KeNo's Housing and Economic Portal: Sunday August 22 Housing and Economic stories

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Housing Insanity: MORE debt, LOWER downpayments - (www.theatlantic.com) If you want to know why us libertarian types are skeptical of the government's ability to prevent housing market bubbles, well, I give you Exhibit 9,824: the government's new $1000 down housing program. No, really. The government has apparently decided, in its infinite wisdom, that what the American economy really needs is more homebuyers with no equity. Now, qualified homebuyers in the three states pioneering Affordable Advantage do not need to put down the 3.5 percent minimum down payment required by the Federal Housing Agency, or much of a down payment at all. They can get 100 percent financing -- a loan as big as the purchase price of the house -- for a 30-year, fixed-rate mortgage -- a vanilla mortgage. The deal includes a program to help homebuyers if they become unemployed, lowered fees and there is no requirement that the homebuyer purchase mortgage insurance. Wisconsin started the program first, in March, offering 100 percent loan-to-value mortgages for borrowers with a minimum credit score of 680. "It's a good credit score," explains Kate Venne, the spokesperson for the Wisconsin HFA. "In addition, we want to see what other lines of credit people have, and their performance. We look at their work history. We call their employers." Thus far, Wisconsin's HFA has offered $52 million in mortgages to 450 buyers. Now, commentators left and right can agree that this is not a good idea. No matter how stable said low-income homeowners are, they shouldn't be buying houses with no equity, because if they suddenly have to sell said houses, they're going to have trouble coming up with 6% to pay the broker, closing costs, etc.

FHA Insured Mortgages, a Disaster in the Making? - (www.realestatechannel.com) The growing exposure of the FHA's $865 billion insured loan portfolio to delinquencies, defaults and foreclosures is complicated by the fact that most of these loans have been packaged and securitized by approved lenders for the Government National Mortgage Association (Ginnie Mae), a wholly-owned U.S. government corporation. Ginnie Mae does not originate, buy or sell loans. What this Agency does is guarantee to investors the "timely payment of principal and interest" on mortgage-backed securities (MBS) backed primarily by loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Mortgage-backed securities are pools of mortgages used as collateral for the issuance of securities known as pass-through certificates. They are called this because the principal and interest which flows from the underlying mortgages is passed through to the MBS investor. The interest rate on the MBS is lower than that of the underlying loans to allow for servicing fees. Known in the trade as "Ginnie Maes," these MBS are not securitized and sold by Ginnie Mae but by lenders who must be approved by both the FHA and Ginnie Mae. They are the only MBS which are backed by the full-faith-and credit of the United States Government. The Ginnie Mae website states that 98% of all FHA insured loans are packaged into Ginnie Mae MBSs..... Currently, there are 555,000 FHA-insured homes which are delinquent 90 days or more. This figure has been rising steadily for three years. Loan Performance tracks the cure rate for delinquent mortgages in its massive loan database. The cure rate for seriously delinquent mortgages has plunged to roughly 1%. This means that 99% of these delinquent mortgages are headed for default and then either foreclosure or short sale. The chart below says it all.

Freddie Mac: $4.7 billion Loss, REO Inventory increases 79% YoY - (www.calculatedriskblog.com) Freddie Mac reported: "a net loss of $4.7 billion for the quarter ended June 30, 2010, compared to a net loss of $6.7 billion for the quarter ended March 31, 2010." and the FHFA requested another $1.8 billion from Treasury. (ht jb) "We recognize that high unemployment and other factors still pose very real challenges for the housing market" said Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr. Freddie Mac reported that their REO inventory increased 79% year over year, from 34,699 in Q2 2009 to 62,178 in Q2 2010.

Worrying Numbers Behind Underwater Houseowners - (www.dailyfinance.com) By the end of the first quarter of 2010, the number of mortgaged residential properties with negative equity had declined slightly to 11.2 million, down from 11.3 million at the end of 2009, according to a report issued by real estate analytics firm CoreLogic. The report includes data through the first quarter, and is CoreLogic's most recent available study. The bad news: Those 11.2 million loans make up roughly 24% of all U.S. mortgages. Add the 2.3 million borrowers who are close to slipping underwater (those with less than 5% equity), and the numbers rise to 13.5 million -- 28% of mortgages. This aligns with other industry estimates. Earlier this year, Mark Zandi, chief economist at Moody's Economy.com,estimated that roughly 15 million American homeowners owe the bank more than their home is worth. (Note: On Aug. 9, Zillow Real Estate Market Reports said the percentage of single-family homes with negative-equity mortgages fell to 21.5% in the second quarter, from 23.3% in the first quarter, due mostly to higher foreclosures in the period.)

Battle Looms Over Huge Costs of Public Pensions - (www.nytimes.com) There’s a class war coming to the world of government pensions. The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide. The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks. At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying. Given how wrong past pension projections were, who should pay to fill the 13-figure financing gap? Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country. Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year. This sort of thing just isn’t done. States have asked current workers to contribute more, tweaked the formula for future hires or banned them from the pension plan altogether. But this was apparently the first time that state legislators had forced current retirees to share the pain.

More Workers Face Pay Cuts, Not Furloughs- (www.nytimes.com) The furloughs that popped up during the recession are being replaced by a highly unusual tactic: actual cuts in pay. Local and state governments, as well as some companies, are squeezing their employees to work the same amount for less money in cost-saving measures that are often described as a last-ditch effort to avoid layoffs. A new report on Tuesday showed a slight dip in overall wages and salaries in June, caused partly by employees working fewer hours. Though average hourly pay is still higher than when the recession began, the new wage rollbacks feed worries that the economy has weakened and could even be at risk of deflation. Pay cuts are appearing most frequently among state and local governments, which are under extraordinary budget pressures and have often already tried furloughs, i.e., docking pay in exchange for time off. Warning that they will have to lay off people otherwise, many governors and mayors are pressing public employee unions to accept a reduction in salary of a few percentage points, without getting days off in exchange.