Mortgage Credit News – December 4, 2009
Mortgage and long Treasury rates are rising toward four-month highs this morning (5.25% and 3.49%) on a happy surprise in the job market.
The monthly survey of big business “non-farm payrolls” found an end to job losses, and got some confirmation from an abrupt drop in the last two weeks’ claims for unemployment insurance. Other fresh data from November did not confirm: the twin surveys by the purchasing managers’ association (ISM) came in below expectation and below October actual, the service-sector declining sharply.
The hunch here: the economy began to bifurcate in spring, big business and big finance stabilizing, even recovering (IT and international sectors). The weakness and pain shifted from Wall to Main, still deepening here on the sidewalk, false strength in economic aggregates in spring and summer now fading into an “L” — no matter how well the big boys are doing after ruthless cost and job cuts.
The Administration this week redoubled its effort to resolve housing distress, unfortunately by reinforcing prior failure. Perhaps the extra effort will cause faster failure now, and then someone inside may suggest trying something else.
The first surge: threaten loan servicers with penalties if they don’t modify more loans. Never mind that Fannie and Freddie report 346,559 trial modifications since June (www.fhfa.gov, November 23). It is a bit embarrassing that only 8,719 survived the trial to permanent mod status, but that might have more to do with the condition of the borrowers than the diligence of the servicers. During the period of 8,719 successes, 441,000 additional Fannie/Freddie loans entered 90-day+ delinquency.
Common problems: many borrowers would like never again to hear from a lender, no matter how helpful they say they’ll be. Second, the Home Affordable Mortgage Program (HAMP) requires an evaluation of the troubled borrower — really a new and thorough loan application. Taking a good loan application is interactive, cannot be scripted, and requires training and talent; most borrowers contacted by HAMPers tell us they are clumsy, circular, and forgetful. Third, many delinquent borrowers are beyond help, and dumping them into the HAMPer is cruel busywork.
Surge two: the HAMPers on Monday gave a new set of orders to loan servicers: its Home Affordable Foreclosure Alternatives Program (HAFA) requires that ALL delinquent campers failing HAMPer mod must — must — be offered a short-sale price before foreclosure can take place. The 45 pages of HAFA rules at www.hmpadmin.com, November 30 release, including uniform short-sale contracts, although a bureaucratic tangle (try to read it!) may help Realtors and may smooth the short-sale process.
However, HAFAloaf has problems as a solution to the housing crisis. The new program adds a lengthy step to the foreclosure process, and to the depth of troubled water rising behind flimsy dams. It also fails in scale: total Fannie/Freddie YTD short-sales: 32,400, less than 10% of new serious delinquency. Bailing by spoon.
A short-sale does little for the underwater owner: gotta deal with Realtors, showings, contracts, and still come out with wrecked credit and equity wiped. HAFAloaf does require that servicers begin to pay short-sellers and deed-in-lieuers. $1,500 a pop. Thanks, guys, but instead I think I’ll live here payment-free for a year or so.
HAFAloaf also requires servicers to offer $3,000 to second mortgage holders in exchange for their suicide-by-release. Right. Uh-huh. Can’t wait to try that one.
The real problem, of course, is too few buyers to offset the immense volume of owners hopelessly underwater and with cheap rental alternatives available. Honorable people, if left exposed long enough without serious help from the nation, will walk from homes in a form of civil disobedience. One authentic solution: adequate credit for buyers, including pre-packed loans for resale of foreclosures and shorts.
Instead, this is official policy: if you default you get a re-written, sweet loan; but if you want to buy, and don’t fit the ever-shrinking credit box, forget it.