MBA proposes forbearance program
The Mortgage Bankers Association (MBA) says it has developed a concept for a new forbearance program that would allow qualified borrowers who had lost their jobs to remain in their homes while they seek new employment. According to the proposed program, loan servicers would reduce the borrower’s mortgage payment to an affordable amount for up to nine months while the homeowner looked for employment. “The vast majority of new distressed borrowers we are seeing involve the loss of income,” said John A. Courson, MBA’s President and CEO. “This program is designed to buy those borrowers time to find a new job, after which they could hopefully qualify for a loan modification.” Loan servicers who participate in this program would reduce monthly payments to an affordable level based on household income, and borrowers would be initially evaluated for the forbearance program using a model that assumes the borrower will be reemployed within nine months of losing his or her job at 75 percent of the borrower’s previous salary. The borrower would be reevaluated as to employment and income status every three months for a total forbearance of nine months. Once reemployed, the borrower would be evaluated for a modification under the Obama Administration’s Home Affordable Modification Program (HAMP). “Recent statistics show that the average unemployed U.S. worker stays unemployed for between six and seven months,” added Courson. “That is a long time for a borrower with a dramatic drop in income to stay current on their mortgage. Further, borrowers with such a precipitous drop in income can’t qualify for most loan modification programs, so we are looking for ways to allow those borrowers to keep their homes while they look for another job.”
Tax credit lures nearly half of all first-time buyers
According to a survey conducted by Harris Interactive on behalf of Zillow.com, 18% of prospective first-time homebuyers said extending the credit from Dec. 1, 2009 to Nov. 30, 2010 would be the “primary influence” in their decision to purchase a home. An additional 25% said it would be a “significant influence,” 27% said it would have “some influence,” and 31% said it would have “no influence.” Zillow projects 1.86m homebuyers stand to take advantage of the program if it is extended, and if all potential buyers took the full tax credit, extending the program could cost $14.86bn. Zillow.com chief economist Stan Humphries said of all homebuyers expected under the 12-month extension through 2010, only one in five homebuyers will enter the market specifically because of the extended tax credit. In other words, 334,000 mortgages will open because of the tax credit extension. “While 334,000 may seem like a small number relative to the total number of homebuyers who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year,” Humphries said.
Mortgage rates to rise?
The Fed has been buying mortgage-backed securities since late 2008. But next month it plans to finish its purchase of $1.25 trillion in mortgages, and that could be bad news. There is wide agreement that the removal of this support will mean higher mortgage rates, which could hit housing prices and sales hard. Some even worry that it could cause the broader economic recovery to stall. The program was the largest single injection of cash into the economy by the Fed during the financial crisis, and it will be the longest-lasting source of funds as well. Even though the Fed intends to stop buying mortgages, few people expect that the central bank will start selling them to private investors any time in the next few years. even if the Fed holds onto the mortgages it has already purchased, the act of no longer buying additional mortgages is likely to raise mortgage rates in the coming weeks.
Experts say a jump of at least a quarter to a half percentage point is likely. San Francisco Federal Reserve President Janet Yellen warned of higher rates in a speech Monday. Fed Chairman Ben Bernanke is likely to take questions about the Fed’s mortgage program when he testifies about economic conditions on Capitol Hill Wednesday and Thursday. The worries about the Fed pulling back support for housing are compounded by the end of up to $8,000 in tax credits for home buyers. To qualify, buyers face an April 30 deadline to sign a sales contract. Dean Baker, co-director of the Center for Economic and Policy Research, argues that the Fed’s program and tax credit for home buyers “ended the free fall in home prices.” But he thinks that the removal of this support could mean that home prices could start to drop by as much as 1% a month again. He also thinks mortgage rates could climb by as much as a percentage point in the coming months.
Jobs bill passes
The Senate voted Monday to push forward a $15 billion jobs creation bill that would give businesses a tax break for hiring the unemployed. The 4-prong bill will: Exempt employers from Social Security payroll taxes on new hires who were unemployed; Fund highway and transit programs through 2010; Extend a tax break for business that spend money on capital investments like equipment purchases; and Expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects. The final legislation is a scaled-down version of an $85 billion bipartisan draft bill that was crafted by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa. However, the bill does not extend the deadline to apply for unemployment benefits and the COBRA health insurance subsidy. Some 1.2 million people will run out of benefits after Feb. 28 if the deadline is not extended. Lawmakers are looking to pass a separate, 15-day extension to give them time to enact a longer fix. And unlike the House’s bill, the Senate measure does not provide additional assistance for states. Many governors, who are holding their annual meeting in Washington, want the Obama administration to send more federal dollars their way so they can cope with yawning budget gaps. Labor leaders and left-leaning think tanks all say the Senate must do more to spur job creation – as if the Senate can fabricate jobs out of thin air somehow.
House prices up for the month, down for the year
S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose 1.6 percent in July from June — more than triple the estimate of a 0.5 percent rise found in a recent Reuters poll. The monthly price increases helped the annual rates, with the yearly pace of declines in home prices slowing to a 12.8% drop in the 10-city index and 13.3% downturn in the 20-city index. “These figures continue to support an indication of stabilization in national real estate values, but we do need to be cautious in coming months to assess whether the housing market will weather the expiration of the Federal First-Time Buyer’s Tax Credit in November, anticipated higher unemployment rates and a possible increase in foreclosures,” said David Blitzer, chairman of the index committee at S&P. Despite the overall improvement, annual rates for all metro areas and the two composites remain in negative territory, with 14 of the 20 metro areas and both composites in double digits, S&P said.
Tax credit lures nearly half of all first-time buyers
According to a survey conducted by Harris Interactive on behalf of Zillow.com, 18% of prospective first-time homebuyers said extending the credit from Dec. 1, 2009 to Nov. 30, 2010 would be the “primary influence” in their decision to purchase a home. An additional 25% said it would be a “significant influence,” 27% said it would have “some influence,” and 31% said it would have “no influence.” Zillow projects 1.86m homebuyers stand to take advantage of the program if it is extended, and if all potential buyers took the full tax credit, extending the program could cost $14.86bn. Zillow.com chief economist Stan Humphries said of all homebuyers expected under the 12-month extension through 2010, only one in five homebuyers will enter the market specifically because of the extended tax credit. In other words, 334,000 mortgages will open because of the tax credit extension. “While 334,000 may seem like a small number relative to the total number of homebuyers who would claim the credit, their addition to the market next year could make the difference between a robust annual increase in home sales next year and a flat or negative change in home sales relative to this year,” Humphries said.
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