Long-term rates jumped this week, and the 10-year T-note rose to 3.6 percent from 3.28 percent at last week’s low, the principal push delivered by a 500-point surge in the Dow.
Mid-summer is the "silly season," when a shortage of serious news elevates "Man Bites Dog" to the front page. This stock rally was short-covering, and bonds are on constant selling edge because of runaway deficits. New data could be read as green-shoot or L-shaped non-recovery, but none were trend-changers.
Housing permits and starts rose a bit above forecast, to the high-500,000 annual range from high-400,000 in last winter’s pit, but housing is going nowhere, loan applications flat. Total retail sales improved in June only because gasoline cost more.
Some silly-season items this year are downright strange.
Since 1971 Freddie Mac has surveyed mortgage rates early each week and reported on Thursdays. By 1980 mortgages began to move with bonds in real time, but not Freddie, which yesterday announced that mortgages fell again, to 5.14 percent. They rose again, of course, Jurassic Freddie deftly catching another early-week dip.
FHFA (Federal Housing Finance Agency), the renamed agency (ex-OFHEO) governing the mortgage GSEs, has set new standards for irrelevance. For no-content ego-bloviation, nothing beats its July 9 "Five-Year Strategic Plan." Might have included some thinking about an adequate supply of mortgage credit? Not at FHFA, with Bush-holdover James B. Lockhart III the immovable proprietor.
On July 15, Johnnie-on-the-spot FHFA released its monthly self-congratulatory report on foreclosure prevention — for April. No telling what has happened since, but the relentless rise in 90-day-plus delinquencies had continued across 30 million loans — 1.05 percent in April ’08, 3.03 percent in April ’09. Might be worse now, but who would know?
On July 1, FHFA published its advice to underwater households: Refinance up to a new 125 percent LTV limit with shorter, higher-payment loans, that way to pay down to break-even equity sooner. FHFA’s nifty chart says with a new 25-year loan you can pay your way to zero equity in only eight years, instead of 11 on a 30-year (I am not making this up). A 15-year loan? Only four super-payment years to no equity! …CONTINUED
Hey, Jim Lockhart! The same house next door rents for half what I’m paying now! You see these keys? Check your mailbox next week.
Fannie and Freddie received authority last year to grow their mortgage portfolios by $200 billion apiece to support housing through the crisis. They have not. The Fed has bought instead, a very good idea but no net increase: Aggregate mortgage balances today are the same as in 2007. It was an epic error for the Fed to fail to notice mortgage balances doubling from 2000-2007, double the rate of GDP growth, but is anyone considering an adequate mortgage supply for housing recovery?
In the deleveraging process now two years underway, the idea is to do it slowly. Despite the Fed’s own preening about improvements in credit markets, there is no private mortgage market whatsoever (jumbo loan volume collapsed 78 percent in 2008, worse this year), and FHFA underwriting standards are market-killing. Has someone decided to de-emphasize housing permanently, by mortgage starvation? A secret?
Oddest of all is the disappearance of the Obama administration. The Geithner-Fed ballyhooed $1 trillion public-private extraction of toxic assets from banks will make a try at $40 billion this month, and flop again. Geithner’s interest in housing is limited to loan modification, a 5-foot ladder in a 30-foot hole.
President Obama says the stimulus is working as planned. The Congressional Budget Office blew up his health care plan yesterday, saying the obvious: it will add to federal cost, its tax increase insufficient to pay for its new promises when we need every revenue dime to pay for old promises that we cannot afford. There is no solution to health care but one: use less — fewer tests, options, lawsuits and heroics.
I’m still hopeful for Obama’s learning curve. Maybe after vacation.
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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