Dave Woodland - Your Bend, OR Friendly, Knowledgable Mortgage Professional

Of course we have nothing but big-news weeks anymore, so this week was par for the course. The Administration put out details and started up the federally guided mortgage modification and extended refinance program that is supposed to help 7 to 9 million home owners. The Dow dropped to 6,600 (is at 6,602 at this minute) and another 651,000 jobs were reported lost in the month putting us over 3,000,000 jobs evaporated in the past 5 months and 4.2 million in the year. Each of these is monumental on its own and we receive it as just more news.

Both of the Home Affordability actions are on the face between banks and borrowers, but we the taxpayers are deeply involved with guarantees and incentives both to the mortgagors (borrowers are “paid” $1,000 per year via principal reductions if they continue to make timely payments after modification) and to the loan servicers (who are also paid incentives when payments continue to be paid timely). If you would like to refer back to the primer on the tax credits, loan mods and refi programs, visit this prior post on ActiveRain link (click here) for a reprint and the links to the Treasury Dept websites.

A couple of notes on unemployment: We hear the topside numbers (651,000 and 8.1%) and some color (8.1% unemployment is now higher than at anytime in the past 25 years.) Here is some additional color on those facts: Unemployment is measured in sectors. The two most interesting groups to me are the temporary workers and the professional sector. The temp jobs are somewhat of a leading indicator where there have not been increases in temp labor workforce in over 24 months now. In other words the drop-off started there even when jobs overall were steady to increasing. In the past 12 months, the temp labor force has already dropped ~25%. There is some talk of that group now stabilizing and looking to turn around. At the other end of the time spectrum, professional services are typically the last to go into decline. In February, the professional and business services sector accounted for the largest increase at 180,000. The hope is that we are now getting to the depth of the job loss timeline. That’s not to say that job losses will start reversing themselves. Unfortunately, unemployment is one of the later things to turn around in a recovery. First the stock market turns up with a view of future earnings. Employers are reluctant to hire until it is clear the stability is truly there. It is much like the $600/$1,200 refund checks that individuals got last year. Most banked it with worries about what might happen next. Spending on new jobs is slow to pick up.

Another graphic on unemployment: The 8.1% are only the “Unemployed”. There are two other large groups defined as “Discouraged, not Looking” (bold line in the top chart) and “Underemployed” (bold line in the bottom chart.) In the 1982 recession, the equivalent number to the bottom chart (combined 14.8% Unemployed, Discouraged and Under-employed) reached 16%. We are clearly pointed to surpassing that number this time around. Let’s hope the leading indicator of temp workers and lagging of professional services workers are pointing to a slower rise in these numbers and eventually a reversal.

Another matter to consider is the rather quiet action, with far-reaching impact, taken by Sheila Blair and the FDIC last week. The FDIC announced that the costs of taking over the likes of Indy Mac Bank will costs participants in the shared insurance plan an additional $27 B this year. The impact of that for lenders is that income and therefore capital will shrink by the same amount. Less capital means cap ratio lending will shrink at 6x. So it equates to a $150 B reduction in lending capacity at a time when lending capital is most needed. This represents a tightening mostly in the Commercial Lending and Consumer lending worlds. Our Commercial Lending sources are still lending and looking for borrowers. Another owner-user, light industrial, cash-out refi borrower signed a letter-of-intent with a lender last week. Let Signet help you and your associates take care of business.

Times are hard. We appreciate what you are experiencing. I am encouraged by reports of small acts of kindness and support that happen individually every day. The bond markets are all up and rates are down. We welcome your calls and look forward to helping you and yours. Make it a great week! - Dave

Good Morning Team and welcome to March!

Let’s hope that March Madness this year is limited to basketball, or at least, if it relates to the economy it is the good kind of madness. January and February only brought serious economic madness with the worst two-month start to the Dow ever. In a normal world, the slide in the Dow would normally bring dollars to bonds in a way that would improve bond prices and rates. Some of this happened with TBills, but the activity in MBS moved towards slightly worse rates. Even the T Bill benefit was offset by the large tranches of new issuances from the treasury as they begin to fund the stimulus and deficit spending. A theory on the MBS sideways move is that bondholders don’t want to get too long ahead of the inevitable stock reversal. And it looked like the upturn might have been underway after the S&P 500 met its Nov. ’08 low and jumped in a positive direction. This late week motion seems to have lost steam as global stocks overnight were all in recession retreat and the US markets have opened to the downside again.

Look to the bottom of this email for some examples on the new $8,000 Homebuyers’ Tax Credit. Also, make sure you look at the recap below on the economic news of the past week. A couple of side-notes: While the GDP was revised downward for 4Q08 to -6.2%, the indications are that 1Q09 will shatter all records with a real possibility of being a double-digit negative. New home sales set record lows but builders have slowed to a point that inventory actually improved in spite of sales.

Stress testing began under the CAP program and CITI moved further down the hopefully-only-temporary, nationalization path. Stress testing is based on the “highly unlikely” scenario of “10-12% unemployment and a further drop in housing prices of 20%”. I hate to be a pessimist, but I don’t agree with Treasury’s thought that this is “highly unlikely”. Unemployment in OR and CA is already at 10%. One of my trusted sources has recently projected a 15% nationwide unemployment figure and while I don’t think it will go all the way there, I do anticipate exceeding 12% in less than 6 months. This should keep us in a place where the Fed Funds Rate Target and the Prime Rate won’t be moving up in this period and not likely in the rest of the calendar year.

While this economic upheaval originated in the US, it is clear that the whole world is experiencing it in spades. In fact, while we may feel like the programs we are implementing are shotgun-quick and somewhat haphazard; the rest of the world is trying to catch up. And the strength of the dollar is an indication that investors globally like the US efforts. That’s not to say there aren’t surprises that will still be standing when the dust settles. The new budget proposals have unprecedented deficits attached to them. That on its own doesn’t scare me. What scares me is that some of the permanent programs being funded will require continued spending into the future. From a real estate stand point, the single most significant threat of the budget proposal is the combination of eliminating home-mortgage deductibility for “upper income” taxpayers (that will include huge numbers of two income families) and increasing capital gains rates. These should be hotly contested in congress and we will keep our eye on it.

Rates are still exceptional from a long-term perspective. Funding is available. Let Signet Mortgage advise you and your friends and family. Make it a great week! - Dave

I am excited to hear the presenters this morning at the Real Estate Forecast breakfast in our wonderful little town of Bend, OR. Forecasting is always tough but this year with the unknown impacts of the American Recovery and Reinvestment Act of 2009, the Homeowners Affordability and Stability Plan, TARP I, II and III and TALF it is hard to make a call. During the week I got input about forecasting from 3 sharp students of the economy that I want to share with you too.

1. the stock market (buyers purchase the future performance of companies),
2. leading economic indicators in money supply, lending, and eventually jobs,
3. broader economic performance as seen in corporate results,
4. residential real estate and finally
5. commercial real estate.

It will be very interesting to see if the homeowner initiatives might move the residential real estate recovery ahead of its traditional position. While we shudder at the dollars that are pouring into these identified initiatives AND the trillion dollar deficit spending targeted for this year and the next, there are sound economists indicating that these steps are the right actions, but not nearly enough dollars. I tend to be on the side that this is too much but only time will tell. BTW – remember the Economic Stimulus Act of 2008? That was now 12 months ago and led to checks arriving at the door (and very quickly into the banks) of most taxpayers. Do you realize that while it seemed so large at the time, at $152B it was less than 18% of what was passed and proposed this past week? And those dollars are nothing compared to the trillions being expanded on the balance sheet of the Federal Reserve.

The second forecasting prediction came through one of our commercial lender resources who spent the week in Washington, D.C. at the summit for improving Small Business lending (great timing.) He reports that in this public forum, the Chair of President Obama’s Council of Economic Advisors, Dr. Christina Romer said that she “stakes (her) reputation that the economy will turn around in the fourth quarter of 2009.” Tying that into the previous list, I can see at least 2 or 3 and maybe the first 4 showing moves to the upside by the 4^th quarter. I think she was probably referring to either #2 or #3. This week will be very telling for #1, the stock market. While the Dow broke through its November 2008 low and kept going last week, the S&P is still above but moving towards 740, its 2008 low also reached in November. Many are holding their collective breath to see if 740 can be the barrier that turns the market back around and starts it on its way upward. The impact on real estate interest rates is going to have an initial opposite reaction to stocks. We have enjoyed a week of improving rates as stocks continued to tumble. When they turn around, money will flow out of Treasury and to a lesser degree MBS causing a slight negative to mortgage rates.

This brings us to the third wise prognosticator. These friends are Chinese and they pointed out to me while we were talking about it now being the Year of the Ox, that many Mandarin speakers are quite hopeful of the Ox being a good omen. You see the mandarin pronunciation of “Ox” is very similar to the pronunciation of the concept of “turn-around” or “recovery”. So there we have it. With all that is going on around us, I am thinking this is as sound as any other logic I have heard. And I am predicting the Ox will help get the S&P to 740 this week and back up a bit.

While I was writing this, the Treasury, Fed, Comptroller of the Currency, OTS and FDIC issued their joint press release indicating the details of the Capital Assistance Plan, enabling further investment by the Fed into banks as preferred stock investments to maintain strong capital ratios where necessary. This press release is attached in full at the end of this email and spends much time insuring us that any such investment is temporary in nature and that the government does not intend to nationalize banks. At the same time, the WSJ is reporting (here) that the US may take a stake in CITI that could end up being a 40% ownership interest. This morning’s market reaction will largely be in response to the joint announcement.

Interest rates continue to be exceptional with conforming, principal residence loans being locked with normal closing costs at rates below 5.25% (and at 4.75% still with less than a point being paid to the lenders.) It is always good to hear from so many of you. Please call me anytime with questions. You, your friends and family deserve the professional advice and experience we at Signet Mortgage provide. And we’re happy to do so. Make it a great week! - Dave

1. the stock market (buyers purchase the future performance of companies),
2. leading economic indicators in money supply, lending, and eventually jobs,
3. broader economic performance as seen in corporate results,
4. residential real estate and finally
5. commercial real estate.

It will be very interesting to see if the homeowner initiatives might move the residential real estate recovery ahead of its traditional position. While we shudder at the dollars that are pouring into these identified initiatives AND the trillion dollar deficit spending targeted for this year and the next, there are sound economists indicating that these steps are the right actions, but not nearly enough dollars. I tend to be on the side that this is too much but only time will tell. BTW – remember the Economic Stimulus Act of 2008? That was now 12 months ago and led to checks arriving at the door (and very quickly into the banks) of most taxpayers. Do you realize that while it seemed so large at the time, at $152B it was less than 18% of what was passed and proposed this past week? And those dollars are nothing compared to the trillions being expanded on the balance sheet of the Federal Reserve.

The second forecasting prediction came through one of our commercial lender resources who spent the week in Washington, D.C. at the summit for improving Small Business lending (great timing.) He reports that in this public forum, the Chair of President Obama’s Council of Economic Advisors, Dr. Christina Romer said that she “stakes (her) reputation that the economy will turn around in the fourth quarter of 2009.” Tying that into the previous list, I can see at least 2 or 3 and maybe the first 4 showing moves to the upside by the 4^th quarter. I think she was probably referring to either #2 or #3. This week will be very telling for #1, the stock market. While the Dow broke through its November 2008 low and kept going last week, the S&P is still above but moving towards 740, its 2008 low also reached in November. Many are holding their collective breath to see if 740 can be the barrier that turns the market back around and starts it on its way upward. The impact on real estate interest rates is going to have an initial opposite reaction to stocks. We have enjoyed a week of improving rates as stocks continued to tumble. When they turn around, money will flow out of Treasury and to a lesser degree MBS causing a slight negative to mortgage rates.

This brings us to the third wise prognosticator. These friends are Chinese and they pointed out to me while we were talking about it now being the Year of the Ox, that many Mandarin speakers are quite hopeful of the Ox being a good omen. You see the mandarin pronunciation of “Ox” is very similar to the pronunciation of the concept of “turn-around” or “recovery”. So there we have it. With all that is going on around us, I am thinking this is as sound as any other logic I have heard. And I am predicting the Ox will help get the S&P to 740 this week and back up a bit.

While I was writing this, the Treasury, Fed, Comptroller of the Currency, OTS and FDIC issued their joint press release indicating the details of the Capital Assistance Plan, enabling further investment by the Fed into banks as preferred stock investments to maintain strong capital ratios where necessary. This press release is attached in full at the end of this email and spends much time insuring us that any such investment is temporary in nature and that the government does not intend to nationalize banks. At the same time, the WSJ is reporting (here) that the US may take a stake in CITI that could end up being a 40% ownership interest. This morning’s market reaction will largely be in response to the joint announcement.

Interest rates continue to be exceptional with conforming, principal residence loans being locked with normal closing costs at rates below 5.25% (and at 4.75% still with less than a point being paid to the lenders.) It is always good to hear from so many of you. Please call me anytime with questions. You, your friends and family deserve the professional advice and experience we at Signet Mortgage provide. And we’re happy to do so. Make it a great week! - Dave