Employment numbers show economic strength, rates move up: economist

The 30-year fixed-rate mortgage averaged 6.40%, up from last week’s 6.37% average, according to Freddie Mac’s weekly survey. The mortgage averaged 6.37% a year ago.

“The economy added 110,000 new jobs last month while July and August were revised upwards by a total of 188,000 jobs, reflecting greater strength in the economy during that time than initially indicated,” Frank Nothaft, Freddie Mac chief economist said in a news release.

The 15-year fixed-rate mortgage averaged 6.06%, up from last week’s 6.03% average. The mortgage averaged 6.06% a year ago. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 6.12%, up slightly from last week’s 6.11%. The ARM averaged 6.10% a year ago.

One-year Treasury-indexed ARMs averaged 5.73% this week, up from last week’s 5.58% average. The ARM averaged 5.56% a year ago.

To obtain the rates, the 30-year fixed-rate mortgage required payment of an average 0.4 point, the 15-year-fixed rate and the 5-year ARM required payment of an average 0.5 point and the 1-year ARM required payment of an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

In his comments, Nothaft pointed out that after the release of the Sept. 18 minutes of the Fed’s Open Market Committee meeting, financial markets reassessed the likelihood of another rate cut at the next meeting; the chance a cut will materialize is becoming slimmer.

“The market currently is looking for about a 30% chance of a 25 basis point rate cut rather than the 50% chance that they had previously expected,” he said.

Consumer benefits

On Wednesday, a National Association of Realtors forecast indicated that conditions in the mortgage market were improving for consumers

“Conforming loans are abundantly available at historically favorable mortgage rates. Pricing has steadily improved on jumbo mortgages since the August credit crunch, and FHA loans are replacing subprime mortgages,” said Lawrence Yun, senior economist for the National Association of Realtors, in a news release.

The group is predicting that existing home sales will total 5.78 million in 2007 and 6.12 million in 2008, down from 6.48 million in 2006. New home sales should total 804,000 in 2007 and 752,000 in 2008, down from 1.05 million in 2006, according to NAR.

Also on Wednesday, the Mortgage Bankers Association said that mortgage applications increased a seasonally adjusted 2.4% last week, compared with the week before.

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Despite a dip in foreclosures last month, it appears unlikely that the wave of bad loans that have forced record numbers from their homes will peak any time soon. And despite efforts by lenders, politicians and homeowners to stem the tide, borrowers trying to work out better loan terms and save their homes face a thicket of red tape.

That was down 8 percent from August — when the rate hit a 32-month high —but roughly double the number of foreclosures reported in September 2006. So it’s still far too soon to assume that the September dip indicates that foreclosures are peaking.

For one thing, another wave of interest rate ‘resets’ is expected hit over the next year, squeezing millions more borrowers’ budgets and putting their loans — and their homes — at risk.

“I wouldn’t bet the farm on this being the peak,” said Rick Sharga, vice president of marketing for RealtyTrac.

Like everything else in real estate, the level of foreclosure activity varies greatly depending on your location, and the highest rates of foreclosure continue to be concentrated in a relatively few states. Nevada had the highest foreclosure rate for the ninth month in a row — one filing for every 185 households. That was down 11 percent from August, but nearly triple the rate from a year earlier.

Other states posting high foreclosures rates were Florida, with one filing for every 248 households, and California, where more than 51,000 filings were reported in September, the most in any state. Other states with foreclosure rates ranking among the nation’s 10 highest were Michigan, Arizona, Georgia, Ohio, Colorado, Texas and Indiana.

The pace of foreclosures has been fueled by a wave of adjustable rate mortgage resets that can bring a sharp jump in monthly payments after the initial low “teaser” rate expires after two or three years, depending on the loan. The volume of those resets is expected to decline over the next few months, according to data assembled by Credit Suisse.

But a newer vintage of loans that are scheduled to start resetting later next year threatens to bring another round of monthly payment increases that could overwhelm more household budgets, creating a new wave of foreclosures, which could further delay the housing recovery.

On Wednesday, a real estate trade group said home sales will fall more sharply this year than previously forecast. In its eighth downwardly revised forecast, the National Association of Realtors said sales of existing homes this year will be down nearly 11 percent from last year. Sales of new homes are expected to post their worst year in a decade.

Prices for existing homes are expected to fall 1.3 percent by year-end to a median of $210,200 as the housing market weathers its the steepest downturn in 16 years.

Those national statistics mask a range of local conditions. In some markets, the pace of sales and prices has held up relatively well. Areas that saw the biggest price run-ups during the housing boom are getting hit the hardest.

A California Realtors group predicted Wednesday that home sales and prices will fall further next year as the inventory of unsold and foreclosed homes rises while buyers hold out for better prices. Statewide, sales are expected to fall 9 percent to 334,500 units; the median price is seen falling 4 percent to $553,000.

Private forecasters say the drop in prices could be even steeper. Stephen Levy, senior economist at the Center for Continuing Study of the California Economy, expects prices to drop 10 to 15 percent overall, with sharper declines possible in some markets.

The association forecast “conveys the wrong image to people about what’s going to happen in prices in their neighborhood from now on,” Levy said. “It’s going to be more severe. I think that’s good. I think it’s better for us if we get through the correction faster.”

Meanwhile, as the number of unsold homes piles up in some markets, some potential buyers are having a harder time getting loans, and lending standards have tightened for those who can. That’s reduced the number of potential buyers for unsold homes.

With Democrats on the campaign trail proposing various measures to help homeowners facing foreclosure, the White House has also been trying to get out in front of the issue.

“My guess is that this foreclosure issue is going to be a major political football during the election,” said Sharga. “That could either lead to both parties not doing anything so they can blame the other or both fighting each other to come up with novel solutions to help homeowners who are losing properties.”

The latest proposal came Wednesday from the White House, when Treasury Secretary Henry Paulson said an industry coalition was working to help homeowners head off foreclosures and keep their homes. Paulson said 11 of the largest mortgage service companies, which together handle 60 percent of the nation’s mortgages, had agreed to join the new coalition. Other members will include mortgage counseling agencies, investors and large trade organizations.

Democrats have said the White House actions so far have been too little and too late to significantly address the problem.

The solution to the problem will likely take more than new spending or tax dollars. Most lenders would prefer not to foreclose because the process almost always costs them money; foreclosed homes are usually priced for quick sale, which means they may not cover the unpaid loan outstanding.

But homeowners often fail to approach lenders until they are too far behind to work out a restructured payment plan. Many have trouble even identifying who their lender is. Most mortgages are sold off to investors and then serviced by separate companies. Some regulations designed to protect consumers from overly aggressive collection agents may bar lenders from contacting homeowners whose loans are in trouble.

Unscrambling the foreclosure mess has been further complicated by the huge volume of bundled loans that were chopped up by Wall Street and sold off to investors.

“There are just so many elements to this process that are screwed up or broken that it’s mind- boggling,” said Sharga. “It’s a maze of restrictions and regulations and complications that you almost need a third party to come in and slice through because that’s the only way you’re going to be able to make it work.”

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WASHINGTON (AFP) - Eleven large US mortgage lenders have forged an alliance and agreed to mount an “outreach” program to aid stressed American homeowners facing possible foreclosure, Treasury Secretary Henry Paulson announced Wednesday.

The Treasury chief touted the program weeks after President George W. Bush unveiled an initiaitve to help at-risk Americans keep their homes, amid a housing downturn and a related credit crunch which has roiled financial markets.

“More and more homeowners are having trouble meeting their monthly mortgage payments, and foreclosure rates have risen in recent quarters,” Paulson said, as he announced the “HOPE NOW” alliance.

Paulson, a former Wall Street executive, said the alliance would aim to help financially-stretched Americans stave off the threat of having their homes repossessed by lenders and banks.

The US housing market has been in a downturn since January of 2006 following a multi-year boom which saw property prices rocket and triggered a building frenzy.

Since the market bubble burst last year, home prices across the country have tumbled, particularly in Florida, Las Vegas and parts of the Midwest, and property sales have also slumped.

The downturn has sparked a sharp rise in the number of homes being repossessed and some economists fear the lingering housing downturn could threaten US economic growth.

Paulson said 11 of the largest US loan servicers representing 60 percent of America’s trillion-dollar mortgage market “have come together and formed a partnership to help more Americans keep their homes.”

The initiative is aimed at coordinating and improving outreach to struggling borrowers, many of whom are facing higher mortgage payments as adjustable-rate mortgage loans from prior years reset at higher rates.

“A unified strategy and better integration will mean homeowners get better help with their mortgages, servicers get better responses when they reach out to people, and our communities will see fewer foreclosures,” the Treasury chief said.

He warned, however, that he was “not announcing we have solved this problem. What we’re announcing is a necessary step toward a very important objective.”

He said rising interest rates and stagnant or falling home prices are creating “real challenges” for US homeowners and urged more companies to join the alliance.

“Minimizing foreclosures benefits lenders and investors as well as homeowners,” the cabinet official said. Paulson was flanked at a news conference by Housing secretary Alphonso Jackson and alliance members.

The housing depression has also hit Wall Street and the mortgage sector hard. Some mortgage lenders have gone out of business while other firms laid off hundreds of workers in a bid to keep afloat.

Some mortgage firms, helped by state and local governments, had already started reaching out to borrowers in a bid to avert fresh foreclosures prior to the creation of the new alliance.

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