Long Beach, Ca. After an exceptionally inspiring and charismatic speech, our National Leader gave some of the best sound bites I have ever heard last night in an extremely populist speech. Indeed, to watch many of the star struck senators and congressmen anxiously line up to have their programs autographed by Obama makes one wonder about the head rush of euphoria going through the law makers of our country as they prepare trillions of more spending bills. However, the real problem with all of the bail out and stimulus projects with the government pumping trillions of even more money into our economy is that it is going to all have to be paid back with interest for by the next several generations of Americans at a very heavy economic cost to the economy.
Federal Reserve Chairman Ben Bernanke expects the country's down cycle to continue through at least June but believes growth could resume later this year if "actions taken by the [Obama] administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability." Wow, he is dumping the responsibility of the economic future of America on to the backs of Congress after the FED had a Monopoly on money making decisions for almost a century, nice spin.....
So far, it is being reported that 90,000 borrowers are at least three months behind in their mortgage payments have been invited to take part in Fannie Mae and Freddie Mac's streamlined modification program, which seeks to lower monthly payments to 38 percent of a borrower's income via interest-rate reductions, longer terms and principal reductions. However, Federal Housing Finance Agency chief economist Patrick Lawler says, "Early indications are that several of the program guidelines should be liberalized to reach a broader population and to create a lower, more affordable payment." Joseph Evers, deputy comptroller at the Office of the Comptroller of the Currency, told lawmakers yesterday that roughly 57 percent of Fannie and Freddie's loan modifications made in the first quarter of last year defaulted again within six months of the modification when the borrower fails to pay their taxes.
The cram down provision we have talked about before is now under consideration by the U.S. House that would let bankruptcy judges reduce principal owed on mortgages and make other changes, insisting that the proposal would boost mortgage rates and lenders' losses. The proposed legislation could help more than 1 million struggling homeowners, says the Congressional Budget Office, which estimates that 350,000 of them likely will file for bankruptcy during the next decade. In a letter to administration officials, the Mortgage Bankers Association said, "Judicial modification should be a last resort and only available where other non-judicial options have been exhausted or are not available." As we have said this will only increase the cost of future home loans, but we will have to see how this works.
How confident are you about the economy? Yesterday it was reported that Consumer Confidence fell to its lowest level since 1967, which is when the survey began. We did see a little price improvement yesterday due to Ben Bernanke's remarks, along with a decent 2-yr auction, but then prices sank somewhat. Bernanke conjectured that the recession could last into 2010, along with assuring the market that the government does not desire to nationalize the big banks, most notably Citi and BofA. The Treasury Department sold $40 billion in two-year notes at a yield of .961% ($32 billion in 5-year notes today and $22 billion in 7-year notes tomorrow) As everyone in mortgage banking knows, the Fed is focusing on purchases of agency debt and mortgage-backed securities as well as extending loans to the private sector to jump-start business and consumer lending - some dealers report that they are the ONLY buyer. You heard correctly, the FED is the only buyer. It is a very serious situation when only the FED shows up to buy. That is why we have kept saying to you about the pricing, it is in a artificial bubble. For the marketplace to work, we need to see other people develop the confidence to become buyers
Kirk Mulhearn, a Long Beach real estate Broker is the Manager for Prudential California Realty, "The Bixby Knolls Office," and Co-Manager for a net branch of GEM Mortgage, a direct lender that originates FHA, VA, and Conventional Loans.
He may be contacted at: 562-989-4608 ext. 110
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