By MICHAEL R. CRITTENDEN and JESSICA HOLZER
WASHINGTON -- The U.S. government's latest plan to aid struggling homeowners could move as many as three million people into more-affordable mortgages, according to people familiar with the effort.
The proposal, which has been designed by the Treasury Department and Federal Deposit Insurance Corp., is close to being finalized. Estimated to cost between $40 billion and $50 billion, the plan would have the government agree to share a portion of any losses on a modified mortgage offered by lenders.
Funding for the plan could potentially come out of the $700 billion financial-rescue program authorized by Congress earlier this month. The plan, which was previewed during Congressional testimony last week, would represent one of the most aggressive and sweeping moves to address the nation's foreclosure mess, among the last elements of the crisis yet to be addressed by concerted government intervention.
Corinne Hirsch, a spokeswoman with the White House's Office of Management and Budget, said the program "is currently in a White House policy process," suggesting it's in the final stages of being reviewed. Treasury spokeswoman Jennifer Zuccarelli said "the administration is looking at ways to reduce foreclosures."
FDIC spokesman Andrew Gray said: "While we have had productive conversations with Treasury and the administration about options for the use of credit enhancements and loan guarantees, it would be premature to speculate about any final framework or parameters of a potential program."
The program is one of a series of ideas under consideration designed to address the root causes of the financial crisis.
At a conference Wednesday, FDIC Chairman Sheila Bair, who first suggested such a plan, said policy makers need to take additional action to help people stay in their homes, in order to prevent the continued downward spiral of the housing market. "Everyone in Washington now agrees that more needs to be done to help homeowners," she said. Ms. Bair noted the FDIC was working to implement a framework for systematically modifying loans.
The legislation authorizing the Troubled Asset Relief Program required Treasury to take steps to help homeowners avoid foreclosure. As many as 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, with 4.3 million of those losing their homes, according to Moody's Economy.com, a research firm.
Write to Michael R. Crittenden at michael.crittenden@dowjones.com and Jessica Holzer at jessica.holzer@dowjones.com
Friday, October 31, 2008
Thursday, October 30, 2008
The Fed Rate Cut: How Soon Will It Affect You?
The Federal Reserve has cut interest rates by 50 basis points. What do you need to do about it, and how soon will the cut affect your finances?
Mortgages:
How Soon Could It Affect You?
Impossible to Know
Federal Reserve cuts in the federal funds rate have an unpredictable effect on long-term mortgage rates. So it's impossible to know for sure when -- or even if -- rates will fall as a result of the Fed's rate cut.
Fixed-rate mortgages usually do not change in response to cuts in the federal funds rate. However, adjustable-rate mortgages may be more sensitive to Federal Reserve rate decisions.
Depending on the exact nature of their mortgage, some people with ARMs may see their rate adjust downward the next time the mortgage resets.
Conclusion:
It's impossible to know when -- or even if -- fixed-rate mortgages will fall given the Fed's most recent trim to the federal funds rate. However, it's possible that some homeowners with adjustable-rate mortgages will see lower payments the next time their mortgage rate resets.
Home Equity:
How Soon Could It Affect You?
1 to 2 billing cycles
The Federal Reserve's decision to cut rates by a half-point eventually will mean lower borrowing costs for homeowners who have a home equity line of credit.
Most home equity lines of credit are indexed to the prime rate, a common benchmark for consumer and business loans set by banks. The prime rate moves in lock step with the federal funds rate.
However, don't necessarily expect your HELOC rate to drop overnight. In some cases, it may take one or two billing cycles before consumers see borrowing costs fall.
Rates on new home equity loans are trickier to forecast, as they do not move in lock step with the federal funds rate. In addition, people with existing home equity loans will not see their borrowing costs fall, as rates on these instruments remain fixed.
Conclusion:
The Federal Reserve's latest interest rate cut means you can expect HELOC rates to fall soon. It may take one or two billing cycles before you see the benefits.
Mortgages:
How Soon Could It Affect You?
Impossible to Know
Federal Reserve cuts in the federal funds rate have an unpredictable effect on long-term mortgage rates. So it's impossible to know for sure when -- or even if -- rates will fall as a result of the Fed's rate cut.
Fixed-rate mortgages usually do not change in response to cuts in the federal funds rate. However, adjustable-rate mortgages may be more sensitive to Federal Reserve rate decisions.
Depending on the exact nature of their mortgage, some people with ARMs may see their rate adjust downward the next time the mortgage resets.
Conclusion:
It's impossible to know when -- or even if -- fixed-rate mortgages will fall given the Fed's most recent trim to the federal funds rate. However, it's possible that some homeowners with adjustable-rate mortgages will see lower payments the next time their mortgage rate resets.
Home Equity:
How Soon Could It Affect You?
1 to 2 billing cycles
The Federal Reserve's decision to cut rates by a half-point eventually will mean lower borrowing costs for homeowners who have a home equity line of credit.
Most home equity lines of credit are indexed to the prime rate, a common benchmark for consumer and business loans set by banks. The prime rate moves in lock step with the federal funds rate.
However, don't necessarily expect your HELOC rate to drop overnight. In some cases, it may take one or two billing cycles before consumers see borrowing costs fall.
Rates on new home equity loans are trickier to forecast, as they do not move in lock step with the federal funds rate. In addition, people with existing home equity loans will not see their borrowing costs fall, as rates on these instruments remain fixed.
Conclusion:
The Federal Reserve's latest interest rate cut means you can expect HELOC rates to fall soon. It may take one or two billing cycles before you see the benefits.
Wednesday, October 29, 2008
Existing-Home Sales Rise on Improved Affordability
WASHINGTON, October 24, 2008
Existing-home sales increased last month as buyers responded to improved housing affordability conditions, according to the National Association of Realtors®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 5.5 percent to a seasonally adjusted annual rate¹ of 5.18 million units in September from a level of 4.91 million in August, and are 1.4 percent higher than the 5.11 million-unit pace in September 2007.
Lawrence Yun, NAR chief economist, said more markets are seeing year-over-year gains. “The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island,” he said. “The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike.”
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said low home prices and low interest rates have been attracting buyers. “This is the first time since November 2005 that home sales have been above year-ago levels,” he said. “Credit tightened at the end of September, but the improvement demonstrates that buyers who’ve been on the sidelines want to get into the market to make a long-term investment in their future.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.04 percent in September from 6.48 percent in August; the rate was 6.38 percent in September 2007.
Yun said there may be market disruptions. “The credit markets are not settled yet, although the mortgage market stabilized with the government takeover of Fannie Mae and Freddie Mac. Inventory remains high, and price declines are pressuring owners,” he said. “Additional housing stimulus would stabilize prices more quickly, which in turn would bring faster stability to Wall Street. Removing the repayment feature on the first-time buyer tax credit and permanently raising loan limits would bring more buyers into the market and further reduce inventory.”
Total housing inventory at the end of September fell 1.6 percent to 4.27 million existing homes available for sale, which represents a 9.9-month supply² at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.
The national median existing-home price3 for all housing types was $191,600 in September, down 9.0 percent from a year ago when the median was $210,500. “Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales are currently 35 to 40 percent of transactions. These are pulling the median price down because many are being sold at discounted prices,” Yun explained. “The current market is not being dominated by speculative investors. Rather, 80 percent of current buyers are purchasing a primary residence, which is a bit higher than historic norms.”
Single-family home sales increased 6.2 percent to a seasonally adjusted annual rate of 4.62 million in September from a pace of 4.35 million in August, and are 3.8 percent above the 4.45 million-unit level a year ago. The median existing single-family home price was $190,600 in September, which is 8.6 percent below September 2007.
Existing condominium and co-op sales were unchanged at a seasonally adjusted annual rate of 560,000 units in September, but are 15.7 percent below the 664,000-unit pace in September 2007. The median existing condo price4 was $199,400 in September, down 10.2 percent from a year ago.
Regionally, existing-home sales in the West jumped 16.8 percent to an annual rate of 1.25 million in September, and are 34.4 percent higher than September 2007. The median price in the West was $253,600, down 18.5 percent from a year ago.
In the Midwest, existing-home sales increased 4.4 percent to an annual pace of 1.19 million in September, but are 2.5 percent below a year ago. The median price in the Midwest was $152,500, which is 7.9 percent lower than September 2007.
Existing-home sales in the South rose 2.2 percent in September to a pace of 1.90 million but remain 7.8 percent below September 2007. The median price in the South was $167,200, down 4.1 percent from a year ago.
In the Northeast, existing-home sales slipped 1.2 percent to an annual pace of 840,000 in September, and are 7.7 percent lower than a year ago. The median price in the Northeast was $246,800, down 5.4 percent from September 2007.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
Existing-home sales increased last month as buyers responded to improved housing affordability conditions, according to the National Association of Realtors®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 5.5 percent to a seasonally adjusted annual rate¹ of 5.18 million units in September from a level of 4.91 million in August, and are 1.4 percent higher than the 5.11 million-unit pace in September 2007.
Lawrence Yun, NAR chief economist, said more markets are seeing year-over-year gains. “The sales turnaround which began in California several months ago is broadening now to Colorado, Kansas, Minnesota, Missouri and Rhode Island,” he said. “The South was hampered by much lower home sales in Houston in the aftermath of Hurricane Ike.”
NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said low home prices and low interest rates have been attracting buyers. “This is the first time since November 2005 that home sales have been above year-ago levels,” he said. “Credit tightened at the end of September, but the improvement demonstrates that buyers who’ve been on the sidelines want to get into the market to make a long-term investment in their future.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.04 percent in September from 6.48 percent in August; the rate was 6.38 percent in September 2007.
Yun said there may be market disruptions. “The credit markets are not settled yet, although the mortgage market stabilized with the government takeover of Fannie Mae and Freddie Mac. Inventory remains high, and price declines are pressuring owners,” he said. “Additional housing stimulus would stabilize prices more quickly, which in turn would bring faster stability to Wall Street. Removing the repayment feature on the first-time buyer tax credit and permanently raising loan limits would bring more buyers into the market and further reduce inventory.”
Total housing inventory at the end of September fell 1.6 percent to 4.27 million existing homes available for sale, which represents a 9.9-month supply² at the current sales pace, down from a 10.6-month supply in August. This marks two consecutive monthly declines since inventories peaked in July.
The national median existing-home price3 for all housing types was $191,600 in September, down 9.0 percent from a year ago when the median was $210,500. “Compared to a fairly small share of foreclosures or short sales a year ago, distressed sales are currently 35 to 40 percent of transactions. These are pulling the median price down because many are being sold at discounted prices,” Yun explained. “The current market is not being dominated by speculative investors. Rather, 80 percent of current buyers are purchasing a primary residence, which is a bit higher than historic norms.”
Single-family home sales increased 6.2 percent to a seasonally adjusted annual rate of 4.62 million in September from a pace of 4.35 million in August, and are 3.8 percent above the 4.45 million-unit level a year ago. The median existing single-family home price was $190,600 in September, which is 8.6 percent below September 2007.
Existing condominium and co-op sales were unchanged at a seasonally adjusted annual rate of 560,000 units in September, but are 15.7 percent below the 664,000-unit pace in September 2007. The median existing condo price4 was $199,400 in September, down 10.2 percent from a year ago.
Regionally, existing-home sales in the West jumped 16.8 percent to an annual rate of 1.25 million in September, and are 34.4 percent higher than September 2007. The median price in the West was $253,600, down 18.5 percent from a year ago.
In the Midwest, existing-home sales increased 4.4 percent to an annual pace of 1.19 million in September, but are 2.5 percent below a year ago. The median price in the Midwest was $152,500, which is 7.9 percent lower than September 2007.
Existing-home sales in the South rose 2.2 percent in September to a pace of 1.90 million but remain 7.8 percent below September 2007. The median price in the South was $167,200, down 4.1 percent from a year ago.
In the Northeast, existing-home sales slipped 1.2 percent to an annual pace of 840,000 in September, and are 7.7 percent lower than a year ago. The median price in the Northeast was $246,800, down 5.4 percent from September 2007.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
Tuesday, October 28, 2008
Stocks advance as banks, housing stocks gain
By TIM PARADIS,
AP Business Writer Tim Paradis,
NEW YORK – Wall Street turned higher in choppy trading Monday as a surprisingly strong home sales report sent housing sector stocks higher and the implementation of the government's financial bailout plan gave regional bank shares a boost. The Dow Jones industrials rose nearly 130 points.
But the advance was nonetheless tentative as investors remain nervous about the prospects for a protracted global recession; many gains have been quickly given back in this still volatile market. Wall Street also tried to position itself ahead of possible interest rate moves from central banks.
Investors around the world are anxious that the evaporation in available credit in the past month has hurt lending to the point where it will be difficult for the country to avoid a recession. But the U.S. government is carrying out some of its measures this week to help the banking sector.
Investors also grew optimistic that the European Central Bank is moving toward an interest rate cut after President Jean-Claude Trichet said Monday such a step was "a possibility" as inflation pressures ease.
The comments come a day before the start of a regularly scheduled two-day meeting of the Federal Reserve. There is speculation the world's major central banks could announce coordinated rate cuts; the Fed is expected to lower its fed funds rate by a half-point to 1 percent on Wednesday.
Traders are juggling other expectations about the government's next moves. The Treasury said it signed agreements with nine banks and will buy stock in the companies this week. The proceeds from the stock sales are intended to bolster the banks' balance sheets so they will begin more normal lending and help ease the continuing credit crisis. But investors remain worried that stagnant credit has hurt the world economy.
"Clearly, what's most important is that the funding crisis needs to be contained at this point," said Chris Orndorff, director of equity strategy at Payden & Rygel in Los Angeles.
"The banks need to start taking on some more risks," he said. "I think it's going to take months."
Beyond troubles in the financial sector, Orndorff contends investors are focusing on the outcome of the Fed meeting.
In midafternoon trading, the Dow rose 129.75, or 1.55 percent, to 8,508.70, helped by advances in Verizon Communications Inc. and Home Depot Inc.
Broader stock indicators showed more modest gains. The Standard & Poor's 500 index rose 7.77, or 0.89 percent, to 884.54, and the Nasdaq composite index rose 12.98, or 0.84 percent, to 1,565.01.
The Russell 2000 index of smaller companies fell 1.65, or 0.35 percent, to 469.47.
Despite the moves by the major indexes, declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to a light 725.1 million shares. Lighter volume can call into question the conviction behind big market advances or declines.
Light, sweet crude fell 93 cents to $63.24 per barrel on the New York Mercantile Exchange, while gold prices rose slightly.
The gyrations in U.S. stocks have been sizable since the market's peak a year ago, but particularly since last month's bankruptcy of Lehman Brothers Holdings Inc. and the government rescue of insurer American International Group. With investors uncertain about the economy, the market appears to be bouncing along a rocky bottom after falling sharply earlier this month.
Investors were cheered Monday by news that sales of new homes showed an unexpected increase in September. While median home prices have dropped to the lowest level in four years, investors appeared pleased that the market was beginning to chip away at an inventory glut. The Commerce Department reported that sales of new single-family homes rose by 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from August.
The median price of a new home declined by 9.1 percent from a year ago to $218,400, its lowest level since September 2004.
Regional banks advanced after the Treasury began rolling out its investments. Fifth Third Bancorp. rose 99 cents, or 12.3 percent, to $9.06, while SunTrust Banks Inc. rose $1.76, or 5 percent, to $36.87.
Home builders rose after the housing data. Centex Corp. advanced 32 cents, or 3.6 percent, to $9.10, and Lennar Corp. rose 29 cents, or 4.5 percent, to $6.81.
Some companies dependent on the housing sector rose as well. Home Depot rose 71 cents, or 3.8 percent, to $19.22, while Target Corp. rose $1.10, or 3.3 percent, to $34.02.
Verizon rose $3.10, or 12.4 percent, to $28.18, making it the strongest advancer among the 30 stocks that comprise the Dow industrials, after reporting that its third-quarter earnings rose 31 percent after its wireless business showed stronger-than-expected results.
Even with several pieces of welcome news, investors around the world remain worried about the prospects for economic expansion. A surge in the yen illustrated investors' nervousness about how much economic activity could slow. Japan's Nikkei 225 index dropped to its lowest close in 26 years as investors worried that the high yen will hurt Japanese exports and further disrupt economic activity. The yen is seen as a safe haven holding for investors who contend the Japanese economy will fare better in a global recession.
The ongoing selling is due in part to the belief that a worldwide recession is likely inevitable, but it's also being triggered by hedge funds and other investors unloading stock because they're being hit by margin calls. In a margin call, a broker who lent money to an investor calls in the loan, forcing the investor to sell stock to repay the loan.
Greg Church, chief investment officer of Church Capital Management in Yardley, Pa., contends the markets likely will remain volatile as hedge funds and mutual funds step into the market to sell. He also expects that some skittish investors will look to sell their positions as rallies emerge but that the severity of the market's recent sell-off has left it overdue for a rally, even if it's only temporary.
"We probably are due for some type of a bounce. Bear market rallies can be beautiful things. I think we could get one of those things sooner than later," he said.
Investors uneasy about where the market is headed continued to propel demand for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.71 percent from 3.72 percent late Friday. The dollar was higher against most other major currencies, except the yen, while gold prices rose.
The yield on the three-month bill, regarded as the safest asset around, fell to 0.78 percent from 0.82 percent late Thursday.
A key bank-to-bank lending rate slipped Monday. The London Interbank Offered Rate, or Libor, on three-month loans in dollars dipped to 3.51 percent from 3.52 percent on Friday.
While Libor has fallen steadily for over 10 days as confidence slowly returns to the banking system, investors remain skittish, particularly overseas.
The Nikkei fell 6.4 percent to its lowest level since October 1982, while Hong Kong's Hang Seng Index tumbled 12.7 percent, its lowest finish in more than four years and its biggest single-session drop since 1991.
The sell-off came even as the seven leading industrial nations on Sunday issued a statement warning about the "recent excessive volatility" in the value of the yen. The G7 said it would "cooperate as appropriate," stirring speculation of an orchestrated intervention to help stabilize currency markets.
Selling spread to Europe. Britain's FTSE 100 fell 0.79 percent, Germany's DAX index rose 0.91 percent, and France's CAC-40 declined 3.96 percent. Stocks in Europe pulled well off their lows after Wall Street sidestepped the steep sell-off that hit Asia and after Trichet raised the prospect of an interest rate cut.
AP Business Writer Tim Paradis,
NEW YORK – Wall Street turned higher in choppy trading Monday as a surprisingly strong home sales report sent housing sector stocks higher and the implementation of the government's financial bailout plan gave regional bank shares a boost. The Dow Jones industrials rose nearly 130 points.
But the advance was nonetheless tentative as investors remain nervous about the prospects for a protracted global recession; many gains have been quickly given back in this still volatile market. Wall Street also tried to position itself ahead of possible interest rate moves from central banks.
Investors around the world are anxious that the evaporation in available credit in the past month has hurt lending to the point where it will be difficult for the country to avoid a recession. But the U.S. government is carrying out some of its measures this week to help the banking sector.
Investors also grew optimistic that the European Central Bank is moving toward an interest rate cut after President Jean-Claude Trichet said Monday such a step was "a possibility" as inflation pressures ease.
The comments come a day before the start of a regularly scheduled two-day meeting of the Federal Reserve. There is speculation the world's major central banks could announce coordinated rate cuts; the Fed is expected to lower its fed funds rate by a half-point to 1 percent on Wednesday.
Traders are juggling other expectations about the government's next moves. The Treasury said it signed agreements with nine banks and will buy stock in the companies this week. The proceeds from the stock sales are intended to bolster the banks' balance sheets so they will begin more normal lending and help ease the continuing credit crisis. But investors remain worried that stagnant credit has hurt the world economy.
"Clearly, what's most important is that the funding crisis needs to be contained at this point," said Chris Orndorff, director of equity strategy at Payden & Rygel in Los Angeles.
"The banks need to start taking on some more risks," he said. "I think it's going to take months."
Beyond troubles in the financial sector, Orndorff contends investors are focusing on the outcome of the Fed meeting.
In midafternoon trading, the Dow rose 129.75, or 1.55 percent, to 8,508.70, helped by advances in Verizon Communications Inc. and Home Depot Inc.
Broader stock indicators showed more modest gains. The Standard & Poor's 500 index rose 7.77, or 0.89 percent, to 884.54, and the Nasdaq composite index rose 12.98, or 0.84 percent, to 1,565.01.
The Russell 2000 index of smaller companies fell 1.65, or 0.35 percent, to 469.47.
Despite the moves by the major indexes, declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to a light 725.1 million shares. Lighter volume can call into question the conviction behind big market advances or declines.
Light, sweet crude fell 93 cents to $63.24 per barrel on the New York Mercantile Exchange, while gold prices rose slightly.
The gyrations in U.S. stocks have been sizable since the market's peak a year ago, but particularly since last month's bankruptcy of Lehman Brothers Holdings Inc. and the government rescue of insurer American International Group. With investors uncertain about the economy, the market appears to be bouncing along a rocky bottom after falling sharply earlier this month.
Investors were cheered Monday by news that sales of new homes showed an unexpected increase in September. While median home prices have dropped to the lowest level in four years, investors appeared pleased that the market was beginning to chip away at an inventory glut. The Commerce Department reported that sales of new single-family homes rose by 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from August.
The median price of a new home declined by 9.1 percent from a year ago to $218,400, its lowest level since September 2004.
Regional banks advanced after the Treasury began rolling out its investments. Fifth Third Bancorp. rose 99 cents, or 12.3 percent, to $9.06, while SunTrust Banks Inc. rose $1.76, or 5 percent, to $36.87.
Home builders rose after the housing data. Centex Corp. advanced 32 cents, or 3.6 percent, to $9.10, and Lennar Corp. rose 29 cents, or 4.5 percent, to $6.81.
Some companies dependent on the housing sector rose as well. Home Depot rose 71 cents, or 3.8 percent, to $19.22, while Target Corp. rose $1.10, or 3.3 percent, to $34.02.
Verizon rose $3.10, or 12.4 percent, to $28.18, making it the strongest advancer among the 30 stocks that comprise the Dow industrials, after reporting that its third-quarter earnings rose 31 percent after its wireless business showed stronger-than-expected results.
Even with several pieces of welcome news, investors around the world remain worried about the prospects for economic expansion. A surge in the yen illustrated investors' nervousness about how much economic activity could slow. Japan's Nikkei 225 index dropped to its lowest close in 26 years as investors worried that the high yen will hurt Japanese exports and further disrupt economic activity. The yen is seen as a safe haven holding for investors who contend the Japanese economy will fare better in a global recession.
The ongoing selling is due in part to the belief that a worldwide recession is likely inevitable, but it's also being triggered by hedge funds and other investors unloading stock because they're being hit by margin calls. In a margin call, a broker who lent money to an investor calls in the loan, forcing the investor to sell stock to repay the loan.
Greg Church, chief investment officer of Church Capital Management in Yardley, Pa., contends the markets likely will remain volatile as hedge funds and mutual funds step into the market to sell. He also expects that some skittish investors will look to sell their positions as rallies emerge but that the severity of the market's recent sell-off has left it overdue for a rally, even if it's only temporary.
"We probably are due for some type of a bounce. Bear market rallies can be beautiful things. I think we could get one of those things sooner than later," he said.
Investors uneasy about where the market is headed continued to propel demand for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.71 percent from 3.72 percent late Friday. The dollar was higher against most other major currencies, except the yen, while gold prices rose.
The yield on the three-month bill, regarded as the safest asset around, fell to 0.78 percent from 0.82 percent late Thursday.
A key bank-to-bank lending rate slipped Monday. The London Interbank Offered Rate, or Libor, on three-month loans in dollars dipped to 3.51 percent from 3.52 percent on Friday.
While Libor has fallen steadily for over 10 days as confidence slowly returns to the banking system, investors remain skittish, particularly overseas.
The Nikkei fell 6.4 percent to its lowest level since October 1982, while Hong Kong's Hang Seng Index tumbled 12.7 percent, its lowest finish in more than four years and its biggest single-session drop since 1991.
The sell-off came even as the seven leading industrial nations on Sunday issued a statement warning about the "recent excessive volatility" in the value of the yen. The G7 said it would "cooperate as appropriate," stirring speculation of an orchestrated intervention to help stabilize currency markets.
Selling spread to Europe. Britain's FTSE 100 fell 0.79 percent, Germany's DAX index rose 0.91 percent, and France's CAC-40 declined 3.96 percent. Stocks in Europe pulled well off their lows after Wall Street sidestepped the steep sell-off that hit Asia and after Trichet raised the prospect of an interest rate cut.
Monday, October 27, 2008
New Loan Fix Is Unlikely the Last
WASHINGTON -- The government's latest plan to help struggling homeowners eliminates a major bottleneck by giving mortgage investors more incentive to agree to refinancings. But lawmakers said Thursday they might go further after the November election and force reluctant investors to do more.
[FDIC Chairman Sheila Bair told lawmakers Thursday about new steps being weighed to prevent foreclosures.] Getty Images
FDIC Chairman Sheila Bair told lawmakers Thursday about new steps being weighed to prevent foreclosures.
video
Senate Hearing Focuses on Homeowners
2:16
WSJ's Damian Paletta walks us through the measures being considered by the U.S. government to help homeowners facing foreclosure. (Oct. 23)
At a Senate Banking Committee hearing, FDIC Chairman Sheila Bair confirmed that "the FDIC is working closely and creatively with Treasury" on the the new initiative. The roughly $40 billion plan would encourage mortgage investors to permit struggling homeowners to refinance by having the government guarantee part of the rewritten loans.
Sen. Christopher Dodd (D., Conn.), the Banking Committee chairman, said he was considering a new round of legislation after the November election to address problem mortgages, including changes to allow bankruptcy judges to rewrite them. "I think we've come to the point again where...legislatively we have to try this again and probably some other ideas," he said.
With the U.S. and global economies at risk of recession, policy makers are racing against time to keep the housing market from continuing its steep decline and worsening the broader slowdown. But officials have run into problems persuading investors to rewrite mortgages on more affordable terms, often because of the losses entailed.
Neel Kashkari, the Treasury Department's interim assistant secretary for financial stability, who also testified before the panel, said Treasury was working on new policies to prevent foreclosures. He said the department was "passionate about doing everything we can to avoid preventable foreclosures."
The struggles over how to fix troubled loans, more than two years after the problems began to emerge, reflect the complexity of the mortgage business, thanks to the way loans have been packaged into securities that effectively divide ownership among many investors. Before they can alter a loan, mortgage servicers generally have to show it is better to refinance than foreclose, or they run the risk of being sued by investors.
The latest plan being developed by Ms. Bair and Treasury officials would try to untangle the mess by offering a government guarantee of repayment for some part of the rewritten loan. That might demonstrate that struggling homeowners would be able to repay the new loan, experts say.
"If you throw a Treasury guarantee in, then the net present value [of the new loan] becomes luminously clear," said Karen Petrou, managing partner of Federal Financial Analytics, a consulting firm. "Then it's far easier to refinance."
During the hearing, Sen. Dodd said he spoke with Treasury Secretary Henry Paulson Thursday morning about the plan to spur more loan modifications, and his impression was that the secretary is "determined" to get the program up and running.
Mr. Kashkari seemed hesitant to fully endorse the plan on Thursday and suggested the administration is weighing how the new initiative would mesh with existing programs. In addition, issues are being raised about how the costs would be accounted for, Mr. Dodd said after the hearing.
Provisions for offering new government loan guarantees were a little-noticed part of the $700 billion banking-rescue bill that the Bush administration pushed through Congress earlier this month. That bill says that in addition to other programs created in the legislation, the Treasury Department "may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures."
Some analysts say the loan-guarantee provision doesn't appear to be subject to the bill's overall $700 billion limit, so the government's power to help rewrite mortgages is even broader than it is for aiding banks.
Ms. Bair said the incentive could make a servicer's decision to modify a loan "more powerful, if not irresistible." She said such a plan could allow foreclosure prevention on an industrywide basis, rather than the current ad hoc process.
There are signs that Ms. Bair, an early advocate of more ambitious actions to stop foreclosures, is gaining traction with fellow federal officials. Federal Housing Finance Agency director James B. Lockhart, who also testified before the panel, echoed Ms. Bair's appeal for more loan modifications. "The most critical components of stabilizing the mortgage market are assisting borrowers at risk of losing their homes and reducing foreclosures," he said.
Some industry players say the new government initiative is just one addition to its piecemeal approach. That began with a voluntary mortgage modification program announced by the Bush administration in August 2007, and continued with a housing bill passed by Congress in mid-2008 that used the Federal Housing Administration to guarantee some rewritten loans.
"We'd love to do across the board [modification] but this doesn't seem to do it," said Anne Canfield, executive director of the Consumer Mortgage Coalition, a group that represents mortgage servicers.
In the hearing, Mr. Kashkari said some preventable foreclosures were occurring because homeowners were reluctant to contact their lenders, which he called the "hardest part" of the loan-modification process.
Sen. Dodd responded: "Why can't the lender make that call? They know they have a customer, a borrower in trouble."
Mr. Kashkari said lenders should be trying to reach troubled borrowers. "They need to be making these calls," he said.
—Maya Jackson Randall contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com and Jessica Holzer at jessica.holzer@dowjones.com
[FDIC Chairman Sheila Bair told lawmakers Thursday about new steps being weighed to prevent foreclosures.] Getty Images
FDIC Chairman Sheila Bair told lawmakers Thursday about new steps being weighed to prevent foreclosures.
video
Senate Hearing Focuses on Homeowners
2:16
WSJ's Damian Paletta walks us through the measures being considered by the U.S. government to help homeowners facing foreclosure. (Oct. 23)
At a Senate Banking Committee hearing, FDIC Chairman Sheila Bair confirmed that "the FDIC is working closely and creatively with Treasury" on the the new initiative. The roughly $40 billion plan would encourage mortgage investors to permit struggling homeowners to refinance by having the government guarantee part of the rewritten loans.
Sen. Christopher Dodd (D., Conn.), the Banking Committee chairman, said he was considering a new round of legislation after the November election to address problem mortgages, including changes to allow bankruptcy judges to rewrite them. "I think we've come to the point again where...legislatively we have to try this again and probably some other ideas," he said.
With the U.S. and global economies at risk of recession, policy makers are racing against time to keep the housing market from continuing its steep decline and worsening the broader slowdown. But officials have run into problems persuading investors to rewrite mortgages on more affordable terms, often because of the losses entailed.
Neel Kashkari, the Treasury Department's interim assistant secretary for financial stability, who also testified before the panel, said Treasury was working on new policies to prevent foreclosures. He said the department was "passionate about doing everything we can to avoid preventable foreclosures."
The struggles over how to fix troubled loans, more than two years after the problems began to emerge, reflect the complexity of the mortgage business, thanks to the way loans have been packaged into securities that effectively divide ownership among many investors. Before they can alter a loan, mortgage servicers generally have to show it is better to refinance than foreclose, or they run the risk of being sued by investors.
The latest plan being developed by Ms. Bair and Treasury officials would try to untangle the mess by offering a government guarantee of repayment for some part of the rewritten loan. That might demonstrate that struggling homeowners would be able to repay the new loan, experts say.
"If you throw a Treasury guarantee in, then the net present value [of the new loan] becomes luminously clear," said Karen Petrou, managing partner of Federal Financial Analytics, a consulting firm. "Then it's far easier to refinance."
During the hearing, Sen. Dodd said he spoke with Treasury Secretary Henry Paulson Thursday morning about the plan to spur more loan modifications, and his impression was that the secretary is "determined" to get the program up and running.
Mr. Kashkari seemed hesitant to fully endorse the plan on Thursday and suggested the administration is weighing how the new initiative would mesh with existing programs. In addition, issues are being raised about how the costs would be accounted for, Mr. Dodd said after the hearing.
Provisions for offering new government loan guarantees were a little-noticed part of the $700 billion banking-rescue bill that the Bush administration pushed through Congress earlier this month. That bill says that in addition to other programs created in the legislation, the Treasury Department "may use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures."
Some analysts say the loan-guarantee provision doesn't appear to be subject to the bill's overall $700 billion limit, so the government's power to help rewrite mortgages is even broader than it is for aiding banks.
Ms. Bair said the incentive could make a servicer's decision to modify a loan "more powerful, if not irresistible." She said such a plan could allow foreclosure prevention on an industrywide basis, rather than the current ad hoc process.
There are signs that Ms. Bair, an early advocate of more ambitious actions to stop foreclosures, is gaining traction with fellow federal officials. Federal Housing Finance Agency director James B. Lockhart, who also testified before the panel, echoed Ms. Bair's appeal for more loan modifications. "The most critical components of stabilizing the mortgage market are assisting borrowers at risk of losing their homes and reducing foreclosures," he said.
Some industry players say the new government initiative is just one addition to its piecemeal approach. That began with a voluntary mortgage modification program announced by the Bush administration in August 2007, and continued with a housing bill passed by Congress in mid-2008 that used the Federal Housing Administration to guarantee some rewritten loans.
"We'd love to do across the board [modification] but this doesn't seem to do it," said Anne Canfield, executive director of the Consumer Mortgage Coalition, a group that represents mortgage servicers.
In the hearing, Mr. Kashkari said some preventable foreclosures were occurring because homeowners were reluctant to contact their lenders, which he called the "hardest part" of the loan-modification process.
Sen. Dodd responded: "Why can't the lender make that call? They know they have a customer, a borrower in trouble."
Mr. Kashkari said lenders should be trying to reach troubled borrowers. "They need to be making these calls," he said.
—Maya Jackson Randall contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com and Jessica Holzer at jessica.holzer@dowjones.com
Friday, October 24, 2008
Construction Industry Braces for Contraction
By ALEX FRANGOS
The construction industry, already hit hard by the housing downturn, is bracing for serious reductions in commercial and public-works projects that could lead to the industry's deepest and longest contraction in recent years.
In a closely watched report scheduled to be released Thursday, McGraw-Hill Construction estimates the value of new construction projects will fall to $515 billion next year, down 7% from this year and off 25% from its peak of $690 billion in 2006. The decline will be led by cutbacks in the construction of hotels, office buildings, warehouses and factories.
In recent years, as single-family housing slipped into a gulch, the building of hospitals, roads, schools and offices had remained relatively strong. But now states are suffering lower tax revenue, and financing for commercial projects has become prohibitively expensive or impossible to secure as banks pull back lending. For example, educational buildings will see a 3% decline to $55 billion, the McGraw-Hill report says. Health-care construction spending will see a similar percentage decline, to $26 billion. Highways and bridges will see a 4% decline to $50 billion in new projects.
It all adds up to the biggest sustained decline in construction in at least four decades. The length of the decline is also breaking records. Most construction downturns last one or two years. But according to McGraw-Hill, the construction downturn will endure its third year among all property types. It will be the fourth year of decline for construction of single-family homes. The last time that happened was 1979 to 1982.
"It's the most difficult environment for construction since the early 1990s," says Robert Murray, vice president for economic affairs at McGraw-Hill Construction, a unit of New York-based McGraw-Hill Cos. "The big story for 2009 will be how the weakening construction market will spread to nonresidential building and public works," he says.
"Nobody can get a loan if you are a developer, and if you are a state or local government, you may not be able to float a bond," says Kenneth Simonson, chief economist for Associated General Contractors, a trade group. He says developers and governments are canceling or halting projects across the country.
The McGraw-Hill forecast is based on the company's tracking of new-construction projects, including the issuance of building permits by local governments. The data, know as construction starts, are an indicator of future construction spending and often correlate strongly with actual construction spending, which is tracked monthly by the Census Bureau.
Nonresidential construction will drop 10% next year to about $220 billion. In square-footage terms, the country will build 12% less nonresidential space -- including stores, offices and warehouses -- than in 2008.
Write to Alex Frangos at alex.frangos@wsj.com
The construction industry, already hit hard by the housing downturn, is bracing for serious reductions in commercial and public-works projects that could lead to the industry's deepest and longest contraction in recent years.
In a closely watched report scheduled to be released Thursday, McGraw-Hill Construction estimates the value of new construction projects will fall to $515 billion next year, down 7% from this year and off 25% from its peak of $690 billion in 2006. The decline will be led by cutbacks in the construction of hotels, office buildings, warehouses and factories.
In recent years, as single-family housing slipped into a gulch, the building of hospitals, roads, schools and offices had remained relatively strong. But now states are suffering lower tax revenue, and financing for commercial projects has become prohibitively expensive or impossible to secure as banks pull back lending. For example, educational buildings will see a 3% decline to $55 billion, the McGraw-Hill report says. Health-care construction spending will see a similar percentage decline, to $26 billion. Highways and bridges will see a 4% decline to $50 billion in new projects.
It all adds up to the biggest sustained decline in construction in at least four decades. The length of the decline is also breaking records. Most construction downturns last one or two years. But according to McGraw-Hill, the construction downturn will endure its third year among all property types. It will be the fourth year of decline for construction of single-family homes. The last time that happened was 1979 to 1982.
"It's the most difficult environment for construction since the early 1990s," says Robert Murray, vice president for economic affairs at McGraw-Hill Construction, a unit of New York-based McGraw-Hill Cos. "The big story for 2009 will be how the weakening construction market will spread to nonresidential building and public works," he says.
"Nobody can get a loan if you are a developer, and if you are a state or local government, you may not be able to float a bond," says Kenneth Simonson, chief economist for Associated General Contractors, a trade group. He says developers and governments are canceling or halting projects across the country.
The McGraw-Hill forecast is based on the company's tracking of new-construction projects, including the issuance of building permits by local governments. The data, know as construction starts, are an indicator of future construction spending and often correlate strongly with actual construction spending, which is tracked monthly by the Census Bureau.
Nonresidential construction will drop 10% next year to about $220 billion. In square-footage terms, the country will build 12% less nonresidential space -- including stores, offices and warehouses -- than in 2008.
Write to Alex Frangos at alex.frangos@wsj.com
Thursday, October 23, 2008
Builders Help Buyers to Help Themselves
By DAWN WOTAPKA
Home builders are working with potential buyers, enrolling them in programs that address everything from credit-report errors to managing debt, in order to raise their credit scores so they can qualify for a mortgage or a better interest rate.
It is another move by a sector desperate to unload inventory as the credit crisis roils the globe, causing lenders to shun borrowers with blemished credit histories and to demand higher credit scores.
Burnishing Buyers
* Home builders such as D.R. Horton are turning to credit-enhancement programs to help make potential buyers more attractive to lenders.
* Programs address everything from debt-to-income ratios to store-branded cards and budgeting.
* Critics say free credit counseling can be had from independent, nonprofit groups with no ties to builders.
The programs, conducted over the Internet and in face-to-face meetings, have recently become "a very, very high focus," said Dean Bloxom, president of imortgage.com, a mortgage banker that works with builder Meritage Homes Corp.
Florida-based Debt Resource USA, which uses certified credit counselors and works with builders such as Hovnanian Enterprises Inc. and M/I Homes Inc., has seen business triple since it started 18 months ago, said Chief Executive David Vizzi. Hovnanian, an industry trailblazer when it rolled out credit-enhancement programs nationwide last year, has more than 100 enrollees.
D.R. Horton Inc., the nation's largest builder by number of annual closings, offers a free credit-improvement program called Home Buyers Club, which assists with credit coaching and analysis and monthly disputes.
Though no one expects the programs to significantly increase sales -- Hovnanian reports just 51 graduates in the last 18 months -- every sale counts for builders as they see earnings plummet, orders tank and cancellations rise as the worst housing correction in decades shows few signs of letting up.
Critics of the programs say credit reports are available for free, and consumers can challenge errors online. In addition, independent groups with no ties to builders offer complimentary assistance and advice.
Consumer Credit Counseling Service of Greater Atlanta Inc. has developed interactive Web-based podcasts, PowerPoint slides, social networking and journals. The nonprofit group suggests all buyers go through prepurchase counseling and a six-hour buyer's workshop.
Builders make their involvement clear to consumers and say they hope the process will build loyalty and lead to a deal for the builder and its mortgage arm.
"It becomes a win-win," said Dan Klinger, president of K. Hovnanian American Mortgage, which doesn't charge potential buyers to work with Debt Resource USA. "We get to sell one of our homes, and the customer gets to clean up his credit and learn good, fiscal responsibility at the same time."
During the housing boom, money flowed freely, even to those with weak credit scores, and builders raked in big profits. But as those buyers defaulted, scores of lenders went out of business and foreclosures swelled to record levels.
Lenders are avoiding risky subprime loans -- which made up 24% of mortgage originations in 2006 -- as well as most of the no-money-down and adjustable-rate mortgages that once inflated sales.
More recently, builders have been hurt by the loss of seller-funded down-payment assistance, in which third parties contribute to the buyer's down payment via the seller. This summer's housing law banned seller-funded down-payment assistance on mortgages insured by the Federal Housing Administration as of Oct. 1, essentially ending the practice.
Qualifying for even a basic 30-year fixed mortgage also has gotten more difficult. Lenders and mortgage insurance companies are scrutinizing credit reports and scores, which detail housing-payment history and length of credit and debt, helping gauge a borrower's risk.
Builders said they screen applicants for their credit-repair programs. They avoid those who refuse to pay bills on time and seek those willing to change payment behavior and aspiring buyers hurt by life events such as a divorce, illness or identity theft.
Everyone involved is aware there is no way to instantly rebuild a tattered score, though addressing errors is a good start. Depending on what needs to be done, the programs can take weeks or months.
The programs address everything from debt to income ratios to why opening a store-branded card at the cash register might not be a good deal. They also teach students about budgeting -- not spending a fortune on furniture for the new house or forgoing that daily latte to build up a safety net should a pipe break or the homeowner get laid off.
Write to Dawn Wotapka at dawn.wotapka@dowjones.com
Home builders are working with potential buyers, enrolling them in programs that address everything from credit-report errors to managing debt, in order to raise their credit scores so they can qualify for a mortgage or a better interest rate.
It is another move by a sector desperate to unload inventory as the credit crisis roils the globe, causing lenders to shun borrowers with blemished credit histories and to demand higher credit scores.
Burnishing Buyers
* Home builders such as D.R. Horton are turning to credit-enhancement programs to help make potential buyers more attractive to lenders.
* Programs address everything from debt-to-income ratios to store-branded cards and budgeting.
* Critics say free credit counseling can be had from independent, nonprofit groups with no ties to builders.
The programs, conducted over the Internet and in face-to-face meetings, have recently become "a very, very high focus," said Dean Bloxom, president of imortgage.com, a mortgage banker that works with builder Meritage Homes Corp.
Florida-based Debt Resource USA, which uses certified credit counselors and works with builders such as Hovnanian Enterprises Inc. and M/I Homes Inc., has seen business triple since it started 18 months ago, said Chief Executive David Vizzi. Hovnanian, an industry trailblazer when it rolled out credit-enhancement programs nationwide last year, has more than 100 enrollees.
D.R. Horton Inc., the nation's largest builder by number of annual closings, offers a free credit-improvement program called Home Buyers Club, which assists with credit coaching and analysis and monthly disputes.
Though no one expects the programs to significantly increase sales -- Hovnanian reports just 51 graduates in the last 18 months -- every sale counts for builders as they see earnings plummet, orders tank and cancellations rise as the worst housing correction in decades shows few signs of letting up.
Critics of the programs say credit reports are available for free, and consumers can challenge errors online. In addition, independent groups with no ties to builders offer complimentary assistance and advice.
Consumer Credit Counseling Service of Greater Atlanta Inc. has developed interactive Web-based podcasts, PowerPoint slides, social networking and journals. The nonprofit group suggests all buyers go through prepurchase counseling and a six-hour buyer's workshop.
Builders make their involvement clear to consumers and say they hope the process will build loyalty and lead to a deal for the builder and its mortgage arm.
"It becomes a win-win," said Dan Klinger, president of K. Hovnanian American Mortgage, which doesn't charge potential buyers to work with Debt Resource USA. "We get to sell one of our homes, and the customer gets to clean up his credit and learn good, fiscal responsibility at the same time."
During the housing boom, money flowed freely, even to those with weak credit scores, and builders raked in big profits. But as those buyers defaulted, scores of lenders went out of business and foreclosures swelled to record levels.
Lenders are avoiding risky subprime loans -- which made up 24% of mortgage originations in 2006 -- as well as most of the no-money-down and adjustable-rate mortgages that once inflated sales.
More recently, builders have been hurt by the loss of seller-funded down-payment assistance, in which third parties contribute to the buyer's down payment via the seller. This summer's housing law banned seller-funded down-payment assistance on mortgages insured by the Federal Housing Administration as of Oct. 1, essentially ending the practice.
Qualifying for even a basic 30-year fixed mortgage also has gotten more difficult. Lenders and mortgage insurance companies are scrutinizing credit reports and scores, which detail housing-payment history and length of credit and debt, helping gauge a borrower's risk.
Builders said they screen applicants for their credit-repair programs. They avoid those who refuse to pay bills on time and seek those willing to change payment behavior and aspiring buyers hurt by life events such as a divorce, illness or identity theft.
Everyone involved is aware there is no way to instantly rebuild a tattered score, though addressing errors is a good start. Depending on what needs to be done, the programs can take weeks or months.
The programs address everything from debt to income ratios to why opening a store-branded card at the cash register might not be a good deal. They also teach students about budgeting -- not spending a fortune on furniture for the new house or forgoing that daily latte to build up a safety net should a pipe break or the homeowner get laid off.
Write to Dawn Wotapka at dawn.wotapka@dowjones.com
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