The next 10 days are fairly busy on the economic front. I'll keep this fairly light.
The Economic Calendar for the week of Monday, November 24th through Monday, December 1st, 2008
Release Date & Time
Economic Indicator
Consensus Estimate
My Analysis
Mon. Nov. 24, 8:30 a.m. ET
Oct. Existing Home Sales -2.5%
Most investors expected sluggish economic growth and an unsettled labor market took a toll on the pace of existing home sales last month. They were right and mortgage fell rates today.
Mon. Nov. 24, 1:00 p.m. ET
Treasury auctions $36 bil. of
2-year notes
Most observers believe demand will be solid for this debt offering from Uncle Sam. If so, this event should prove to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Tue. Nov. 25, 8:30 a.m. ET
2nd estimate Q3
Gross Domestic Product
-0.5% vs. last -0.3%
Previously released economic data strongly suggests economic activity cooled sharply during the quarter. A downward revision to the initial estimate will not likely surprise anyone – rendering this data toothless in terms of its impact on the direction of mortgage interest rates today.
Tue. Nov. 25, 10:00 a.m. ET
Nov. Consumer Confidence
38.0 vs. last 38.0
No one will be surprised to see that gloomy news from the economy, rising joblessness and plunging stock markets have all taken a toll on consumer confidence. This data will likely draw little more than a passing glance from mortgage investors.
Tue. Nov. 25, 1:00 p.m. ET
Treasury auctions $26 bil. of
5-year notes
The majority of analysts believe this offering will be well bid. If so, it will likely have little impact on the trend trajectory of mortgage interest rates. If analysts are proven to be overly optimistic (as I think they likely will be) the yield of these notes will rise -- which will cause mortgage interest rates to move higher as well
Wed. Nov. 26, 8:30 a.m. ET
Oct. Personal Income
Spending
Core PCE Index
+0.1% vs. last +0.2%
-0.9% vs. last -0.3%
0.0 vs. last +0.2%
If the consensus estimate proves accurate, incomes will post their smallest gain in three months while a sharp drop in spending is likely setting retailers up for the worst holiday season in six years. The decline in income and spending combined with the Fed’s favorite measure of inflation at the consumer level, the personal consumption expenditure index, showing that core inflation pressures are nowhere to be seen -- will all likely be viewed as a positive for the prospects of steady mortgage interest rates today.
Wed. Nov. 26, 8:30 a.m. ET
Initial jobless claims for the week ended 11/22
Down 7,000
The modest expected decline in the initial jobless claims figure will likely draw nothing more than a passing glance from mortgage investors today.
Wed. Nov. 26, 8:30 a.m. ET
Oct. Durable Goods
-2.6% vs. last +0.9%
If the consensus estimate proves accurate, look for the news to push stock prices lower creating a “flight-to-quality” in the mortgage market which will be supportive of slightly lower rates.
Wed. Nov. 26, 10:00 a.m. ET
Oct. New Home Sales
-2.17%
The combination of weak economic conditions and tight credit likely restrict the pace of new home sales in October. Look for this data to have little, if any impact on the direction of mortgage interest rates today.
Wed. Nov. 26, 2:00 p.m. ET
All markets closes early
Thurs. Nov. 27
Market closed for the Thanksgiving Holiday. I wish you and your family a safe and enjoyable holiday.
Fri. Nov. 28, 2:00 p.m. ET
Fixed income markets closes early
Mon. Dec. 1, 8:30 a.m. ET
Nov. Institute of Supply Mgmt.
37.6 vs. last 38.9
Everybody knows the manufacturing sector is weak so today’s report will only define the degree of weakness. Look for this data to have little, if any impact on the direction of mortgage interest rates today.
Monday, November 24, 2008
Monday, November 10, 2008
The Ride That Never Ends
I have started working on our firms' forecast for 2009 and in looking an a number of micro and macro economic reports I've got to tell you that I don't like what I am seeing. Not in one bit.
The concerns are many, the challenges are well publicised. Am I predicting the end of modern finance as we know it.... No. Do I believe the experts when they say Americans have run out of money.... Perhaps. The driving concern I have is jobs. Should this recession (we are in one and if you don't believe me feel free to contact me off line to discuss) prolong itself past the second quarter of 2009, I anticipate significant job loss. Note that we have certain markets almost at 9.5% today (see my previous post titled National City Bank - Did the C ranks really drop the ball). I am referring to a national average perhaps as high as 12%.
Like it or not, the US government has and will continue to socialize our way out of this mess(including debt) because my first prediction mentioned above may no longer be a No. We could end up with a completely socialized banking, auto and our financial system. Since our country is no longer manufacturing oriented, service industries which make up a HUGE percentage of GDP (perhaps as high as 75%) now take center stage. In case you haven't noticed, it's a whole lot easier to get that corner table at the new high-flying restaurant or club. In short, if you think people aren't spending money today... you haven't' seen anything yet!
Back to jobs. If you look at the largest labor sectors (housing, manufacturing, service - already mentioned above) most are already depressed with the latter having more room to fall. The latest GDP numbers 0.3% was somewhat smaller then I expected. The reason for this contraction is not really a sound one: government spending soared. While I had expected government spending to rise, it rose a lot more than usual. Government purchases rose from 20.1% of GDP to 20.4%-the highest since Q3 1991, and up from just 17.6% in Clinton's last quarter (During the Clinton era, government purchases decreased significantly as military spending fell). As before, military spending increased particularly much, but non-military federal spending and state & local government spending increased its share of GDP too. Excluding government purchases, the contraction would have been closer to 2%.
My point, the citizens of the United States might have elected the right party in charge (at the present time). A return to a strong financial footing for this country may be through a significant government spending package, one the Democrats will likely give us. Otherwise, this could be a long painful road, one which this country hasn't seen in 70+ years.
This weeks economic figures: dominted by Treasury Auctions
Release Date & Time
Economic Indicator
Consensus Estimate
Analysis
Mon. Nov. 10, 1:00 p.m. ET
Treasury auctions $25 billion of 3-year notes
This will be the first leg of a three-part borrowing Uncle Sam will engage in this week. By the time Friday rolls around, Uncle Sam will have tapped investors for an additional $55 billion. That’s a record amount for November – well above last year’s $18 billion capital need. All of this incoming supply from the government will likely make mortgage investors hesitant to push mortgage interest rates notably lower.
Mon. Nov. 10, 2:00 p.m. ET
The mortgage market will close at 2:00 pm EST for the Veteran’s Day Holiday
Tue. Nov. 11
Veteran’s Day Holiday
Wed. Nov. 12, 1:00 a.m. ET
Treasury auctions $20 billion of 10-year notes
All of this incoming supply from the government will likely make mortgage investors hesitant to push mortgage interest rates notably lower.
Thurs. Nov. 13,
The current delivery month for most mortgage-backed securities “rolls” to December
This is a standard monthly administrative function of the mortgage market. The small price impact this event creates is already reflected on most investors’ rate sheets.
Thurs. Nov. 13, 8:30 a.m. ET
Initial jobless claims for the week ended 11/8
Up 1,000
The modest expected increase for initial jobless claims will likely draw nothing more than a passing glance from mortgage investors today.
Thurs. Nov. 13, 1:00 p.m. ET
Treasury auctions $10 billion of 30-year bonds
We might see a small “relief rally” in the bond and mortgage-backed security once the supply from Uncle Sam is out of the way. Any such rally will likely be limited in terms of price movement and duration.
Fri. Nov. 14, 8:30 a.m. ET
Oct. Retail Sales
Ex. auto
-1.9% vs. last -1.2%
-1.0% vs. last -0.6%
Unless they’ve been living under a rock – there is no one that doubts the October retail sales figures will be weak – the only question is how weak. The consensus estimate is already reflected in current mortgage prices, so it will take numbers considerably worse (a headline drop of 2.1% or more and an ex auto value showing a decline of 1.2% or more) to create much support for the prospects fractionally lower mortgage interest rates. The likelihood that the consensus estimate proves to be overly pessimistic is very small. Nonetheless a headline number showing October sales did not fall as sharply as expected will probably tend to nudge all credit including mortgage interest rates higher.
Fri. Nov. 14, 10:00 a.m. ET
Sept. Business Inventories
0.0 vs. last +0.3
This sliver of dated economic news will undoubtedly be completely overshadowed by the much more important October retail sales report that was released early today.
Mon. Nov. 17, 9:15 a.m. ET
Oct. Industrial Production &
Capacity Utilization
-0.5% vs. last -2.8%
76.1 vs. last 76.4
Already released reports showing sagging factor orders and plummeting retail sales make it a virtual “given” that these two measures of manufacturing activity will be puny as well. Look for this data to have little, if any noticeable impact on the trend trajectory of mortgage interest rates today.
The concerns are many, the challenges are well publicised. Am I predicting the end of modern finance as we know it.... No. Do I believe the experts when they say Americans have run out of money.... Perhaps. The driving concern I have is jobs. Should this recession (we are in one and if you don't believe me feel free to contact me off line to discuss) prolong itself past the second quarter of 2009, I anticipate significant job loss. Note that we have certain markets almost at 9.5% today (see my previous post titled National City Bank - Did the C ranks really drop the ball). I am referring to a national average perhaps as high as 12%.
Like it or not, the US government has and will continue to socialize our way out of this mess(including debt) because my first prediction mentioned above may no longer be a No. We could end up with a completely socialized banking, auto and our financial system. Since our country is no longer manufacturing oriented, service industries which make up a HUGE percentage of GDP (perhaps as high as 75%) now take center stage. In case you haven't noticed, it's a whole lot easier to get that corner table at the new high-flying restaurant or club. In short, if you think people aren't spending money today... you haven't' seen anything yet!
Back to jobs. If you look at the largest labor sectors (housing, manufacturing, service - already mentioned above) most are already depressed with the latter having more room to fall. The latest GDP numbers 0.3% was somewhat smaller then I expected. The reason for this contraction is not really a sound one: government spending soared. While I had expected government spending to rise, it rose a lot more than usual. Government purchases rose from 20.1% of GDP to 20.4%-the highest since Q3 1991, and up from just 17.6% in Clinton's last quarter (During the Clinton era, government purchases decreased significantly as military spending fell). As before, military spending increased particularly much, but non-military federal spending and state & local government spending increased its share of GDP too. Excluding government purchases, the contraction would have been closer to 2%.
My point, the citizens of the United States might have elected the right party in charge (at the present time). A return to a strong financial footing for this country may be through a significant government spending package, one the Democrats will likely give us. Otherwise, this could be a long painful road, one which this country hasn't seen in 70+ years.
This weeks economic figures: dominted by Treasury Auctions
Release Date & Time
Economic Indicator
Consensus Estimate
Analysis
Mon. Nov. 10, 1:00 p.m. ET
Treasury auctions $25 billion of 3-year notes
This will be the first leg of a three-part borrowing Uncle Sam will engage in this week. By the time Friday rolls around, Uncle Sam will have tapped investors for an additional $55 billion. That’s a record amount for November – well above last year’s $18 billion capital need. All of this incoming supply from the government will likely make mortgage investors hesitant to push mortgage interest rates notably lower.
Mon. Nov. 10, 2:00 p.m. ET
The mortgage market will close at 2:00 pm EST for the Veteran’s Day Holiday
Tue. Nov. 11
Veteran’s Day Holiday
Wed. Nov. 12, 1:00 a.m. ET
Treasury auctions $20 billion of 10-year notes
All of this incoming supply from the government will likely make mortgage investors hesitant to push mortgage interest rates notably lower.
Thurs. Nov. 13,
The current delivery month for most mortgage-backed securities “rolls” to December
This is a standard monthly administrative function of the mortgage market. The small price impact this event creates is already reflected on most investors’ rate sheets.
Thurs. Nov. 13, 8:30 a.m. ET
Initial jobless claims for the week ended 11/8
Up 1,000
The modest expected increase for initial jobless claims will likely draw nothing more than a passing glance from mortgage investors today.
Thurs. Nov. 13, 1:00 p.m. ET
Treasury auctions $10 billion of 30-year bonds
We might see a small “relief rally” in the bond and mortgage-backed security once the supply from Uncle Sam is out of the way. Any such rally will likely be limited in terms of price movement and duration.
Fri. Nov. 14, 8:30 a.m. ET
Oct. Retail Sales
Ex. auto
-1.9% vs. last -1.2%
-1.0% vs. last -0.6%
Unless they’ve been living under a rock – there is no one that doubts the October retail sales figures will be weak – the only question is how weak. The consensus estimate is already reflected in current mortgage prices, so it will take numbers considerably worse (a headline drop of 2.1% or more and an ex auto value showing a decline of 1.2% or more) to create much support for the prospects fractionally lower mortgage interest rates. The likelihood that the consensus estimate proves to be overly pessimistic is very small. Nonetheless a headline number showing October sales did not fall as sharply as expected will probably tend to nudge all credit including mortgage interest rates higher.
Fri. Nov. 14, 10:00 a.m. ET
Sept. Business Inventories
0.0 vs. last +0.3
This sliver of dated economic news will undoubtedly be completely overshadowed by the much more important October retail sales report that was released early today.
Mon. Nov. 17, 9:15 a.m. ET
Oct. Industrial Production &
Capacity Utilization
-0.5% vs. last -2.8%
76.1 vs. last 76.4
Already released reports showing sagging factor orders and plummeting retail sales make it a virtual “given” that these two measures of manufacturing activity will be puny as well. Look for this data to have little, if any noticeable impact on the trend trajectory of mortgage interest rates today.
Fannie Mae posts $29 billion loss
As recently reported in the AP, Fannie Mae on Monday posted a $29 billion loss in the third quarter as it took a massive tax-related charge, and said it may have to tap the government’s $100 billion lifeline in the coming months.
The mortgage finance company, seized by federal regulators more than two months ago, posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax assets. That compares with a loss of $1.4 billion, or $1.56 a share, in the year-ago period. Analysts surveyed by Thomson Reuters had expected a loss of $1.60 per share.
Fannie Mae’s net worth — the value of its assets minus the value of its liabilities — fell to $9.4 billion at the end of September down from $44.1 billion at the end of last year. If that number turns negative, Fannie Mae would be forced to obtain funding from the Treasury Department.
The ultimate bill for taxpayers remains unclear. Jim Vogel, a debt analyst with FTN Financial in Memphis, Tenn., said total aid for Fannie and its sibling company Freddie Mac is unlikely to exceed the $200 billion initially pledged by the government.
Despite worsening housing market conditions, Fannie Mae is “still setting aside way more for future losses than they’re absorbing today,” Vogel said. Others aren’t so sure. Barclays Capital analyst Rajiv Setia said the government’s arrangement with Fannie and Freddie “may need to be amended” next year. Many analysts consider Freddie Mac, which is expected to report earnings later this week, to be in worse financial shape.
The real estate industry is also waiting to see if the government, under President-elect Barack Obama, will use Fannie and Freddie to help alleviate the foreclosure crisis by aggressively modifying or refinancing loans. Together, Fannie Mae and Freddie Mac own or guarantee around half of U.S. home loans. “They’re no longer being run for profit,” said Fox-Pitt Kelton analyst Howard Shapiro. Fannie Mae posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of a tax asset and $9.2 billion in expenses resulting from falling home prices and surging defaults. Fannie Mae, which has bled $33.5 billion in red ink so far this year, is now run by CEO Herbert Allison, formerly chairman and chief executive of retirement fund manager TIAA-CREF. Fannie Mae’s former top executive, Daniel Mudd, was ousted as part of the government takeover. Fannie and Freddie are now facing a federal grand jury investigation into their accounting practices.
Last month, Fannie Mae said it would change its accounting for its deferred-tax assets, which can result from operating losses and be used to offset taxes on future profits. But Fannie may not have any profits for a long time to come, the company said. The U.S. housing market is continuing to decline. Fannie Mae posted $9.2 billion in credit losses, up from $1.2 billion in the quarter a year earlier. Delinquent loans rose to 1.7 percent of all single-family loans — double the level last fall.
Fannie Mae owned more than 67,500 foreclosed properties at the end of September, up 25 percent from the end of June. Shares fell 4 cents to 70 cents in afternoon trading.
The mortgage finance company, seized by federal regulators more than two months ago, posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax assets. That compares with a loss of $1.4 billion, or $1.56 a share, in the year-ago period. Analysts surveyed by Thomson Reuters had expected a loss of $1.60 per share.
Fannie Mae’s net worth — the value of its assets minus the value of its liabilities — fell to $9.4 billion at the end of September down from $44.1 billion at the end of last year. If that number turns negative, Fannie Mae would be forced to obtain funding from the Treasury Department.
The ultimate bill for taxpayers remains unclear. Jim Vogel, a debt analyst with FTN Financial in Memphis, Tenn., said total aid for Fannie and its sibling company Freddie Mac is unlikely to exceed the $200 billion initially pledged by the government.
Despite worsening housing market conditions, Fannie Mae is “still setting aside way more for future losses than they’re absorbing today,” Vogel said. Others aren’t so sure. Barclays Capital analyst Rajiv Setia said the government’s arrangement with Fannie and Freddie “may need to be amended” next year. Many analysts consider Freddie Mac, which is expected to report earnings later this week, to be in worse financial shape.
The real estate industry is also waiting to see if the government, under President-elect Barack Obama, will use Fannie and Freddie to help alleviate the foreclosure crisis by aggressively modifying or refinancing loans. Together, Fannie Mae and Freddie Mac own or guarantee around half of U.S. home loans. “They’re no longer being run for profit,” said Fox-Pitt Kelton analyst Howard Shapiro. Fannie Mae posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of a tax asset and $9.2 billion in expenses resulting from falling home prices and surging defaults. Fannie Mae, which has bled $33.5 billion in red ink so far this year, is now run by CEO Herbert Allison, formerly chairman and chief executive of retirement fund manager TIAA-CREF. Fannie Mae’s former top executive, Daniel Mudd, was ousted as part of the government takeover. Fannie and Freddie are now facing a federal grand jury investigation into their accounting practices.
Last month, Fannie Mae said it would change its accounting for its deferred-tax assets, which can result from operating losses and be used to offset taxes on future profits. But Fannie may not have any profits for a long time to come, the company said. The U.S. housing market is continuing to decline. Fannie Mae posted $9.2 billion in credit losses, up from $1.2 billion in the quarter a year earlier. Delinquent loans rose to 1.7 percent of all single-family loans — double the level last fall.
Fannie Mae owned more than 67,500 foreclosed properties at the end of September, up 25 percent from the end of June. Shares fell 4 cents to 70 cents in afternoon trading.
Thursday, October 30, 2008
Feds probe Countrywide's 'V.I.P.' program
By Lisa Myers & Amna Nawaz, NBC News
The wide-ranging criminal investigation into wrongdoing at Countrywide - once the nation's largest mortgage originator - now includes serious scrutiny of a loan program that provided special mortgage deals to the well-connected and powerful, including two U.S. senators.
NBC News has learned that Robert Feinberg - a former Countrywide loan officer who handled what were known as the "V.I.P." mortgages - spent six hours last Thursday with a six-person team from the Justice Department. The team included prosecutors from the Public Integrity section, which handles investigations of possible public corruption.
"The Justice Department is making very serious inquiry into any possible wrongdoing that may involve (former Countrywide CEO) Angelo Mozilo, other Countrywide employees, Sen. Chris Dodd, Sen. Kent Conrad, (former Fannie Mae CEO) Franklin Raines or other public officials," said Feinberg's lawyer, Anthony Salvano. "Robert has always cooperated thoroughly with authorities and is strictly a witness in their investigation."
'Friends of Angelo's'Salvano said the prosecutors and FBI agents seemed focused on whether the preferential treatment given to V.I.P. customers was part of an effort by Countrywide to buy influence - as well as on the conduct of each public official who received a mortgage from Countrywide.
Feinberg says that Countrywide's clients in this program were known by a nickname.
"We called them F.O.A.'s," Feinberg told NBC News, "which were Friends of Angelo's."
"Angelo" is Countrywide's then-CEO, Angelo Mozilo, who once called an ordinary borrower's plea for help on his mortgage payments, "disgusting."
But Mozilo seemed to have a different attitude toward people of influence. In fact, Feinberg says part of his job was to hammer home to the V.I.P. clients that they were getting special deals.
"You spoke in a manner that was different than you spoke with a regular customer," said Feinberg. "'Your loan has been specially priced by Angelo.' 'You're getting special discounts because you're in the V.I.P. loan department."
So what would a "Friend of Angelo" get that an average customer would not? According to Feinberg, the possible benefits ran the gamut.
"They got a discount on the interest rate," said Feinberg. "They got discounts on their fees. They got a free floatdown option before closing."
In one instance of a "Friends of Angelo" deal, Mozilo sent an e-mail to Feinberg ordering him to "Take off one point" on a loan to Sen. Conrad. That one point equaled a savings of $10,700 in fees.
Feinberg's client list also runs the gamut. Among those benefitting from the VIP program were four former Cabinet members spanning Democratic and Republican administrations: Henry Cisneros, Richard Holbrooke, Alphonso Jackson, and Donna Shalala. Two former CEO's of Fannie Mae, James Johnson and Franklin Raines, heads of the government-sponsored entity which bought Countrywide's mortgages - also received VIP mortgages from Countrywide.
All have denied impropriety and declined to elaborate to NBC News. Some say they had no idea they were getting favorable rates or any sort of discount. But Feinberg insists part of his job was to make clear to VIP's they were receiving special treatment. "There were many, many taglines we used to let them know their level of importance to make sure that they understand where they're located," said Feinberg. "And nine times out of ten, once you mention 'V.I.P' the person's gonna ask you 'what am i getting for being in this V.I.P department?' Or 'what am I getting because I know Angelo?' Or 'I talked to Angelo and he said I'm getting this.'"
Senator Conrad says he never asked for, expected, nor was aware of any special treatment from Countrywide, and only found out about the discount after it had been reported in the press. He released and posted to his website all his mortgage documents, and donated all the money he saved to Habitat for Humanity.
Senator Dodd says he thought the VIP program just meant better customer service, and that he received market terms that he could have received from other lenders. The senator said in a press conference on the matter that if anyone had suggested at the time that he was receiving some kind of financial benefit on the loans because of his position, he would have terminated the relationship immediately.
Both Conrad and Dodd say they never sought any favors, and are cooperating with the Senate Ethics Committee investigation. Feinberg says he's not aware of any discounts linked to favors, but he did see e-mails noting the potential value of the relationships to Countrywide's political and business interests. The e-mails noted one particular client was "of importance to Countrywide." Another encouraged a discount, noting "they are incredibly important to us." Yet another asked that the loan officer, "make an exception" in Countrywide's lending rules, "due to the fact that the borrower is a Senator."
Daniel Golden investigated the program for Condé Nast's Portfolio magazine.
"There was a great variety of people who got special deals," said Golden. "Many of them were figures in Congress or government or business partners of Countrywide - all of whom were in a position to help Countrywide in one way or another." To Golden, the company's intention was clear.
"The purpose for Countrywide was to ingratiate itself with the people in Washington who might be able to help the company down the road," said Golden.
But was any of it illegal? Legal experts say prosecutors will be looking into whether Countrywide was trying to buy influence, and into whether public officials were taking improper gifts, or gifts they should have disclosed.
The wide-ranging criminal investigation into wrongdoing at Countrywide - once the nation's largest mortgage originator - now includes serious scrutiny of a loan program that provided special mortgage deals to the well-connected and powerful, including two U.S. senators.
NBC News has learned that Robert Feinberg - a former Countrywide loan officer who handled what were known as the "V.I.P." mortgages - spent six hours last Thursday with a six-person team from the Justice Department. The team included prosecutors from the Public Integrity section, which handles investigations of possible public corruption.
"The Justice Department is making very serious inquiry into any possible wrongdoing that may involve (former Countrywide CEO) Angelo Mozilo, other Countrywide employees, Sen. Chris Dodd, Sen. Kent Conrad, (former Fannie Mae CEO) Franklin Raines or other public officials," said Feinberg's lawyer, Anthony Salvano. "Robert has always cooperated thoroughly with authorities and is strictly a witness in their investigation."
'Friends of Angelo's'Salvano said the prosecutors and FBI agents seemed focused on whether the preferential treatment given to V.I.P. customers was part of an effort by Countrywide to buy influence - as well as on the conduct of each public official who received a mortgage from Countrywide.
Feinberg says that Countrywide's clients in this program were known by a nickname.
"We called them F.O.A.'s," Feinberg told NBC News, "which were Friends of Angelo's."
"Angelo" is Countrywide's then-CEO, Angelo Mozilo, who once called an ordinary borrower's plea for help on his mortgage payments, "disgusting."
But Mozilo seemed to have a different attitude toward people of influence. In fact, Feinberg says part of his job was to hammer home to the V.I.P. clients that they were getting special deals.
"You spoke in a manner that was different than you spoke with a regular customer," said Feinberg. "'Your loan has been specially priced by Angelo.' 'You're getting special discounts because you're in the V.I.P. loan department."
So what would a "Friend of Angelo" get that an average customer would not? According to Feinberg, the possible benefits ran the gamut.
"They got a discount on the interest rate," said Feinberg. "They got discounts on their fees. They got a free floatdown option before closing."
In one instance of a "Friends of Angelo" deal, Mozilo sent an e-mail to Feinberg ordering him to "Take off one point" on a loan to Sen. Conrad. That one point equaled a savings of $10,700 in fees.
Feinberg's client list also runs the gamut. Among those benefitting from the VIP program were four former Cabinet members spanning Democratic and Republican administrations: Henry Cisneros, Richard Holbrooke, Alphonso Jackson, and Donna Shalala. Two former CEO's of Fannie Mae, James Johnson and Franklin Raines, heads of the government-sponsored entity which bought Countrywide's mortgages - also received VIP mortgages from Countrywide.
All have denied impropriety and declined to elaborate to NBC News. Some say they had no idea they were getting favorable rates or any sort of discount. But Feinberg insists part of his job was to make clear to VIP's they were receiving special treatment. "There were many, many taglines we used to let them know their level of importance to make sure that they understand where they're located," said Feinberg. "And nine times out of ten, once you mention 'V.I.P' the person's gonna ask you 'what am i getting for being in this V.I.P department?' Or 'what am I getting because I know Angelo?' Or 'I talked to Angelo and he said I'm getting this.'"
Senator Conrad says he never asked for, expected, nor was aware of any special treatment from Countrywide, and only found out about the discount after it had been reported in the press. He released and posted to his website all his mortgage documents, and donated all the money he saved to Habitat for Humanity.
Senator Dodd says he thought the VIP program just meant better customer service, and that he received market terms that he could have received from other lenders. The senator said in a press conference on the matter that if anyone had suggested at the time that he was receiving some kind of financial benefit on the loans because of his position, he would have terminated the relationship immediately.
Both Conrad and Dodd say they never sought any favors, and are cooperating with the Senate Ethics Committee investigation. Feinberg says he's not aware of any discounts linked to favors, but he did see e-mails noting the potential value of the relationships to Countrywide's political and business interests. The e-mails noted one particular client was "of importance to Countrywide." Another encouraged a discount, noting "they are incredibly important to us." Yet another asked that the loan officer, "make an exception" in Countrywide's lending rules, "due to the fact that the borrower is a Senator."
Daniel Golden investigated the program for Condé Nast's Portfolio magazine.
"There was a great variety of people who got special deals," said Golden. "Many of them were figures in Congress or government or business partners of Countrywide - all of whom were in a position to help Countrywide in one way or another." To Golden, the company's intention was clear.
"The purpose for Countrywide was to ingratiate itself with the people in Washington who might be able to help the company down the road," said Golden.
But was any of it illegal? Legal experts say prosecutors will be looking into whether Countrywide was trying to buy influence, and into whether public officials were taking improper gifts, or gifts they should have disclosed.
Tuesday, October 21, 2008
Round 4
I used this title because while I have been a supporter of the aggressive Fed action over the past several weeks, I believe we are early in this lengthy three sided fight with capital restrictions, the economy as a whole and inflation. This is a light week for economic news. I'll keep this report light as my follow up report is already looking lengthy.
Release Date & Time
Economic Indicator
Consensus Estimate
Analysis
Mon. Oct. 20, 10:00 a.m. ET
Sept. Leading Indicators
-0.3% vs. last -0.3%
This second tier economic report will likely draw little investor attention and should not be a factor in terms of the trend trajectory of mortgage interest rates.
Mon. Oct. 20, 10:00 a.m. ET
Fed Chairman Bernanke testifies before the House Budget Committee
This will be the “wild card” event of the week. Mr. Bernanke will provide prepared text testimony on the economic outlook and financial markets. It is highly unlikely this proceeding will include anything mortgage market moving – but you never know until you know. Heads up.
Tue, Oct. 21
Nothing posting today
Wed. Oct. 22
Thurs. Oct. 23, 8:30 a.m. ET
Initial jobless claims for the week ended 10/18
Up 9,000
The expected weakness in this data set takes on added importance because it coincides with the survey period for the more important October nonfarm payroll number. If the consensus estimate proves accurate, rising jobless claims will almost certainly be viewed by investors as supportive of steady to fractionally lower mortgage interest rates.
Fri. Oct. 24, 10:00 a.m. ET
Sept. Existing Home Sales
Up 0.2%
Investors have already priced in expectations that existing home sales will be puny in September. In the unlikely event the pace of existing home sales posted a gain of 1.1% or more last month – look for mortgage interest rates to edge higher. On the other hand, a September sales pace of 1.0% or lower will tend to be supportive of steady to fractionally lower mortgage interest rates.
Mon. Oct. 27
Sept. New Home Sales
Down 2.1%
No one doubts new home sales remain in a slump – the only question involves the depth of the slump. Mortgage investors will probably give news that new home sales fell by 2.0% or more in September little more than a passing glance. A sales gain of 0.5% or more will likely put some upward pressure on mortgage interest rates. For what it is worth, I think there is a better chance that you’ll find a multi-million dollar winning lottery ticket stuck under you windshield wiper this morning than there is that new home sales posted a huge gain in September.
Release Date & Time
Economic Indicator
Consensus Estimate
Analysis
Mon. Oct. 20, 10:00 a.m. ET
Sept. Leading Indicators
-0.3% vs. last -0.3%
This second tier economic report will likely draw little investor attention and should not be a factor in terms of the trend trajectory of mortgage interest rates.
Mon. Oct. 20, 10:00 a.m. ET
Fed Chairman Bernanke testifies before the House Budget Committee
This will be the “wild card” event of the week. Mr. Bernanke will provide prepared text testimony on the economic outlook and financial markets. It is highly unlikely this proceeding will include anything mortgage market moving – but you never know until you know. Heads up.
Tue, Oct. 21
Nothing posting today
Wed. Oct. 22
Thurs. Oct. 23, 8:30 a.m. ET
Initial jobless claims for the week ended 10/18
Up 9,000
The expected weakness in this data set takes on added importance because it coincides with the survey period for the more important October nonfarm payroll number. If the consensus estimate proves accurate, rising jobless claims will almost certainly be viewed by investors as supportive of steady to fractionally lower mortgage interest rates.
Fri. Oct. 24, 10:00 a.m. ET
Sept. Existing Home Sales
Up 0.2%
Investors have already priced in expectations that existing home sales will be puny in September. In the unlikely event the pace of existing home sales posted a gain of 1.1% or more last month – look for mortgage interest rates to edge higher. On the other hand, a September sales pace of 1.0% or lower will tend to be supportive of steady to fractionally lower mortgage interest rates.
Mon. Oct. 27
Sept. New Home Sales
Down 2.1%
No one doubts new home sales remain in a slump – the only question involves the depth of the slump. Mortgage investors will probably give news that new home sales fell by 2.0% or more in September little more than a passing glance. A sales gain of 0.5% or more will likely put some upward pressure on mortgage interest rates. For what it is worth, I think there is a better chance that you’ll find a multi-million dollar winning lottery ticket stuck under you windshield wiper this morning than there is that new home sales posted a huge gain in September.
Thursday, October 2, 2008
NY TIMES
September 30, 1999
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift
industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift
industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
Monday, September 29, 2008
Bailout Bill Defeated
As I write this blog, the Dow Jones Industrial Average is down 625.4 points. By far the largest single day loss of capital in the history of the US financial markets. Instead of discussing if Speaker Pelosi's negative rhetoric prior to the vote soured the momentum, I'd like to turn your attention to what's next. In my opinion the core of the financial challenges isn't the 4.1% of all mortgage loans which are delinquent. It isn't the 2 million home owners who may lose their home this year. It's the lack of clarity of the markets, or simply put... it's the fear of the unknown. I choose the word "fear" cautiously. It's a powerful emotion made even more powerful given the demographics of this country. When banks end up in the news, people right or wrong will look to put their money elsewhere. When deposits are pulled, banks lose the ability to keep the necessary funds on hand for the loans in which they have written. Additionally, they lose the ability to lend additional money. In short, they fail to do what they are designed to do. When banks fail, either the government or another bank must step in to pick up the outstanding obligations. Jobs are lost and perhaps more importantly, the competitive landscape for lending decreases. Those left standing are left to profit immensely.
Release Date & Time
Economic Indicator
Consensus Estimate
Analysis
Mon. Sept. 29, 8:30 a.m. ET
Aug. Personal Income
Spending
PCE Index
+0.2% vs. last -0.7%
-0.3% vs. last 0.4%
+0.2% vs. last +0.3%
Mortgage investors will focus almost exclusively on the core personal consumption expenditure index component of this data set. The number barley edged up by a revised .01 percent in July, a weaker than the consensus estimate of a modest 0.1% drop in the underlying inflation rate. Given the attention at the Bailout Bill will be receiving, this will not likely create much of a stir in the mortgage market.
Tue. Sept. 30, 10:00 a.m. ET
Sept. Consumer Confidence
55.0 vs. 56.9
I anticipate this report will also be overshadowed by news of the financial market rescue agreement from Congress and Friday’s non farm payroll data that it is virtually guaranteed to do nothing more than take up space on this week’s calendar.
Wed. Oct. 1, 10:00 a.m. ET
Sept. Institute of Supply Mgmt.
49.5 vs. last 49.9
The modest anticipated 0.4% decline in the level of activity in the manufacturing sector will likely go unnoticed – particularly if investors are still sorting through the details of the financial markets rescue package. Only a reading of 51.0 or higher will likely have enough “power” to cause investors to push mortgage interest rates notably higher as a direction result of this report.
Thurs. Oct. 2, 8:30 a.m. ET
Initial jobless claims for the week ended 9/27
Down 18,000
This report will may have little, if any impact on direction of mortgage interest rates should the report be close to the estimate of 18,000. That said, if the number is as high as I anticipate, (say 25,000+) expect headline news and additional gloom and doom from all media outlets.
Thurs. Oct. 2, 10:00 a.m. ET
Aug. Factory Orders
-2.5% vs. last +1.3%
As business credit conditions continue to tighten factory orders are getting squeezed. If the consensus estimate proves accurate, this data will likely add a little encouragement to the prospects for steady to fractionally lower rates today.
Fri. Oct. 3,
Sept. Non farm Payroll
Jobless Rate
Avg. hourly earnings
-100,000
6.1%
+0.3% vs. last +0.4%
Most mortgage investors have already “priced-in” expectations for a very weak September employment reading. If the data confirms investors broad presumptions, the direct impact on the mortgage market will likely be minimal. On the other hand, if overall payrolls decline by 50,000 or less and/or the jobless rate slips back to 6.0% or lower -- look for surprised investors to respond by pushing mortgage rates sharply higher.
Release Date & Time
Economic Indicator
Consensus Estimate
Analysis
Mon. Sept. 29, 8:30 a.m. ET
Aug. Personal Income
Spending
PCE Index
+0.2% vs. last -0.7%
-0.3% vs. last 0.4%
+0.2% vs. last +0.3%
Mortgage investors will focus almost exclusively on the core personal consumption expenditure index component of this data set. The number barley edged up by a revised .01 percent in July, a weaker than the consensus estimate of a modest 0.1% drop in the underlying inflation rate. Given the attention at the Bailout Bill will be receiving, this will not likely create much of a stir in the mortgage market.
Tue. Sept. 30, 10:00 a.m. ET
Sept. Consumer Confidence
55.0 vs. 56.9
I anticipate this report will also be overshadowed by news of the financial market rescue agreement from Congress and Friday’s non farm payroll data that it is virtually guaranteed to do nothing more than take up space on this week’s calendar.
Wed. Oct. 1, 10:00 a.m. ET
Sept. Institute of Supply Mgmt.
49.5 vs. last 49.9
The modest anticipated 0.4% decline in the level of activity in the manufacturing sector will likely go unnoticed – particularly if investors are still sorting through the details of the financial markets rescue package. Only a reading of 51.0 or higher will likely have enough “power” to cause investors to push mortgage interest rates notably higher as a direction result of this report.
Thurs. Oct. 2, 8:30 a.m. ET
Initial jobless claims for the week ended 9/27
Down 18,000
This report will may have little, if any impact on direction of mortgage interest rates should the report be close to the estimate of 18,000. That said, if the number is as high as I anticipate, (say 25,000+) expect headline news and additional gloom and doom from all media outlets.
Thurs. Oct. 2, 10:00 a.m. ET
Aug. Factory Orders
-2.5% vs. last +1.3%
As business credit conditions continue to tighten factory orders are getting squeezed. If the consensus estimate proves accurate, this data will likely add a little encouragement to the prospects for steady to fractionally lower rates today.
Fri. Oct. 3,
Sept. Non farm Payroll
Jobless Rate
Avg. hourly earnings
-100,000
6.1%
+0.3% vs. last +0.4%
Most mortgage investors have already “priced-in” expectations for a very weak September employment reading. If the data confirms investors broad presumptions, the direct impact on the mortgage market will likely be minimal. On the other hand, if overall payrolls decline by 50,000 or less and/or the jobless rate slips back to 6.0% or lower -- look for surprised investors to respond by pushing mortgage rates sharply higher.
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