Another great update from a partner at Union Mortgage...a great mortgage provider if you are looking to buy or refinance....as you can tell from my last blog that I am on the same page as Jim.
As noted after the comments, there are a few reports that the mortgage and broader financial market will watch and that you should pay attention to also!!!!!
For the week of October 18, 2010
Foreclosures are the hydra-headed monster that refuses to be slain. What's more, not only does the monster refuse to be slain, its pernicious heads are extending into unexpected realms.
A few of the heads are familiar: the number of homes taken over by banks topped 100,000 for the first time in September, according to RealtyTrac. In addition, REO for the third quarter of 2010 reached a new record as lenders took back over 288,000 properties, a 7 percent increase from the previous quarter and a 22 percent increase from the previous year.
Foreclosure and REO activity are expected to abate over at least the next month or two, but not for the positive reasons – improving economy, markets clearing, job creation – that we would like to see. No, they are expected to abate on a new hydra head – missing and fraudulent paperwork.
A few weeks ago, Ally Bank stepped forward with a mea culpa: it was halting foreclosure proceedings in 23 states because it was investigating potential problems with how its foreclosure paperwork was processed. Soon after, other larger lenders stepped forward with similar confessions. Attorney generals in all 50 states are now investigating the matter, and many are calling for a halt to foreclosures in their respective states.
It's a big deal: If these freezes turn into a prolonged delay, Fannie Mae and Freddie Mac would face billions of dollars in losses, since they would be unable to sell off foreclosed properties. The matter of property rights and market fluidity is the greater concern, though. If homebuyers lose faith in the system of property ownership and transfer, we'd suddenly arrive at a very reductive place. Home prices follow sales volume, and if sales dry up, especially in markets dominated by distressed sales, prices would collapse.
This fear of a price collapse has gained currency in many media outlets, if for no other reason than scary headlines are natural attention getters. We doubt a price collapse is in the works. Markets stall but don't grind to a halt, as we learned when the banking system came close to experiencing a systemic meltdown back in 2008. When we look at other finance markets – stock and bond, in particular – they are hardly priced for disaster. The fact is, it's still business as usual in most markets.
It's also business as usual in the mortgage market, with rates holding still for the past couple weeks. How much longer they will continue to hold still is in doubt. We've noted that the risk of a substantial move up in rates easily overshadows the likelihood of a substantial move down. Some members of the Federal Reserve agree, noting in recent minutes "the economic benefits (of further easing) could be small in current circumstances,” which indicates they don't believe mortgage rates have much room to move lower either. Therefore, we continue to urge that anyone in the market for a loan get his or her application in sooner rather than later.
Economic Indicator Release Date and Time Consensus Estimate Analysis
Industrial Production Mon, Oct 18 9:15am et .2%(Increase) Modestly Important. Manufacturing
(September) continues to pace econmic growth
Housing Market Index Mon, Oct 18th 10am et 14 Index Important: Traffic & Foreclosure
(October) concerns continue to weigh on
Housing Starts Tue, Oct. 19th 8:30am et 580,000 Important. Overall housing has
(September) (Annualized) stablized, but single family
component remains weak.
Mortgage Applications Wed, Oct. 20, 7am et None Important. Purchase activity could
take a hit over foreclosure-
Beige Book Wed., Oct. 20,2:00 pm, et None Moderately Important. The Fed will further explicate its
rationale for maintaining a low
Leading Indicators Thurs, Oct. 21, 10am et .2%(Increase) Moderately Important. The
(September) benefits of additional monetary
stimulus are debatable.
More on the QE II
So what's with this quantitative easing (QE) anyway? The short answer is that it's simply a tactic by the Federal Reserve to create more money by purchasing assets on the open market. (The Fed purchases these assets by writing checks on itself.) This process of creating more money, in turn, is supposed to stimulate the economy by lowering financing and borrowing costs.
Results have been mixed, with QE mostly benefiting investment markets: Gold markets have been surging because investors believe QE will lead to inflation. Stock markets have been buoyed on the grounds that QE will eventually revive the economy. Government-bond yields have been falling because government bonds are the assets the Federal Reserve buys when engaging in QE.
The simultaneous bull run in these markets has us concerned. In the four previous periods of triple strength since 1980, all were followed by falling Treasury-bond prices. That doesn't bode well for mortgage rates: if the past is a prologue and Treasury-bond prices fall, we can rest assured that mortgage rates will rise.