them Fannie’s surcharge will cost them 5.5 percent with one point instead of 4.5 percent. The purchase will die.
Suicide-tight underwriting has overwhelmed all-time low rates, as shown in dead-flat applications for purchase loans, and even refis are falling off.
The "Obamanauts" have a new foreclosure-preventer scheme every week, but this toothpaste-back-in-tube priority has failed for two solid years. Agency 90-day delinquencies rose a half-percent from December to February, to 2.63 percent of 30 million loans — up from 0.95 percent one year ago.
There is no way to stop the foreclosure wave without restoring price appreciation, the only means to give hope to underwater and breakeven households. And there is no way to get markets going without mortgage credit restored to the reasonable standards of the ’70s, ’80s and ’90s.
If the plan is for the nation to adapt to a Marie Antoinette standard for credit (the "AAA" elite will have access to credit, everyone else … let them eat cake), the plan will fail.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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