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July 17, 2009
Long-term rates jumped this week, the 10-year T-note to 3.60% from 3.28% at last week’s low, the principal push delivered by a 500-point surge in the Dow.
Mid-summer is the “silly season,” when a shortage of serious news elevates “Man Bites Dog” to the front page. This stock rally was short-covering, and bonds are on constant selling edge because of runaway deficits. New data could be read as green-shoot, or L-shaped non-recovery, but none were trend-changers.
Housing permits and starts rose a bit above forecast, to the high-500K-annual range from high-400K in last winter’s pit, but housing is going nowhere, loan applications flat. Total retail sales improved in June only because gasoline cost more.
Some silly-season items this year are downright strange.
Since 1971 Freddie Mac has surveyed mortgage rates early each week and reported on Thursdays. By 1980 mortgages began to move with bonds in real time, but not Freddie, which yesterday announced that mortgages fell again, to 5.14%. They rose again, of course, Jurassic Freddie deftly catching another early-week dip.
FHFA (“FOO-fah”), the re-named agency (ex-OFHEO) governing the mortgage GSEs, has set new standards for irrelevance. For no-content ego-bloviation, nothing beats its July 9 “Five-Year Strategic Plan” (www.fhfa.gov). Might have included some thinking about an adequate supply of mortgage credit? Not at Foohfah, Bush-holdover James B. Lockhart III the immovable proprietor.
On July 15, Johnnie-on-the-spot Foofah released its monthly self-congratulatory report on foreclosure prevention. For April. No telling what has happened since, but the relentless rise in 90-day+ delinquencies had continued across 30 million loans –- 1.05% in April ’08, 3.03% in April ’09. Might be worse now, but who would know.
On July 1, Foofah published its advice to underwater households: refinance up to a new 125% LTV limit with shorter, higher-payment loans, that way to pay down to breakeven equity sooner. Foofah’s nifty chart says with a new 25-year loan you can pay your way to zero equity in only eight years, instead of eleven on a 30-year (I am not making this up). A 15-year loan? Only four super-payment years to no equity!
Hey, Jim Lockhart! You see these keys? Check your mailbox next week.
Fannie and Freddie received authority last year to grow their mortgage portfolios by $200 billion apiece to support housing through the crisis. They have not. The Fed has bought instead, a very good idea but no net increase: aggregate mortgage balances today are the same as in 2007. It was an epic error for the Fed to fail to notice mortgage balances doubling from 2000-2007, double the rate of GDP growth, but is anyone considering an adequate mortgage supply for housing recovery?
In the de-leveraging process now two years underway, the idea is to do it slowly. Despite the Fed’s own preening about improvements in credit markets, there is no private mortgage market whatever (Jumbo volume collapsed 78% in 2008, worse this year), and Foofah underwriting standards are market-killing. Has someone decided to de-emphasize housing permanently, by mortgage starvation? A secret?
Oddest of all is the disappearance of the Obama administration. The Geithner-Fed ballyhooed $1-trillion public-private extraction of toxic assets from banks will make a try at $40 billion this month, and flop again. Geithner’s interest in housing is limited to loan modification, a five-foot ladder in a thirty-foot hole.
The President says the stimulus is working as planned. The Congressional Budget Office blew up his health care plan yesterday, saying the obvious: it will add to Federal cost, its tax increase insufficient to pay for new its new promises when we need every revenue dime to pay for old promises that we cannot afford. There is no solution to health care but one: use less. Fewer tests, options, lawsuits, and heroics.
I’m still hopeful for Mr. Obama’s learning curve. Maybe after vacation.
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