Government closer to housing stimulus package
The government moved one step closer to trying to put a stop to the rapid deterioration of the U.S. housing markets. The house today passed the measure aimed at helping to end home foreclosures. The proposed legislations has three major components. First the bill is aimed at ensuring that Fannie Mae and Freddie Mac stay in business and have the financial ability to raise capital and borrow funds throught he Fed Discount window. The agency lenders will face more oversight, but are also given more assurances of their survival with the opportunity for the government to purchase stock to raise their capital levels if necessary.
There are two other major components to the bill. The establishment of a fund that would be approximately four billion dollars to help communities to buy foreclosed homes to either repair and sell or rent out. This is a good step towards helping to reduce the home inventory levels. The next component of the bill is also aimed at helping to reduce home inventories. The establishment of a tax rebate up to 7500 for first time home buyers.
The last major component of the legislation will help to provide the ability for the FHA to cover more refinance mortgages for home owners who have struggled to make their house payments This part enables FHA to be a leading driver in helping with home refinances for customers who otherwise would not qualify for a home mortgage.
Mortgage rates move up as stock market rallies
The stock market had a solid week of gains for the first time in the past sixty days. The market breathed a bit easier after solid earnings from key financial companies such as JP Morgan Chase and Wells Fargo helped to reassure the financials that the banking industry was still capable of being profitable. The yield on the ten year bond jumped almost thirty basis points for the week as the ten year adjusted from 3.8 up to near 4.1% on Friday. The net effect is that fixed mortgage rates moved up approximately 3/8 of a percent with most mortgage lenders.
This year has been a roller coaster ride for both the stock market and mortgage rates. The rapid decline in oil prices this week could help to bring mortgage rates lower in the near future if the trend continues as this will help to ease up some of the inflationary pressures in the market. Corporate earnings have already been damaged by high energy prices, but certain industries are likely to continue to see some improvements, such as banking, which has build in a good portion of their losses from the mortgage credit crunch to date.
Indymac fails, lots of blame to go around
Indymac bancorp becomes the second largest bank to fail in the last twenty years. The company was forced into receivership last week after depositors made a run on the bank and pulled out over one billion dollars worth of deposits in the past week. The company which is based in Southern California was one of the largest independent mortgage companies in the country and had assets over twenty eight billion dollars.
Indymac was a company that was devestated by the down turn in home prices. As one of the largest lenders in the country with a balance sheet that carried Alt-A loans, over forty percent of which were made to home owners in California, Arizona and Florida, the company simply did not have the capital to offset the required writedowns on its balance sheet. The mortgage lender had attempted to raise capital this year but found no investors willing to invest into the company as home values continued to decline.
The company came under fire last week when Senator Schumer out of N.Y. raised questions over the companies financial health. This was the equivalent of yelling fire in a theatre as customers began a run on the bank. The office of the OTS has criticized the Senator for bringing the issue in front of the public and could end up costing the FDIC up to eight billion dollars for insurance claims. There is speculation that the document was leaked purposely as the Senator is allegedly tied into a number of hedge funds. The sad part is the government has done little to help to stem the free fall of housing prices and now could be responsible for pushing a lender and bank out of business. One is left to wonder where the countries leadership has gone to?
Economy continues to lose jobs at an alarming pace
The economy is losing jobs at an alarming pace. For the month of June the economy lost over sixty thousand jobs. The economy has now lost jobs every month this year as the market is struggling to recover first from the credit crunch earlier this year and now from the challenges brought on by high oil prices.
As the economy heads into the second half of the year it is hard to imagine that the job market will begin to recover. Companies are beginning to look at ways to further reduce costs as inflation and pricing pressure is increasing. Public companies that have to satisfy stock share holders are the most likely to continue to eliminate jobs and industries such as automotive, transportation and banking are all likely to continue to reduce their companies workforce as they try to find a route back to profitabilty.
The struggle between growth and inflation has the federal reserve publicaly stating they believe the slower economic growth will bring the inflationary pressure back into check. The hypothesis is that if the economy slows down and people are out of work there will be less spending in the market an eventually this will force companies to reduce costs to meet the supply. Oil demand has dropped by approximately 2% in the past sixty days, but this has done little to curb the rapid increases that many speculators are pricing in on the futures market.