Credit rating agencies defend track record: MSNBC News has a complete front page in their business section that is devoted to the real estate market. It is a decent source for keeping track on the housing mess. This MSNBC News story reports on the Senate hearing into the credit rating agencies conflicts of interest that may have contributed to the mortgage industry's turmoil. According to MSNBC News;
WASHINGTON - Executives from major credit rating agencies on Wednesday were accused by senators of being hampered by conflicts of interest that may have contributed to the mortgage market turmoil rattling investors worldwide.
The biggest rating agencies —Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — are under fire from critics who say they failed to give investors adequate warning of the risks associated with mortgage-backed securities. Those securities are now plummeting in value as home-loan defaults soar, particularly among borrowers with weak, or subprime, credit histories.
Several members of the Senate Banking Committee questioned rating agency executives about whether they provided advice to investment banks that issue complex mortgage securities tied to subprime home loans.
“It seems to me that credit rating agencies are playing both coach and referee,” said Sen. Robert Menendez, D.-N.J.
The rating agencies’ seal of approval effectively concealed the true risks of those investments, lawmakers said. Several senators compared the agencies’ lack of foresight about the risks inherent in the subprime mortgage market with their failure to anticipate the collapse of Enron Corp. and WorldCom.
Democratic and Republican senators said they were particularly concerned with a key aspect of the agencies’ business models: they get paid by the companies whose bonds they rate. That’s like a film production company paying a critic to review a movie, and then using that review in its advertising, Sen. Jim Bunning, R-Ky., said.
Executives from S&P and Moody’s said their methodology for monitoring the risk of mortgage-backed bonds was sound.
It is only now, after the wreckage, that Congress is finally conducting hearings on the credit rating industry. Of course, I doubt that anything constructive will come through from this.
Home sales, prices continue to fall: This MSNBC News story reports that sales of existing family home prices have fallen by 4.3 percent in August from July. It has been the sixth straight month that existing home sales have fallen, with the nationwide decline in home prices, in July, posting its steepest drop in 16 years. Sales of single-family homes have dropped to a seasonally adjusted rate 5.5 million units a year. See the graph below;
Sales of existing homes fell for a sixth straight month in August. From MSNBC News.The scary thing about this graph is you can see just how the bubble started in 1995, then dropped slightly in the 2000 recession, before going on a steep rise until around the end of 2005. After that, the graph just plummets straight down, almost equaling the low point of -5 percent as seen in 1990. I don't think we've bottomed out yet.
Mortgage rates edge up after four-month low: Getting into this MSNBC story;
WASHINGTON - Rates on 30-year mortgages, after dropping to their lowest point in four months, edged up this week.
Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.34 percent this week, up slightly from last week’s 6.31 percent, which had been the lowest level since May 17. This week’s 6.34 percent rate is the second-lowest since mid-May.
All mortgage products surveyed by Freddie Mac showed slight increases this week even though the Federal Reserve on Tuesday announced a bigger-than-expected half-point cut in the federal funds rate, the first reduction in this key interest rate in more than four years.
Freddie Mac raised mortgage interest rates up to 6.34 percent. MSNBC News.What really interests me about this MSNBC story is the contradiction between Freddie Mac's raising the mortgage rates on family homes, while the Federal Reserve has cut its federal funds rate by a half-percentage point. Is this a one-time event, or a part of a trend? Will we see banks starting to raise their interest rates on business loans and commercial paper in order to offset whatever losses they may have endured because of the housing crash?
Housing construction falls to 12-year low: Another statistic from MSNBC News;
The Commerce Department reported Wednesday that construction of new homes fell by 2.6 percent in August to a seasonally adjusted annual rate of 1.331 million units.
The housing industry is experiencing its steepest downturn in 16 years with analysts forecasting weak prices and further declines in sales for months to come, given rising mortgage defaults which are dumping even more homes on an already glutted market.
There is not much I can add to this except that we've got a glut of homes sitting on the market and construction companies are cutting back on building new homes in order to reduce this huge supply. According to The New York Times, "Inventories of unsold homes rose 0.4 percent in August, to 4.58 million, a 10-month supply at the current sales rate. That compared with a 9.5-month supply in July." There is a 10-month supply of homes on the market in August. The last thing construction companies want to do is to add even more homes in this glut.
U.S. home foreclosures soared in August: Some more MSNBC News statistics to chew on;
LOS ANGELES - The number of foreclosure filings reported in the U.S. last month more than doubled versus August 2006 and jumped 36 percent from July, a trend that signals many homeowners are increasingly unable to make timely payments on their mortgages or sell their homes amid a national housing slump.
A total of 243,947 foreclosure filings were reported in August, up 115 percent from 113,300 in the same month a year ago, Irvine, Calif.-based RealtyTrac Inc. said Tuesday.
There were 179,599 foreclosure filings reported in July.
The filings include default notices, auction sale notices and bank repossessions. Some properties might have received more than one notice if the owners have multiple mortgages.
August’s total represents the highest number of foreclosure filings reported in a single month since the company began tracking monthly filings two years ago.
The national foreclosure rate last month was one filing for every 510 households, the company said.Foreclosure filings in the U.S. jumped 36 percent from July. From MSNBC News.
And this part of the MSNBC News story is particularly devastating;
The mortgage industry has been rocked by a surge in defaults, particularly among borrowers with subprime loans and adjustable rate mortgages that initially had attractive “teaser” interest rates but then can adjust upward, resulting in a payment shock.
Many of the loans, some of which adjust in as little as two years, were issued in 2005 and 2006 during the height of the housing boom.
[....]
The number of bank repossessions jumped to 42,789 in August, compared with 20,116 a year earlier, the RealtyTrac said. In July, there were 26,842 bank repossessions.
It all goes back to the predatory lending, the subprime loans, and the adjustable rate mortgages that companies were pushing on American consumers. The new interest rates on those adjustable rate mortgages are now coming due, and American consumers who bought their homes using these adjustable rate mortgages are now finding that they can't pay the higher interest rate on their loans. This is causing the banks to repossess these homes and putting them up on the market, where there is a 10-month supply of homes just waiting to be sold. It just goes around. And what is worst, I think that this is just the start of the subprime mess, where American consumers who took out their adjustable rate mortgages in 2005 are now losing their homes due to the interest rate sticker shock. If home mortgage rates continue to increase over the next year, we're going to see more home foreclosures being filed as Americans who bought their homes on adjustable rate mortgages in 2006 start losing their homes.
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