Mortgage Applications Up

Mortgage applications upThe Mortgage Bankers Association (MBA) released the results of its Weekly Mortgage Applications Survey, and announced that the Market Composite Index, a measure of mortgage loan application volume, increased 4.7 percent for the week ending April 3, 2009 from the week before on a seasonally adjusted basis. The four week moving average for the seasonally adjusted Market Index is up 13.3 percent. The four week moving average for the seasonally adjusted Purchase Index is up 4.2 percent, and the Refinance Index is up 16.0 percent. The MBA survey covers approximately 50 percent of all U.S. retail residential mortgage applications, and respondents include mortgage bankers, commercial banks and thrifts.

Mortgage rates heading lower?

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.73 percent, up 0.12 percentage points from a record low reached the previous week, but Bank of America-Merrill Lynch economists Gary Bigg and David A. Rosenberg claim the 30-year mortgage rate could fall to nearly 4 percent by the end of the year as both the economy and housing market make a slow recovery: "We expect that disinflationary forces combined with overt quantitative easing from the Federal Reserve will push the 30-year fixed rate mortgage down from the current 4.85% rate to 4.2% by year-end...however, sales are expected to remain sluggish and may not be sufficient to absorb the inflow of the supply of foreclosures..." Housing has shown some modest signs of recovery lately, but foreclosures remain high, prices continue to drop, and unemployment rates in excess of 10 percent could hamper a recovery.

Reality check

CNBC's Diana Olick sees a building wave of foreclosures, citing a new report by Equifax showing 7% of homeowners were at least 30 days late on their payments in February -- up 50% from a year ago -- and close to 40% of subprime borrowers are late, up from 23.7% a year ago. Further, banks have been holding off on foreclosures, but now that Obama's plans are confirmed, foreclosure proceedings are going "into overdrive," with foreclosure start (NOD) and Trustee Sale (NTS) notices at the highest levels since mid 2008. Olick points out, "With job numbers getting worse, more and more borrowers are going to end up missing payments, and no matter how much the banks and the Obama administration would like to help these folks, you can't modify a loan down to a zero monthly payment."Nations biggest homebuilderThe nation's biggest homebuilder has just been created. Pulte Homes Inc. is buying Centex Corp. for $1.3 billion in stock, combining Pulte's strength in active-adult and retirement housing with Centex's hefty market share of first-time homebuyers. The new company, which will keep the Pulte name and headquarters in Bloomfield Hills, Mich., will have cash reserves totaling $3.4 billion and pay off $1 billion in debt by the end of the year. "We believe the combined companies will allow us to return to profitability quicker than a standalone. Secondly, the cash position allows us to pay down debt while at the same time provide ample liquidity for the future," said Richard Dugas Jr., Pulte's president and chief executive, who will retain those titles over the combined enterprise.

TALP modifications

The real-estate industry is lobbying the Federal Reserve to begin offering some five-year loans under the government's Term Asset-Backed Securities Loan Facility, or TALF. That is longer than the three-year loans being offered, and the industry hopes it will avert a wave of commercial-property defaults. Real-estate investors say the longer-term debt is critical to saving the commercial real-estate business, which faces a record amount of debt coming due in the next three years. Industry observers are expecting the delinquency rate to double by the end of this year and go higher next year. Problems could be magnified if the credit drought continues and owners of even healthy properties are unable to refinance.

Now on to our real estate investing education section!

Public Private Partnership - Big Deal or Bad Idea?

The recently proposed public/private partnership where private investors are able to partner with the federal government in order to buy toxic assets has generated a lot of interest and confusion. Can short sale investors benefit? Will it be open to individual investors or only larger concerns? Many of the most important questions remain to be sorted out - like the majority of recent initiatives, the media seems to be in a hurry to report good news but has little of actual substance to go on since the administration has yet to actually put the plan on paper. However, the initial details of the plan seem to indicate the following:

1. Dollar per dollar match. Investors wishing to purchase toxic assets in order to remove them from the bank coffers will be given a dollar to dollar match by the government. It is expected the toxic assets will be offered via bid or auction.

2. Low interest loans. Investors will be given low or ultra-low interest loans in order to finance the purchase of these toxic assets for up to 97 percent of the price paid...ie, 3 percent down payments!

3. No repayment at first. If the rumors are to be believed, the government match will not need to be paid back -at least until the property becomes profitable or investors "break even" on their three percent risk.

4. Non-Recourse Loans. To further sweeten the pot, only non-recourse loans will be used. Essentially this means the house or property serves as its own collateral and no other assets of the buyer may be earmarked in the event of a loss or foreclosure.

In a nutshell, ultra-low interest rates, low down payment, a dollar to dollar match and non recourse loans sound like a major win-win situation....except for one big catch...it doesn't apply to individual investors. At this point, it appears the government is only to focus on large private investors such as hedge funds or private equity firms. In its current form there appears to be three main steps or stages to be revealed:

1. The FDIC (Federal Deposit Insurance Corporation) will establish an investment partnership specifically to fund the loans.

2. The Treasury, in collaboration with several (as yet un-named) private investment management firms, will match the private funds on a dollar to dollar basis with government money.

3. The Treasury and the Term Asset Backed Securities Loan Facility in combination with the Federal Reserve, will expand lending.

So, will short sale investors see a big benefit in the public private partnership proposed by the government? Probably not; it is meant for big private hedge funds and investment firms - not individuals. On the other hand, it also is unlikely to hurt short sale investors. Despite plans to package toxic assets and sell at auction, don't expect banks to jump for joy.

Traditionally private firms have only been willing to pay as little as 30 cents on the dollar for bad assets...certainly less than what most short sale offers come in at. Give the choice of accepting a short sale offer versus a toxic asset sale - most lenders will be more than happy to entertain the short sale offer instead. However, short sale investors would be wise to keep in mind the two most likely early targets; Citgroup and JPMorgan Chase.

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