Last Tuesday Citigroup joined JPMorgan Chase and Bank of America in announcing a major loan modification program. The bank's CitiMortgage unit is offering to modify the terms of mortgages for borrowers at risk of falling behind on their payments. The Citi Homeowner Assistance program plans to contact about 500,000 homeowners in the next six months, involving up to $20 billion in mortgages. Citigroup's loss mitigation efforts have already prevented about 370,000 foreclosures on $35 billion in loans since early last year.
That same day, administration officials in Washington announced a plan for refinancing delinquent loans held by Fannie Mae and Freddie Mac, the now government-controlled giant mortgage companies. This could result in lower payments for hundreds of thousands of homeowners. The program builds on the Hope Now program already in place. The goal is to reduce mortgage payments to no more than 38% of a family's monthly income. Slowing the pace of foreclosures is key to our recovery and these programs all help.
You probably heard foreclosure filings were up in October, 25% over the previous year. But foreclosure filings were up only 5% over the previous month and some states actually had declines. Lost in all the noise was the fact these filings don't all wind up as foreclosures. Borrowers are able to refinance their mortgages, negotiate loan modifications, workouts or short sales with lenders.
>> Review of Last Week
RISKY BUSINESS... What's going on now in the economy is being called risk aversion hysteria and that's an apt name. Unfortunately, what the hysterical avoidance of risk actually does is create more of it. With all the talk of a credit crisis, a shrinking economy and fewer jobs, people decide to be more careful with their money. This tanks consumer spending, which gets Wall Street worried, and stock prices swoon - so we wind up with a riskier environment.
A sterling example of this popped up last week. Part of the market's poor performance was tied to the terrible 2.8% drop in retail sales for October, which was directly linked to the current consumer aversion to risk. But it should be noted, if you exclude autos, building materials and gas, "core" retail sales fell only 0.5%. Still a decline, but smaller than the previous two months and, in fact, UP 1.3% over last year. We also want to point out that some economists expect October to be the worst month for retail in the recession and are projecting a "V"-shaped recovery, with growth coming back by Q2 of next year.
On the positive side, the Chinese government announced Monday a $586 billion plan to stimulate their economy. This set off a stock rally in China and inspired some good moves in our own markets for a while. And please also note that crude oil closed the week at $57.04 per barrel. But we did have lower earnings outlooks from a handful of retailers, plus Intel, who showed that techies can be cautious too. There was much hand wringing about whether the government should bail out the US auto industry. The week ended with the G20 countries meeting over the weekend in Washington to talk more about fixing this crisis and preventing future ones.
It was a super-volatile week in the markets, with a 911-point swing in the Dow on Thursday, when it closed up 552 points, its third-biggest gain ever. But for the week, all indexes ended down. The Dow was off 5.0%, at 8497.31. The S&P 500, down 6.2%, went to 873.29. The NASDAQ lost 7.9%, going to 1516.85.
The bond market moved around all week. But the benchmark 10-year Treasury ended up, so its yield, which runs counter to price, went a tick lower, finishing at 3.725%, nicely below the 4% threshold. Borrowers can expect mortgage rates to remain at historically low levels, where they've been for quite some time.
>> This Week's Forecast
REMEMBER INFLATION?... Doesn't seem to be as much of a problem now as it was just a short while ago, but just to make sure everything's still OK, we can check on the Producer Price Index (PPI) on Tuesday and the more critical Consumer Price Index (CPI) the next day. The FOMC minutes on Wednesday will explore the Fed's head set at their October 29 meeting. Then the Philadelphia Fed Index will give its indication of our economic state. Thursday evening we'll hear more on the economy from Treasury Secretary Paulson.
A few biggies will report Q3 earnings this week, including Lowe's, Target, Home Depot and Dell.
Lee Forbes
Gulfsideland.com (search over 118,000 active listings across Florida!)
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