Stability and Affordability Program FAQ

Hello Family, Friends, and Referral Partners:

In light of the new reform from federal government on the subject of loan modifications, many homeowners who are current, and have fulfilled their obligation to the bank will finally be recognized. Contrary to current guidelines set in place that do not allow up- to- date customer’s assistance even if default is immanent. If a homeowner lost a significant portion of their income and have been paying their mortgage from a depleting savings account, former stipulations would require these Americans to be three months late before any relief would be considered. Now, the banks will have an incentive from our government to cure future loan default situations before they become a reality. The federal government has also recognized that the formula used to calculate a loan modifications for current, and past due consumers are unreasonable. Previous statutes state that 38% of the household income should go to mortgage payments (first mortgage, second mortgage, taxes, and insurance). This formula resulted in 47% of modified loans becoming delinquent again in six months. The stimulus package will lower the gross monthly income percentage to be paid toward mortgage expenses to 31%. Here’s a look at some of the frequently asked questions:
Do I have to fall behind on my loan payments to be eligible for a loan modification?

No, but borrowers do have to demonstrate that they are in danger of staying current on their mortgage payments and that they don’t have enough income to make their mortgage payments. That could help borrowers whose interest rates are resetting or who have lost their jobs.

Who is eligible for a loan modification?

The program is open only to primary residences and homeowners who are paying more than 31% of their monthly gross income on mortgage payments. Jumbo loans, which exceed Fannie or Freddie loan limits, are not eligible. Final eligibility will be determined by your mortgage lender. Can I modify a second mortgage? No. Only first mortgages are eligible.

Is my lender required to participate?

No. Lenders participate on a voluntary basis, but the government is providing subsidies to encourage lenders and servicers to modify loans. Mortgage servicers, for example, receive $1,000 upfront for each loan modification and can receive an additional $1,000 annually for three years if the borrower stays current on the loan. (Plan is heavy on incentives to modify loans.

Will the government reduce the size of my loan?

For those eligible for the government-subsidized loan modification, borrowers can receive a reduction in loan principal of $1,000 annually for five years if they stay current on their modified loan. Borrowers who aren’t able to qualify for a loan modification because they aren’t in danger of defaulting on their loans may still be able to refinance their loans to take advantage of low interest rates.

Can I refinance my loan if I owe more than my property is worth?

Borrowers with little or no equity can refinance into a 30-year or 15-year fixed-rate mortgage at current rates as long as the amount owed on a first mortgage does not exceed 105% of their home’s current value. The refinance program is only open to borrowers with conforming loans that are owned or guaranteed by Fannie Mae or Freddie Mac. Borrowers must be able to demonstrate that they are current on mortgage payments and that they will be able to meet the new payment terms on the first mortgage.

How do I know if my mortgage is owned or guaranteed by Fannie or Freddie?

It is recommending that borrowers contact their lender at that time to see if their mortgage is owned or guaranteed by Fannie or Freddie.

What happens if I have a second mortgage?

Can I still refinance? Borrowers with more than one mortgage may be eligible to refinance as long as they owe less than 105% the value of their property on the first mortgage. The second mortgage holder will have to agree to remain in a second position on the home.

Are jumbo loan holders eligible?

No. Only those who have mortgages owned or guaranteed by Fannie or Freddie can apply, and the government-held mortgage companies don’t guarantee jumbo loans.

Here are the latest in loan modification guidelines released by the US Treasury: http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf.

Rates are in the low 5’s for most clients right now. It is vital you call and review your situation and take advantage of this new legislation.

Homeowner Affordability and Stability Plan

As many of you know or have heard, the White House unveiled a plan yesterday that is designed to help up to 9 million “at risk” homeowners modify their mortgages by committing $75 billion of taxpayer money to back the initiative.  The program seeks to bring mortgage payments down to 31% of income (DTI) for these homeowners.  

 

Keep in mind that three critical steps must occur before this or any plan goes into effect:

 

1. The Agencies (Fannie and Freddie) and FHA must determine whether pricing, policy and/or delivery requirements will be changed.
2. The Agencies and FHA must communicate their requirements to mortgage investors (Wells Fargo, Chase, CitiMortgage, GMAC Bank, Band of America, etc…).
3. These mortgage investors must identify impacts caused by the Agencies’ and FHA’s requirements, implement the changes and communicate them out to mortgage lenders like us.

 

Below is an Executive Summary that I found which I thought would help everyone understand what was signed.

 

Homeowner Affordability and Stability Plan

Executive Summary 

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country. 

• Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
• Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
• Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track.  The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure.  In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are: 

1.      Affordability:  Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering >From Falling Home Prices

·         Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.

·         Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year: 

o Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

2.      Stability:  Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

• Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
• No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
• Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
• Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments. 
• Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:
  •  
    • A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
    • “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.
    • Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
    • Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
    • Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration — together with the FDIC — has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.
• Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work.  The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance.  Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
• Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
  • Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
  •  Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
  • Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
  • Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers

3.      Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:

• Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
  • Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
  • Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each. 
• Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.  
• Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
• Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
• No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP. 

What does $787 B look like

Just signed and sealed…a $787 Billion Stimulus Plan made up of tax cuts and spending programs aims at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II. Home owners and potential homebuyers stand to gain from key provisions in this stimulus plan. Here is what we know as of today… The following discussions are intended for you to use directly with your client either in writing or verbally.

Tax Credit for Homebuyers First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.

Additional Housing-Related Provisions Tax Incentives to Spur Energy Savings and Green Jobs — This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation. Landmark Energy Savings — This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills. Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing—This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section to increase energy efficiency, including new insulation, windows, and frames. Expanding Housing Assistance—This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.

More Help for Homeowners in the Future Another thing to keep an eye on in the coming weeks is President Obama’s plan to help struggling borrowers before they are faced with a default on their mortgage. According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster. While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That’s because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices. The Economic Stimulus Plan is huge, and impacts a number of industries. I’ve highlighted some of the major provisions that may impact you now and in the future. As always, if you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.

Best Rates and Worst President

30 year fix is jumping between 4.75% and 5.375%. We lock only after we have a complete application in so make it easy and get approved today at www.BuyorRefi.Biz
Okay, so Chase is out of wholesale. (1) They have no more wholesale division, (2) they won’t buy loans from correspondents who got their loans from brokers, and (3) Chase’s warehouse lending division apparently won’t issue lines to mortgage bankers who do more than a small amount of third party business. As we started saying 6-9 months ago, wholesale may not go away entirely, but there’s clearly a trend against it. We hope you’re working hard on building your retail business. The good news is I’m not them and still use Chase as on of my top lenders.
If we had to guess, we’d say that yes, a year or three from now there will still be some sort of wholesale. But brokers will have significant net worth requirements, they’ll have some kind of buy-back responsibility, and there will be all sorts of barriers to entry, for the brokers and the bankers. That’s our guess.
If you measure company size by their market cap, we were curious how many of the top ten world-wide were American. The answer is five, and we found it so interesting that we’ll run the whole table here. All numbers are in billions.

1. $406 Exxon Mobil
6. $177 Proctor & Gamble

2. $214 Wal-Mart Stores
7. $169 Microsoft

3. $209 China Mobile
8. $168 Volkswagen

4. $183 Industrial Bank of China
9. $166 Royal Dutch Shell

5. $178 General Electric
10. $161 Petrochina

Of the next ten biggest, four were American.

The Chicago Tribune (owner of the L.A. Times) is in bankruptcy, the Seattle Post-Intelligencer may not survive the month, and newspapers across the land are barely staying alive. But the New York Times will be forever, right? Well, think again. They have $1.0 billion of debt on their books, $400 million of which comes due over the next five months, and only $46 million of cash reserves.

It’s always fun to compare Presidents by certain metrics. Now that Bush has finished his eight years, the following numbers were just compiled for how the Dow Jones Industrial Index did on average each year for him and a few others:

28% Clinton
11% Bush (the dad)

21% Eisenhower
6% Johnson

17% Reagan
6% Kennedy

16% Ford
0% Carter

16% Truman
-2% Bush (son)

One thing to remember, though: Correlation is not causation.

Everyone knows one or two of Satchel Paige’s six rules of life, but every so often, it’s worth reading them all: (1) Avoid fried foods cause they anger up the blood, (2) If your stomach disputes you, lay down and pacify it with cool thoughts, (3) Keep the juices flowing by jangling around lightly as you move, (4) Go very light on vices such as carrying on in society. The social ramble just ain’t restful. (5) Avoid running at all times, and (6), Don’t look back. Someone might be gainin’ on you. This all must have helped, as he was pitching in the Major Leagues at age 48.

Foreclosure Filings Up 81% in 2008

More than 2.3 million American homeowners faced foreclosure proceedings last year, an 81% increase from 2007, with the worst yet to come as consumers grapple with layoffs, shrinking investment portfolios and falling home prices. Nationwide, more than 860,000 properties were actually repossessed by lenders, more than double the 2007 level, according to RealtyTrac, a foreclosure listing firm based in Irvine, Calif., which compiled the figures.  About 55 percent of loans modified in the first quarter of 2008 were 30 days or more delinquent six months later, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a Dec. 22 report.  Nevada had the highest foreclosure rate in 2008, with 7.3 percent of housing units in some stage of default. Florida had the second-highest rate with 4.5 percent of housing units in default. Arizonahad the third-highest rate at 4.49 percent, said RealtyTrac, which collects data from more than 2,200 counties that are home to more than 90 percent of the U.S. population. California, Colorado, Michigan, Ohio, Georgia, Illinois and New Jersey were also among the states with the 10 highest rates. New York ranked 35th with 50,032 properties receiving default notices. California had the most properties with filings: 523,624, representing a 110 percent increase from a year earlier and a six-fold jump from 2006. Florida was second and Arizona third, followed by Ohio, Michigan, Illinois, Texas, Georgia, Nevada and New Jersey.  

Half of modified mortgages in default

WASHINGTON (AP) From CNNmoney.com Dec 2008– More than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again, banking regulators said Monday.

The new data raise questions about whether government money may be better spent on creating jobs, rather than averting foreclosures, said John Reich, director of the federal Office of Thrift Supervision office at a housing industry forum sponsored by his agency.

“I do have concerns about allocating federal resources” Reich said.

However, many experts claim the bulk of loan modifications don’t actually provide much financial relief for borrowers.

The government’s data don’t include enough detail about the types of the loan modifications that were made, said Sheila Bair, chairman of the Federal Deposit Insurance Corp. “The quality of the [modifications] are not what they should be,” she said.

The U.S. economic picture has darkened over the past month. One in 10 Americans with a mortgage is either behind or in foreclosure, and more than 500,000 jobs were lost in November.

Unemployment stands at 6.7%, and the worldwide credit markets have only improved modestly from the freeze that led Congress to approve a $700 billion bailout before the election.

Discussion on Monday’s focused on how broad the government’s intervention should be, rather than whether the government should play any role at all. The U.S. is on track for 2.25 million foreclosures this year.

“We need a bottom-up approach, in my view, by modifying people’s mortgages and helping them stay in their homes,” said New Jersey Gov. Jon Corzine.

Corzine called for a three to six month halt to foreclosures while the government works out a more aggressive plan.

Mark Zandi, chief economist at Moody’s Economy.com, said the public is likely to be more sympathetic to efforts to assist troubled borrowers, because the link between the foreclosure crisis and the sinking economy is increasingly clear to most Americans.

“It’s now in every corner of the country,” Zandi said. “I think that people understand that this is a broader issue.”

During an interview that aired Sunday on NBC’s “Meet the Press,” President-elect Barack Obama declined to say how large an economic stimulus plan he envisions. He said his blueprint for recovery will include help for homeowners facing foreclosure on their mortgages if President George W. Bush has not already acted when Obama takes office next month.

For nearly a year, some consumer advocates, lawmakers and think tanks have advocated a dramatic government response. The effort, they say, should be similar to created the Home Owners’ Loan Corp. in 1933 to help borrowers refinance troubled home loans during the Great Depression.

The Bush administration has focused mainly on voluntary industry efforts to modify loans, and those have not stopped the surge in foreclosures.

It’s official: Recession since Dec. ‘07

The National Bureau of Economic Research declares what most Americans already knew: the downturn has been going on all yearonubscribe to Economy

By Chris Isidore, CNNMoney.com senior writer

 

 

NEW YORK (CNNMoney.com) — The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy .

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

“The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment,” said the group’s statement. “This series reached a peak in December 2007 and has declined every month since then.”

Employers have trimmed payrolls by 1.2 million jobs in the first 10 months of this year. On Friday, economists are predicting the government will report a loss of another 325,000 jobs for November.

The NBER also looks at real personal income, industrial production as well as wholesale and retail sales. All those measures reached a peak between November 2007 and June 2008, the NBER said.

In addition, the NBER also considers the gross domestic product, which is the reading most typically associated with a recession in the general public.

Many people erroneously believe that a recession is defined by two consecutive quarters of economic activity declining. That has yet to take place during this recession.

This downturn longer than most

The current recession is one of the longest downturns since the Great Depression of the 1930’s.

The last two recessions (1990-1991 and 2001) lasted eight months each, and only two of the 10 previous post-Depression downturns lasted as long as a full year, according to the NBER.

In a statement, White House Deputy Press Secretary Tony Fratto said that even though the recession is now official, it is more important to focus on the steps being taken to fix the economy.

“The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that’s where we’ll continue to focus,” he said. “Addressing these areas will do the most right now to return the economy to growth and job creation.”

What’s going on in the economy?

 GDP was -.5% in the 3rd quarter, Consumer Confidence moved up from 38.8 in October to 44.9 in November, and the Case Shiller Home Price Index for 20 U.S. Cities Declined 17.4% in September from a year earlier. But the big news yesterday was the Fed’s announcement mentioned above. This morning we’ve seen that MBA mortgage applications are out with a 1.5% increase last week. Purchases were +5.3% and refinances were -2.1%. Durable Goods orders (items lasting 3 or more years) plummeted in October by 6.2%, double what was expected, and was the largest drop since October of 2006. Jobless Claims fell by 14,000 last week to 529,000 in the week ended Nov. 22 from an upwardly revised 543,000 the previous week. And consumers cut spending during October by 1.0%, the steepest rate in more than seven years. Given that consumer spending accounts for two-thirds of economic activity in the US, this is significant.

 

Thanks to Bob Hagerty of the Wall Street Journal for the great stats.

Credit Markets loosing??? Kinda

Funny thing happened Friday on Wall Street.  There were 240,000 jobs lost in October, bringing the unemployment rate to a 14-year high of 6.5%. That was up from 6.1% the month before as the decline in October payrolls marked the 10th consecutive monthly loss.  But somehow stocks managed to rally despite the weak economic data and some poor earnings reports.  Friday’s surge comes after the worst two day drop since 1987 on Wednesday and Thursday.   

The carnage in the automobile sector continues.  Ford Motor Co. (F, $2.02, +0.04) reported a $129 million third-quarter loss and announced plans to cut more than 2,000 additional white-collar jobs. General Motors Corp. (GM, $4.36, -0.44) said it lost $2.5 billion in the quarter and warned it could run out of cash in 2009. The struggling automaker also said it has suspended talks to acquire Chrysler. 

 

The real story is the cash burn rate for the two automakers.  Ford said that it burned through $7.7 billion in cash during the quarter, leaving its reserves at $18.9 billion.  GM had a cash burn rate of $6.9 billion for the quarter and has $16.2 billion in reserves.  That money won’t last long if the losses persist, just do the math.  Take a look at the sock prices. 

 

Crude oil fell almost 10% this week closing at $61.04/barrel as demand continues to slow around the globe given the current recession.  The drop in oil has contributed towards lower gasoline prices as they fell for the 52nd straight day, according a survey released Saturday by the motorist group AAA.  The average price of regular unleaded decreased to $2.282, a 3.2 cent drop from Friday.  Prices have dropped 44.5%, or $1.83, from their record high of $4.11 a gallon set July 17. 

 

Gold closed at $734.20 up almost 3% for the week.  The yield on the 10 Year T Note, which moves opposite its price, was 3.79% 

 

Libor fell again suggesting that banks are more willing to lend to one another — a positive signal for the tight credit markets. The Libor, for three-month loans in dollars dropped for the 20th straight day by 0.10% to 2.29%, the lowest level since November 2004.  Futures on the Chicago Board of Trade showed a 97% probability that the Fed will cut the Fed funds Rate to .50% from 1% percent at its Dec. 16 meeting, compared with 55% odds a week ago.

 

Thanks to the Mortgage Market Guide for the great info.  A must have for all advisors.

Whats up with rates and the markets

Let’s hope that potential home buyers aren’t keeping their down payment monies in the stock market! This morning stock futures are down their limit. At some point it seems that money managers enjoy pushing a certain market one way or the other, and this time it is stocks to the downside. Asian markets were mauled overnight – with the stock markets in most countries losing about 10% on fears of a global recession. Hong Kong, Australia, Singapore and Taiwan markets dropped to their lowest levels in at least three years. Japan’s Nikkei was down 9.6% to end at 7,649, the lowest its been in 5 ½ years. Their stock market is at one fifth (as in 1/5) of its all-time high of 38,915, which it hit in December 1989.

 

The stock prices of banks are being hit hard so far. Bank of America’s are -9% to $20.90, Citi -10% to $11.85, Goldman Sachs -12% to $95.65, JPMorgan Chase -8% to $34.90, Merrill Lynch -12% to $15.35, Morgan Stanley -14% to $15.53, Wachovia -9% to $5.26, and Wells Fargo -8% to $28.90.

 

But hey, it costs you less money to fill up every week, so all is not bleak. Oil is down another $4 to $63. The Organization of Petroleum Exporting Countries (made up of 11 countries) cut oil production targets by 1.5 million barrels per day for the first time in almost two years to stem a collapse in prices, down from their current 28.8 million barrels a day. Thankfully for Hummer owners, oil has dropped 57% since mid-July when we were seeing $147 a barrel.

 

What is all this doing to interest rates? 10-yr notes from the Treasury were up earlier 1.25 in price, with the yield down to 3.49%, and the 2-yr was down to 1.36%. Things are not that good now, however, with the 10-yr back “up” to 3.54%. But mortgage prices are not along for the ride. Yesterday mortgage prices held in during the morning, but then faded during the day, and several investors changed prices for the worse as our stock market rallied. This morning mortgage prices are actually worse by .375 to .5 in price from yesterday afternoon. The only scheduled economic news is September’s Existing Home Sales, expected +.8%, but really, is anyone going to be waiting for that number?

Thanks again Rob for your valuable info