Mortgage and long Treasury rates are rising toward four-month highs this morning (5.25 percent and 3.49 percent, respectively) on a happy surprise in the job market.
The monthly survey of big business "nonfarm payrolls" found an end to job losses, and got some confirmation from an abrupt drop in the last two weeks’ claims for unemployment insurance. Other fresh data from November did not confirm: The twin surveys by the purchasing managers’ association (ISM) came in below expectation and below October actual, the service sector declining sharply.
The hunch here: The economy began to bifurcate in spring, big business and big finance stabilizing, even recovering (information technology and international sectors, for example).
The weakness and pain shifted from Wall Street to Main Street, still deepening here on the sidewalk, false strength in economic aggregates in spring and summer now fading into an "L"-shape — no matter how well the "big boys" are doing after ruthless cost and job cuts.
The Obama administration this week redoubled its effort to resolve housing distress, unfortunately by reinforcing prior failure. Perhaps the extra effort will cause faster failure now, and then someone inside may suggest trying something else.
The first surge: Threaten loan servicers with penalties if they don’t modify more loans. Nevermind that Fannie and Freddie report 346,559 trial modifications since June (www.fhfa.gov, Nov. 23).
It is a bit embarrassing that only 8,719 survived the trial to permanent mod status, but that might have more to do with the condition of the borrowers than the diligence of the servicers. During the period of 8,719 successes, 441,000 additional Fannie and Freddie loans entered 90-day-plus delinquency.
Common problems: Many borrowers would like never again to hear from a lender, no matter how helpful they say they’ll be. Second, the Home Affordable Mortgage Program (HAMP) requires an evaluation of the troubled borrower — really a new and thorough loan application.
Taking a good loan application is interactive, cannot be scripted, and requires training and talent; most borrowers contacted by HAMP participants tell us they are clumsy, circular and forgetful. Third, many delinquent borrowers are beyond help, and dumping them into the "HAMPer" is cruel busywork. …CONTINUED
Surge two: The HAMP administrators on Monday gave a new set of orders to loan servicers: its Home Affordable Foreclosure Alternatives Program (HAFA) requires that all delinquent campers failing HAMP mods must — must — be offered a short-sale price before foreclosure can take place.
The 45 pages of HAFA rules, at www.hmpadmin.com (see the Nov. 30 release), including uniform short-sale contracts, although a bureaucratic tangle (try to read it!) may help Realtors and may smooth the short-sale process.
However, "HAFA-loaf" (half empty?) has problems as a solution to the housing crisis. The new program adds a lengthy step to the foreclosure process, and to the depth of troubled water rising behind flimsy dams.
It also fails in scale: total Fannie-Freddie year-to-date short sales are at 32,400, less than 10 percent of new serious delinquency. This is bailing by spoon.
A short sale does little for the underwater owner: gotta deal with Realtors, showings, contracts, and still come out with wrecked credit and equity wiped. HAFA does require that servicers begin to pay short sellers and deed-in-lieu-ers — $1,500 a pop. Thanks, guys, but instead I think I’ll live here payment-free for a year or so.
HAFA also requires servicers to offer $3,000 to second-mortgage holders in exchange for their suicide-by-release. Right. Uh-huh. Can’t wait to try that one.
The real problem, of course, is too few buyers to offset the immense volume of owners hopelessly underwater and with cheap rental alternatives available. Honorable people, if left exposed long enough without serious help from the nation, will walk from homes in a form of civil disobedience.
One authentic solution: adequate credit for buyers, including pre-packed loans for resale of foreclosures and shorts.
Instead, this is official policy: If you default, you get a rewritten, sweet loan; but if you want to buy, and don’t fit the ever-shrinking credit box, forget it.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@pmglending.com.
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