Category
Mortgage Market
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Fed Plan to End Mortgage-Backed Securities Purchase Program Brings Market Anxiety
Anxiety surrounds Tuesday's Federal Open Market Committee (FOMC) meeting as the central bank's year-long mortgage-backed securities (MBS) purchase program nears its scheduled March 31 close, opening the door for mortgage rate increases and surprising market fluctuations.
The Fed spent billions of dollars on MBS guaranteed by Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and Ginnie Mae weekly for the past year, topping out its portfolio at $1.25 trillion.
As the program ends, investors and analysts are speculating that mortgage rates could rise – and rise fast.
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Foreclosures Dropped in February, Helped by Rescue Programs and Poor Weather
U.S. mortgage foreclosure filings dropped for the second straight month in February and posted the smallest annual increase in four years as government housing-rescue efforts and poor weather constrained bank repossessions, a report released by RealtyTrac Inc. showed today (Thursday).
RealtyTrac, which sells mortgage default data collected from more than 2,200 counties representing 90% of the U.S. population, said filings declined 2% from January. But filings were up only 6% from a year earlier, the smallest increase in four years.
"The 6% year-over-year increase we saw in February was the smallest annual increase we've seen since January 2006, when we began calculating year-over-year increases," James J. Saccacio, RealtyTrac chief executive officer said in a statement obtained by Reuters.
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Mortgage Markets Show Increased Stability, But Limited Opportunity
[Editor's Note: This analysis of the U.S. mortgage market is part of a two-story package that appears in today's issue of Money Morning. To read a related story on the outlook for adjustable-rate mortgages (ARMs), please click here.]
It doesn't have four letters, but "mortgage" has definitely been a dirty word in the financial world the past few years. That's especially true when the word "mortgage" is paired up with such other terms as "subprime," "delinquent," and "foreclosures."
Little wonder that mortgages – along with the derivative securities backed by them and the often-unseemly practices of the people pushing them – have gotten much of the blame for precipitating the economic meltdown from which the American economy is now struggling to recover.
There's still plenty of woe in the mortgage world. But in recent months there have also been some signs that the real-estate-financing markets are at least regaining some semblance of stability, with foundations being poured for a rebuilding phase that might not be too far down the road.
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Mortgage Investments Offer Both Opportunity and Risk: Making Sense of Conflicting Reports
Recently, I finished reading an engaging book that explained in detail how John Paulson generated more than $20 billion betting on a crash in the housing markets. Many wise investors could see the writing on the wall months ahead of the panic period, but since you can't exactly short an individual house, it was difficult to figure out the best way to profit from the coming crash.
After months of studying and more than one false start, Paulson eventually determined that the best strategy was to buy protection on mortgage securities. I'll spare you the tedious details, but the concept of mortgage securities is very interesting (and potentially very lucrative). Essentially, many of the loan originators – the companies actually lending money for home purchases – didn't want to keep these loans on their books. Instead, they bundled the loans together in a pool and sold these "securitized" loans to investors.
Over time, the process got very complicated, with the pools being sliced up into different categories – some with more risk and potentially greater returns, and some with much lower risk and consequently lower profits. Leading up to 2007, there was so much investor demand for these securities that the loan originators couldn't keep up with all the buyers. Eventually, new derivative markets emerged, allowing more investors to bet on these pools of mortgages.
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It Was a Wonderful Life – And Then Came Securitization
Massachusetts Land Court judge Keith C. Long recently ruled that foreclosure sales of two properties with securitized mortgages were invalid, a decision that ties up thousands of Massachusetts real-estate transactions.
If nothing else, this landmark court case should make one thing very clear: Securitization – the product of the finest brains of Wall Street for more than two decades – doesn't work as advertised.
Historically, mortgage loans were made by small local institutions, which knew the borrowers personally and took the credit risk themselves.
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Highest Delinquency Rate Since MBA Survey Inception
By Jennifer Yousfi Managing Editor The Mortgage Bankers Association announced yesterday (Thursday) that home mortgage delinquencies reached the highest level since the survey began in 1985. For the fourth quarter of 2007, 5.82% of outstanding home loans were in delinquency on a seasonally adjusted basis. This figure represents a 23 basis-point increase from the third [...]
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Home Prices Fall Record Rate in 2007
By Mike Caggeso Associate Editor An oversupply of homes, sharp rise in foreclosures, and stricter credit regulations caused home prices to fall 8.9% in 2007, the largest ever year-over-year decline in the S&P/Case-Shiller U.S. National Home Price Index. Some metropolitan areas were whacked with double-digit devaluations. Home prices fell 17.5% in Miami, 15.3% in Las [...]
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Mortgage Rates Rise, Despite Fed Cuts
By Jennifer Yousfi Managing Editor Despite a 1.25% reduction in the Federal Funds Rate last month, mortgage interest rates have not decreased according to a survey released today (Wednesday) from the Mortgage Bankers Association (MBA). According to the MBA survey, interest rates for 30-year fixed-rate mortgages averaged 5.72% last week, up from 5.61% the week [...]
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How to Profit From a Stock Market Bubble
Booms turn to bubbles when too many investors cotton on to a good story and buy in. A special report from John Stepek at our U.K. affiliate MoneyWeek Magazine says that investors can still profit from bubbles as long as they get their timing right. Every bubble in history started with a good story. In [...]
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Three Ways to Profit From the Next Phase of the Subprime Mortgage Mess
By Keith Fitz-Gerald Contributing Editor I've been telling you for months, now, that the subprime mess isn't over. But contrary to what you might be hearing in the mainstream news, the Four Horsemen of the Financial Apocalypse aren't thundering their way to our homes right now, either. In fact, savvy investors will have the chance [...]
