As I discussed yesterday (Housing Game Changes on April 1st) mortgage applications are at two year highs and surging ahead of Obamas Make Homes Affordable program goes live on April 1st. (Read Update: Obama Foreclosure Game Plan and Obama Foreclosure Game Plan).
And this will have a serious domino affect… Banks are Reaping the Profits and HIRING!
Home purchase mortgage origination fees are the costliest in eight years, according to data compiled by the Federal Housing Finance Agency. Banks have been raising loan costs for customers three months ahead of the new April 1st “adverse market” fee that Fannie Mae and Freddie Mac charge lenders.
We came through an incredibly competitive environment in the last few years when banks were practically giving away loans, and now they’re able to widen their profit margins. Now mortgage lending is having a positive contribution to earnings growth.
The average cost of getting a U.S. mortgage was $640 per $100,000 in December and January, the highest since October 2000, according to Federal Housing Finance Agency data. In 2005, the end of a five-year housing boom, the cost was $280 per $100,000, the lowest on record. The FHFA data is for home purchases only and doesn’t include refinancings. The agency doesn’t keep that data.
Costs Close to Zero
Banks are benefiting as the Federal Reserve benchmark rate stands close to zero, the lowest in its history. The difference between the fixed rates that banks charge for mortgages and the Fed rate that shows their cost of borrowing is averaging 4.83 percentage points in the current quarter. That’s the second- widest spread since 2004, after the fourth quarter’s high of 4.89 percentage points, according to data compiled by Bloomberg.
The average spread between fixed mortgage rates and 10-year Treasuries is 2.3 percentage points. That’s close to the 22-year high set in the fourth quarter.
The Mortgage Bankers Association this week boosted its forecast for 2009 home-loan originations by $800 billion to $2.78 trillion as a wave of refinancing and low interest rates spur homeowners to seek out new loans.
Refinancing Boom
Refinancing will total $1.96 trillion in 2009 and purchase originations will increase to $821 billion, the group said in a statement. Total originations may rise to the fourth-highest on record.
Banks are now able to borrow short and lend long. They get their financing at rock bottom rates and charge higher fees, meaning their margins are extremely high.
Wall Street may have found a way out of its misery as earnings from creditworthy borrowers help rebuild the banks’ balance sheets. Eight months after buying unprofitable Countrywide Financial Corp. to become the largest U.S. mortgage lender, Bank of America Corp. Chief Executive Officer Kenneth Lewis told an audience in Boston on March 12 he won’t need any additional bailout funds from the Treasury.
A “boom” in refinancing is spurring his mortgage unit to HIRE STAFF TO HANDLE THE VOLUME, Lewis said.
Citigroup Inc. CEO Vikram Pandit said on March 10 his bank is having the best quarter since 2007 after more than a year of losses. Jamie Dimon, JPMorgan Chase & Co.’s chief, said March 11 that the nation’s biggest bank by stock market value had a profitable January and February. He wasn’t more specific.
Bank of America in Charlotte, North Carolina, and New York- based Citigroup and JPMorgan received $120 billion of federal loans since last year.
JPMorgan, Bank of America, Wells Fargo & Co. in San Francisco and New York-based Goldman Sachs Group Inc. and Morgan Stanley probably will report a combined net income gain of 65 percent this year, according to analysts surveyed by Bloomberg. Citigroup’s loss may narrow to $3.2 billion from $27.7 billion, analysts estimate. JPMorgan, Bank of America and Wells Fargo’s 2008 results included costs and gains associated with acquisitions.
Remember Folks… Unemployment #s are a LAGGING INDICATOR!
Boost to Consumer Spending
These are probably the lowest rates our generation is going to see. And the extra cash from lower monthly payments is helping to boost consumer spending, which accounts for more than two-thirds of the economy. Mortgage refinancings are one reason we’re expecting a 1 percent to 1.5 percent gain in consumer spending this quarter. Everyone is wondering where the money is coming from. Certainly part of it is from lower mortgage payments.
Buying Bonds
The Federal Reserve began purchasing $500 billion of bonds backed by conforming loans in January to drive down fixed rates. That pushed the average U.S. rate for a 30-year fixed mortgage to an all-time low of 4.96 percent during the week ended Jan. 15, according to Freddie Mac. The average fourth-quarter rate for the $11 trillion of outstanding mortgages was 6.21 percent, according to the Bureau of Economic Analysis in Washington.
The Fed announced March 18 it would triple the purchases to $1.25 trillion. And then on April 1st, Obama's Making Homes Affordable plan goes live (Read Update: Obama Foreclosure Game Plan and Obama Foreclosure Game Plan). I am expecting to see a flood of loan modifications and refinances take advantage of these once in a lifetime low rates. Even investors can take advantage of this! (Read Investors: You Too Can Refinance with Obama's Plan!)
So what does this all mean to you, the foreclosure investor?
Stay tuned… because on April 1st at 6pm Pacific (9pm Eastern), I will tell you! What a perfect night for my FREE LIVE New Foreclosure Investor Webinar! I can hardly wait! So much news to share. Do make sure you register in advance, as we are already filling up our Free Conference Spots NOW. Talk to you Wednesday! Register Here!
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