27 Aralık 2007 Perşembe

Lenders Agree to Freeze Rates on Some Loans 2

But there was no sign on Wednesday that Mr. Bush’s plan would contain new commitments by lenders to help people refinance. Absent any new approaches, borrowers would still be largely on their own to find better deals.

Republican presidential candidates have seemed reluctant to propose government rescue plans, seeing them as a bailout. But they are feeling the heat nonetheless, and some are joining Mr. Paulson’s effort to help people in danger of losing their homes.

“You don’t want to reward speculators,” said Senator John McCain of Arizona, who is running for the Republican nomination. “You’d like to take each individual case on its own, but there’s no time to do that. What’s important is to stop the bleeding.”

John Edwards, the Democratic presidential candidate and former senator from North Carolina, on Wednesday proposed a seven-year freeze in subprime interest rates, as well as a new fund to help distressed borrowers. Mr. Edwards also called for a change in bankruptcy laws that would give homeowners far more bargaining power in negotiating new terms.

Senator Barack Obama of Illinois jumped ahead of many of his Democratic presidential rivals in September with detailed recommendations that included a government rescue fund, changes in bankruptcy law and a new tax credit on mortgage interest for people who do not itemize their taxes and cannot currently deduct their interest payments.

Adding to the political pressure, many of the states that are hardest hit by mortgage defaults and falling home prices are important election swing states. They include Florida, Michigan, Ohio and Pennsylvania.

The first two voting states, Iowa and New Hampshire, have not been particularly hard hit by the housing crisis, but two of the states with early nominating contests — Florida and Nevada — have among the worst problems in the country.

“Even though foreign policy has been dominating the election for the past year, economics will pay a bigger role next year,” said Howard Glaser, a mortgage industry consultant who worked in the Clinton administration and is an adviser to Mrs. Clinton’s campaign. “Not only will the specific mortgage and housing problems intensify, the ripple effects on the economy will also magnify.”

Lenders Agree to Freeze Rates on Some Loans

WASHINGTON, Dec. 5 — The Bush administration reached an agreement with the mortgage industry on Wednesday on a plan to freeze interest rates for up to five years for a portion of the two million homeowners who bought houses in the last few years with subprime loans.

The plan, hammered out after weeks of talks among Treasury Department officials, mortgage lenders and Wall Street firms, would allow distressed borrowers who are current on their payments to keep their low introductory rates and escape an increase of 30 percent or more in their monthly payments when the rates expire.

Democratic lawmakers and presidential contenders quickly criticized the plan as being too timid and promoted more ambitious proposals of their own.

The agreement, to be formally announced Thursday by President Bush, is expected to contain numerous limitations that would exclude many — if not most — subprime borrowers, according to industry executives who have seen it. It would exclude those who are delinquent on their payments — about 22 percent of all subprime borrowers, according to First American LoanPerformance, an industry research firm.

The plan is also expected to exclude any borrower whose introductory rate expires before Jan. 1. About $57 billion in subprime loans are scheduled to be reset at higher rates in the final three months of this year, according to estimates by First American LoanPerformance.

Mortgage companies could also exclude borrowers who they conclude are making enough money to afford higher monthly payments. Barclays Capital — extrapolating from a similar program recently unveiled in California — estimates that only about 12 percent of all subprime borrowers, or 240,000 homeowners, would get relief.

“From what I’ve heard, I don’t see anything that leads me to believe we will see an increase in loan modifications,” said Eric Halperin, Washington director of the Center for Responsible Lending, a nonprofit group that has studied the subprime problem.

The plan is being announced as fallout from the mortgage crisis is seeping into the political sphere. Until recently, few candidates talked about subprime loans, and few bankers and traders on Wall Street paid much attention to mortgage-crisis declarations on the campaign trail. But with the meltdown growing worse, housing prices still plunging and many economists worrying about a recession, President Bush and his Democratic opponents are now racing to come up with answers.

Democratic presidential candidates complained that the White House plan was overly narrow.

“It seems that President Bush is going to give struggling homeowners far less than they need,” Senator Hillary Rodham Clinton of New York said in a statement on Monday. “With news accounts using terms like ‘whittled down’ and ‘limited’ to describe the scope of the Bush plan, it appears that the president is pushing a freeze for a very narrow group of borrowers.”

Mrs. Clinton visited the Nasdaq stock market in New York on Wednesday and assailed Wall Street firms for the mortgage mess. She called for a 90-day moratorium on subprime foreclosures and a rate freeze that would apply to all borrowers current on payments and some who have fallen behind.

Despite the criticism, the Bush plan is a significant change in an initial reluctance to impose solutions. As recently as a month ago, Treasury Secretary Henry M. Paulson Jr. argued that lenders should try to work out new terms on a case-by-case basis.

But Mr. Paulson and federal banking regulators became increasingly impatient with the industry’s failure to produce a systematic, rapid approach to evaluating borrowers.

Sheila C. Bair, chairman of the Federal Deposit Insurance Corporation, proposed a comparatively radical plan to permanently freeze rates on all subprime loans. Mr. Paulson rejected that idea, but began to push for a standardized approach that would temporarily freeze rates for many borrowers facing upward adjustments on their monthly payments.

Administration officials emphasized that the rate freeze was only one part of a broader plan. Mr. Bush will also ask Congress to temporarily expand the authority of states and localities to issue tax-exempt mortgage-revenue bonds to help people refinance their mortgages.

Treasury officials are also pushing the industry to come up with a streamlined way to help subprime borrowers refinance with a more conventional, lower-rate mortgage.

Subprime loans typically come with high interest rates, and were originally intended for people with poor credit histories. But some analysts say that more than a third of all subprime borrowers could have qualified for cheaper conventional loans at the outset.

In Mortgage Plan, Lenders Set Terms 2

President Bush and other top administration officials emphasized that the plan could help as many as 1.2 million subprime borrowers — about two-thirds of all people with subprime loans.

But that estimate covers hundreds of thousands of borrowers who are believed to qualify without any extra help for cheaper conventional mortgages, like those insured by the Federal Housing Administration.

Nonprofit housing groups that try to help troubled homeowners renegotiate mortgages were underwhelmed by Mr. Bush’s plan.

The Greenlining Institute, a housing advocacy group in California that began raising alarms about subprime loans nearly four years ago, estimated that only 12 percent of all subprime borrowers and only 5 percent of minority homeowners would benefit from the rate freeze. The Center for Responsible Lending, a nonprofit group that supports homeownership, said the freeze would help only about 145,000 people.

“This grossly inadequate plan is likely to harm the president’s desire to close the minority homeownership gap and create an ownership society,” said Robert Gnaizda, general counsel for the Greenlining Institute.

Some Wall Street analysts were equally unenthusiastic. “This plan only really amounts to a set of recommendations for lenders that is sure to meet some resistance from investors” in the mortgage-backed securities, wrote Paul Ashworth, an economist at Capital Economics.

Indeed, there were rumblings of rebellion among some institutional investors. “Why would anybody in his right financial mind agree to a five-year price freeze, especially when we’re staring in the face of possible inflation?” asked Roger W. Kirby, managing partner at Kirby McInerney, which has represented investors in class-action lawsuits over securities. “Mr. Paulson has overestimated the generosity of people on Wall Street.”

In Mortgage Plan, Lenders Set Terms

WASHINGTON, Dec. 6 — At least one thing is clear about President Bush’s plan to help people trapped by the mortgage meltdown: it is an industry-led plan, not a government bailout.

Although Mr. Bush unveiled the plan at the White House on Thursday, its terms were set by the mortgage industry and Wall Street firms. The effort is voluntary and it leaves plenty of wiggle room for lenders. Moreover, it would affect only a small number of subprime borrowers.

The plan was the target of criticism from consumer advocates who said its scope was too narrow, and from investment firms, who said it went too far. Others warned that the plan, by letting some stretched homeowners off the hook, could encourage more reckless borrowing in the future.

“The approach announced today is not a silver bullet,” said Treasury Secretary Henry M. Paulson Jr., who hammered out the agreement. “We face a difficult problem for which there is no perfect solution.”

The heart of Mr. Bush’s plan is a cautious attempt to help troubled homeowners by persuading financiers to freeze mortgages at low introductory rates for five years, but without actually forcing the hands of lenders and investors who hold the mortgages.

One of the financial industry’s lead negotiators estimated that at most 20 percent of subprime borrowers whose payments will increase sharply over the next 18 months — 360,000 out of 1.8 million people — would qualify for rapid consideration of a special five-year freeze on interest rates.

The number of people who actually obtain help would be smaller, because each borrower would face tests aimed at weeding out those considered too hopelessly in debt and those who make too much money to justify relief.

In one curious twist, the plan could eliminate many who have good credit scores or managed to improve their credit scores, because the good ratings would be a sign they do not need help.

“Talk about moral hazard,” remarked Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee. “We’ve all told people, don’t go any more deeply into debt. Now we’re saying that people who go more deeply into debt will have an advantage over people who don’t go more deeply into debt.”

The administration’s theory is that there is a “sweet spot” in the market where it makes more financial sense for lenders to offer some relief than it does to foreclose on homeowners.

Most analysts agree there is a sweet spot of some sort. Investors typically lose 40 percent or 50 percent on homes that go into foreclosure, and the cost of shielding borrowers from a big jump in rates can be much less.

“I think there is a sweet spot,” said Bert Ely, a banking consultant in Alexandria, Va. “But I worry that the sweet spot is much smaller than people think it is. And as housing prices continue to decline and debts pile up, I fear the sweet spot will shrink.”

Administration officials estimate about 500,000 subprime borrowers are in danger of losing homes in the next 18 months as their low teaser rates expire and their monthly payments jump by 30 percent or more. Outside analysts warn the number of foreclosures could be much higher.

The Mortgage Bankers Association reported that the number of new foreclosure proceedings hit a record in the third quarter and that the delinquency rate on mortgages climbed to the highest level since 1986. The biggest problem, according to the survey, was in subprime loans, which are typically made at higher interest rates to people with shaky credit records or weak incomes.

But Mr. Paulson and the president’s other top economic advisers have remained staunchly opposed to anything that resembled a government-financed bailout for people who took out foolish mortgages or investors who bought the mortgages.

As a result, administration officials have walked a narrow line. They have held meetings bringing together mortgage-servicing companies and groups representing investors holding mortgages.

Instead of pressuring the industry to come up with specific relief, Mr. Paulson pushed the players to come up with a streamlined approach for deciding when to modify loan terms.

But Tom Deutsch, deputy director of the American Securitization Forum, which represented investment funds in the negotiations, made it clear that any rate freeze would be strictly voluntary and based on what investors decided was in their self-interest.

“This is not a government bailout program,” Mr. Deutsch said. “This is an industry-led framework for providing the best market standards and practices. There is no mandate here.”

Some Needing Mortgage Aid Won’t Get It

When Jirina Koy heard that President Bush was announcing a freeze yesterday on mortgage interest rates, the Stockton, Calif., homeowner felt a flicker of hope.

It was quickly extinguished. After calling a nonprofit housing assistance center, Ms. Koy learned that her mortgage, for all the trouble it was causing her, was not likely to be one of those qualifying for relief.

Mortgage experts say there will be many borrowers like Ms. Koy. The exact guidelines of the rescue plan are still fuzzy, but it is clear that many of those who need aid the most will not get it. The number of households facing foreclosure in the next two years is estimated to exceed two million.

“I’m glad someone’s getting help, but I wish it were me,” said Ms. Koy, 46, who works in the state unemployment office.

She has a so-called option loan, which gives her the choice of how much to pay every month. Heavy in debt, she usually chooses the minimum. The unpaid interest and principal is added to her mortgage balance, which means her loan keeps getting bigger.

Ms. Koy’s woes were compounded by an ill-advised refinancing two years ago.

“I got all these calls from brokers all the time — ‘You could pay off debt, pay off the car loan, make extra money every month, blah blah,’ ” she said. She took out $60,000.

“The only way that would have made sense is if I had cut up my credit cards and nothing else had come up,” Ms. Koy said. “But something else always comes up.”

Ms. Koy’s husband is disabled and has not worked for a decade. The couple’s credit card debt is back up to $25,000, in part because of their daughter’s medical bills. Their three-bedroom house is worth about $250,000, but they owe much more on it.

Kimberley Williams, who owns a small bungalow in Los Angeles, might have a happier fate than Ms. Koy. She bought her home in February 2006, as the boom was peaking.

“I felt that if I didn’t get into the market, I wouldn’t be able to afford a house in California,” she said.

In November 2006, Ms. Williams refinanced. Like Ms. Koy, she got money to pay bills, including paying off her car. But her monthly mortgage payment rose to $3,011. Next December, it will jump by several hundred dollars.

Ms. Williams, a registered nurse, does not regret refinancing, but is worried about possibly being forced to sell in a declining market — or worse.

“Even people with good jobs making good money are facing foreclosure,” said Ms. Williams, 43. She plans to apply for the freeze.

While acknowledging that only a small number of stressed borrowers would be helped, Lori Gay, president of Los Angeles Neighborhood Housing Services, a nonprofit group, called the freeze “a great beginning.”

Michael Shea, executive director of Acorn Housing, another counseling agency, took a different view. “We’re disappointed that a year into this crisis the responses are so lacking in the bold leadership,” he said. “We really need an F.D.R.-like approach, and not Calvin Coolidge.”

Real estate agents in high-foreclosure areas had different opinions about whether the freeze would have an effect on queasy markets.

Jason Bosch, president of Home Center Realty in California’s hard-hit Riverside County, was pessimistic.

“We were selling $300,000 homes to people who could only afford $175,000 homes,” he said. “Even if you freeze their payments, they still can’t handle it.”

In Sarasota, Fla., a real estate agent, Jim Willig, was hopeful that at least the freeze would put a brake on some of the inventory flooding the area.

“That’s a benefit,” said Mr. Willig, who owns seven rental houses, all of them worth less than he paid.

Tom Gutierrez, bought his house in 2004, too early to qualify for the freeze.

Mr. Gutierrez, a school bus driver who lives in West Covina, Calif., is negotiating a new loan. “Many home buyers didn’t do our homework,” he said. “Maybe some kind of education will help as well.”

Senate Will Consider More Restrictive Rules on Mortgages

Christopher J. Dodd, the chairman of the Senate Banking Committee, will introduce a bill today that would impose new regulations on mortgage brokers and investment banks and restrict certain aggressive lending practices, Congressional aides said yesterday.

While similar in some respects to a measure passed by the House last month, the Dodd bill would take a harder line against mortgage brokers and Wall Street firms. The measure is expected to face significant opposition from mortgage companies and banks.

The measure is not expected to make much headway until sometime next year, and it could change based on rules that the Federal Reserve, which has broad authority to regulate mortgage lending, is expected to issue in the coming weeks.

The proposal is a change in direction for Mr. Dodd, a Democrat from Connecticut who is running for president. Earlier in the year, he said that the Fed could address most of the pressing issues in mortgage lending and that federal legislation was not needed. Since then, default rates on mortgages made to people with poor credit have surged, and policy makers in Washington have focused more intently on the housing market.

Like the House measure, which is sponsored by Representative Barney Frank, Democrat of Massachusetts, Mr. Dodd’s bill requires lenders to make only those loans that benefit borrowers and that they can repay. But Mr. Dodd’s proposal would also require brokers to act in the interest of borrowers, and that Wall Street firms could be sued.

Investment banks that securitize mortgages could also be sued under Mr. Frank’s measure, but state authorities would be prohibited from pursuing certain claims against Wall Street.

In an interview last week, Mr. Frank said he planned to toughen his bill’s enforcement provisions as it relates to investment banks, but he added that the demand for home loans would dry up if investors in mortgage securities were subject to lawsuits brought by state officials.

Unlike the Frank bill, Mr. Dodd’s proposal would bar specific practices in subprime lending like prepayment penalties, which borrowers have to pay if they try to refinance or pay off their loans earlywithin a few years, and yield spread premiums, which are commissions lenders pay to brokers for gettingpersuading borrowers to take out a higher-cost loan than they could qualify for. But Mr. Dodd’s bill would not create a national registry of brokers and loan officers as the House measure would.

Mr. Frank’s measure passed by a wide margin in the House but has not advanced in the Senate, where procedural rules make it difficult to pass legislation that does not have bipartisan support — a political reality that could also hobble Mr. Dodd’s bill.


There are no economic reports to be released today that will have an impact on mortgage rates. In addition, the market will be closing at an earlier than normal 2pm.

When no economic reports are set to release, traders watch stocks for a sense of the market direction. Stocks are up currently led by Merrill Lynch who is receiving a large cash injection from, you guessed it, foreign investment. This time it is from Singapore. In addition, Merrill announced they will sell their commercial finance business to GE.

Bonds have not reacted much to the news with MBS's currently about 4/32nd's higher than Friday's close. Bonds certainly took a beating on Friday and are not getting any firm floor to stand on today either. With the holiday tomorrow and hardly any economic reports set to release later in the week, rates could go either way. The stock market and corporate financial news will have a bigger impact than normal due to the light economic news calendar combined with the normal volatility caused by decreased trading volume during the holiday season.

Floating is a risk tempered by the huge losses on Friday. In other words, bond prices have risen so dramatically in the last several trading sessions that technical forces suggest they may decrease slightly (moving rates lower) regardless of a continued move downward. If you are going to float, which is a moderate risk through Wednesday, keep a sharp eye on stocks and financial headlines. Anything that sends stocks higher will likely push mortgage rights higher as well. As always, the conservative play is to lock short term. Stay tuned for an analysis of Wednesdays market activities and the economic reports of the rest of the week. This will hopefully give a more solid idea of the short term market sentiment.

Long term, experts are divided, with about 40% predicting recession. If recession occurs at the same time as rising inflation (stagflation), normally bond friendly news will have less than normal impact on rates. As for now, the mood is "wait and see."

Another Slow News Day

Not much change from Monday...

Stocks are down currently as a result of Target's sales numbers and the Case-Shiller Price index showing the largest decrease in home prices in 6 years.

Bonds are trading fairly flat to slightly improved this morning with the FNMA 30 yr 6.0% coupon at 101.03 Bid price.

30 year fixed PAR NOTE rate : 5.75% -5.875%

Lock Comment:

Decreased trading volume over the holiday season opens the door for volatility. So changes that wouldn't normally have a big impact on markets can have a much bigger impact over the next week. Durable Goods, Jobless Claims, and Consumer Confidence will all be released tomorrow. If these are weak, we could get a nice rate improvement. But the opposite is just as true. Float with Caution. Keep an eye on stocks today. As for tomorrow, if you think the reports might be weaker than expected, keep floating. Even if bond prices push lower yet again tomorrow, technical factors would indicate that prices will "see-saw" back up, even if they continue to trend down.


Durable Goods Orders were down more than expected at +0.1% (expectations were +3.0%). This is bond-friendly news as is signals a potential slow down in the manufacturing sector. When the revised numbers from this report are released in roughly two weeks, this sentiment could change or be reinforced.

Jobless claims were also up just slightly higher than expected. 349k as opposed to 343k. This isn't enough in and of itself to have an impact on rates, but the tepid reading fails to mitigate the impact of other reports.

One report that is mitigating the positive impact on the bond market is the consumer confidence report which came in at a higher than expected 88.6 (expected at 86.5). Strong consumer confidence means strong spending, which means strong economy, which means investors put money in stocks rather than bonds, which means bond prices go down, which mean mortgage rates go up.

As a result of all this info, bond prices are up this morning, countering a reasonable amount of the losses after yesterday's weakly bid 2 year treasury auction. 5.5% FNMA 30 yr coupon currently bid at 98 and 30/32nds. Mortgage rates should be slightly better than yesterday afternoon, closer to those of yesterday morning.

30 YEAR FIXED PAR NOTE RATE: 5.75%-5.875%

Lock Comment: Weak bidding on the 2 year treasury auction yesterday led to some weakness in the entire bond market. There is another auction today at 1pm EST. It should be a relatively safe risk to float until then, but keep an eye on the economic news. If the 5 year auction in weakly bid, lock ASAP.