by Calculated Risk on 10/24/2011 07:38:00 PM

Many of the reviews of the HARP changes are pretty negative. As an example, Felix Salmon wrote: Obama’s pathetic refinancing initiative. But I think Felix was expecting too much.

This program only applies to Fannie and Freddie loans because the U.S. taxpayer already has the credit risk for these loans. Felix seemed to expect more when he wrote: "If you’re a homeowner whose mortgage isn’t owned or guaranteed by Frannie, you’re out of luck."

What this program does do is remove many of the stumbling blocks to refinancing Fannie and Freddie loans (eliminate reps and warrants, reduce or eliminate fees, automatic 2nd subordination, minimal qualifying). These were all deal killers for HARP, and hopefully these changes will smooth the refinance road.

As far as non-GSE loans, Jon Prior at HousingWire mentioned some of the comments from the press conference today about the pending mortgage settlement:

As part of the negotiations, the AGs are working to force servicers to refinance current borrowers into lower-rate mortgages.

"The settlement negotiation is also going to be focused on significantly accelerating the reduction of principal," Department of Housing and Urban Development Secretary Shaun Donovan said Monday.

This sounds like a HARP type refinance program for non-GSE loans (the "accelerating the reduction of principal" is one of the goals of HARP by refinancing into shorter term mortgages).

And there is more to come. I expect an announcement in the next month or two of some sort of program for Fannie/Freddie/FHA REO disposition. This would probably involve selling REOs in bulk to investors and include some sort of plan to rent them to the current occupants.

Put those three programs together: HARP refinance for GSE loans, a HARP like refinance program as part of the mortgage settlement for many non-GSE loans, and and an REO dispositions program that keeps many occupants in place as renters and I think that will help.

This doesn't solve all of the housing problems. But the refinance programs provide a stimulus to a number of borrowers and lowers the probability of default. I'm probably in the minority, but I think this is helpful.

by Calculated Risk on 10/24/2011 04:38:00 PM

Here is the press release from the FHFA: FHFA, Fannie Mae and Freddie Mac Announce HARP Changes to Reach More Borrowers

• One of the key elements is the elimination of seller and servicer reps and warrants on these loans. Several readers have asked if that is a "gift" for the originators?

It is definitely a plus, but these are seasoned loans (the loans had to be originated before May 2009), so the borrower has been making payments for several years. From the FHFA:

Nearly all HARP-eligible borrowers have been paying their mortgages for more than three years, and most of those for four or more years. These are seasoned loans made to borrowers who have demonstrated a capacity and commitment to make good on their mortgage obligation through a period of severe economic stress and house price declines.

Reps and warrants protect the Enterprises from losses on defective loans; typically, such defects show up in the first few years of a mortgage and so the value of the reps and warrants decline over time. By refinancing into a lower interest rate and/or shorter term mortgage, these borrowers are recommitting to their mortgage and strengthening their household balance sheet, thereby reducing the credit risk they already pose to the Enterprises. Therefore, FHFA has concluded that eliminating the reps and warrants that may have discouraged industry participants from taking greater advantage of HARP to-date will be good for borrowers, housing markets, and the Enterprises and taxpayers.

This will hit some MBS owners since these borrowers will now be able to refinance and the previous loan will be paid off (and these borrowers were paying high interest rates).

• Some readers have pointed out this doesn't help with negative equity. However there is an attempt in this program to get borrowers to refinance in to shorter term loans - and by paying down the loan amount - the borrowers will reach positive equity sooner. But this doesn't reduce the loan balance.

• I suspect this will encourage some short term delinquent borrowers to bring their mortgage loans current. From the FHFA: "The borrower must be current on the mortgage at the time of the refinance, with no late payment in the past six months and no more than one late payment in the past 12 months." So some 30 day delinquent borrowers could refinance in 6 months - and many in a year if they can bring their loan current. Mortgage rates will probably still be pretty low in a year!

• The FHFA estimates this will help close to 1 million borrowers, but according to a Dow Jones report, analysts at Barclays Capital have estimated that between 1.9 million and 3.1 million homeowners will be eligible.

• All of the major lenders have agreed to automatically subordinate their second liens behind the new HARP loans. This makes sense - a lower payment on the first helps the 2nd lien - but under the old program this had to approved on a loan by loan basis.

This program will probably be more successful than the original HARP. Of course this doesn't help delinquent borrowers - or borrowers with loans not guaranteed by Fannie or Freddie. Frequently loans are sold to Fannie or Freddie and the borrower keeps paying the servicer and isn't aware that the loan has been sold. Anyone with a loan originated before May 2009 should probably check:

Homeowners can determine if they have a Fannie Mae or Freddie Mac loan by going to:
http://www.FannieMae.com/loanlookup/ or calling 800-7FANNIE (8 am to 8 pm ET)
https://ww3.FreddieMac.com/corporate/ or 800-FREDDIE (8 am to 8 pm ET)

by Calculated Risk on 10/24/2011 02:22:00 PM

The Department of Transportation (DOT) reported today:

•Travel on all roads and streets changed by -1.7% (-4.6 billion vehicle miles) for August 2011 as compared with August 2010.

•Travel for the month is estimated to be 263.0 billion vehicle miles.

•Cumulative Travel for 2011 changed by -1.3% (-26.0 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 45 months - so this is a new record for longest period below the previous peak - and still counting! Talk about moving sideways ...

The second graph shows the year-over-year change from the same month in the previous year. The current decline is not as a severe as in 2008, but this is significant.

It appears the slowdown at the end of July and in August impacted miles driven, and perhaps miles driven will increase in September.

by Calculated Risk on 10/24/2011 11:22:00 AM

From Bloomberg: Moody’s U.S. Commercial Property Index Rose 2.4% in August

The Moody’s/REAL Commercial Property Price Index advanced 2.4 percent from July. It’s up 7.2 percent from a year earlier ... Moody’s doesn’t see “significant” price gains in the near term as loan originations based on commercial-mortgage backed securities slow and demand for vacant space continues to “languish,” the company said. ... The share of distressed deals was 21.7 percent, the lowest since January 2010.

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

Click on graph for larger image in graph gallery.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are up 7.2% from a year ago, and down about 41% from the peak in 2007. This index is very volatile because there are relatively few transactions - and some of the recent increase was due to fewer distressed sales - and some of the increase was probably seasonal.

by Calculated Risk on 10/24/2011 09:07:00 AM

From NY Fed President William Dudley: The National and Regional Economic Outlook

Stabilizing the housing sector is particularly important because housing equity is an important part of household wealth. This calls for a comprehensive approach to housing policy, starting with an urgent effort to remove the obstacles that make it difficult for all borrowers to refinance at today's low mortgage rates, but extending beyond this to tackle other problems weighing on housing. Taken together, such efforts could help shift people's expectations about future house prices. If prospective homeowners no longer fear that prices could decline further, they will be more willing to enter the market to take advantage of reduced prices and low financing costs, and existing homeowners will feel more confident about spending. A vicious cycle could be replaced by a virtuous circle, in which stabilization in house prices supports spending, growth and jobs.

This suggests a "comprehensive" plan is in the works.

The new refinance plan will be announced today, see from Nick Timiraos at the WSJ: Home Lending Revamp Planned

The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments ... Fannie and Freddie have also agreed to waive some fees that made refinancing less attractive for some.

And two more possibilities ...

1) Last week Fed Vice Chairman Janet Yellen, and Fed Governor Daniel Tarullo discussed a possible new MBS buying program at the Fed. See Fed Is Poised for More Easing and Fed Official Hints at Possible Effort to Boost Economy.

2) As I noted yesterday, I'm hearing rumors that a new REO disposition program for the FHA, Fannie and Freddie might be announced soon (probably selling REO to investors in bulk with a rental program for current occupants).

Weekend:
• Schedule for Week of Oct 23rd
• Summary for Week ending Oct 21st