Home prices in January 2010 showed only minimal decline from a year earlier, according to the latest Standard & Poor’s (S&P)/Case-Shiller US National Home Price Index.
The annual declines in the 10-city and 20-city composites show improvement from December’s declines, but mixed results underscore the threat of a double dip in house prices.
The 10-city index showed no change from January 2009, and the 20-city index declined only 0.7% during the same time. S&P/Case-Shiller notes in the latest report that annual rates for the two composites have not been so close to “a positive print” in three years, since January 2007. Both indices showed seasonally unadjusted declines and are back to their autumn 2003 levels:
“While we continue to see improvements in the year-over-year data for all 20 cities, the rebound in housing prices seen last fall is fading,” said David Blitzer, managing director and chairman of the S&P Index Committee, in a press statement. “Fewer cities experienced month-to-month gains in January than in December 2009, on both a seasonally adjusted and unadjusted basis.”
Blitzer is not the only one seeing mixed results in the January report.
Paul Dales, the US economist at Toronto-based Capital Economics, notes in e-mailed commentary that although house prices on the 20-city composite have yet to reverse recent increases, “it is only a matter of time before the index records a double-dip in prices, much like that already seen on the alternative [Federal Housing Finance Agency] FHFA measure.”
Dales pointed out the 0.4% monthly decline in the seasonally unadjusted 20-city composite index from December 2009 — the fourth fall in as many months. But a “normal softness” in the market meant seasonally adjusted prices rose 0.3% in the same time — the eighth increase in as many months, according to Dales.
“This run-up in prices primarily reflects the increase in sales generated by the [first-time homebuyer] tax credit towards the end of last year, which reduced the excess supply,” he said. “The real test for the market will therefore come when the tax credit expires at the end of June. At that point, we think that demand will fall back and foreclosures will continue to boost supply.”
Dales added: “Such a toxic combination will push prices lower again. The FHFA index, which fell in the two months to January, suggests these trends may have already begun to weigh on prices even before the tax credit has expired.”
Capital Economics projects prices on the Case-Shiller measure to fall back by at least 5%, undermining the “still fragile household sector” as well as the strength and sustainability of the overall economic recovery seen so far, Dales said.
As of January 2010, S&P/Case-Shiller said average home prices are now at similar levels seen in the autumn of 2003. The 10-city composite fell 33.5% and the 20-city composite fell 32.6% from the peak in June and July 2006 to the April 2009 trough. The peak-to-date differences through January 2010 are -30.2% and -29.6% respectively.
Wednesday, March 31, 2010
Wednesday's Economic Calendar
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 Chicago PMI
10:00 Factory Orders
10:30 EIA Petroleum Inventories
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 Chicago PMI
10:00 Factory Orders
10:30 EIA Petroleum Inventories
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Macarthur rebuffs Peabody offer. Peabody Energy (BTU) made an unsolicited A$3.3B ($3B) offer for Australia's Macarthur Coal, but was rebuffed this morning. Macarthur's board said the "highly conditional proposal" doesn't represent "the best interests of shareholders" and undervalues the company's growth prospects by offering just a 7.5% premium to Macarthur's recent closing price. Peabody is still open to a deal and is in talks with Macarthur's three largest shareholders. BTU -1% premarket (7:00 ET).
Baker Hughes agrees on conditional asset sale. Baker Hughes (BHI) said yesterday that it reached a general understanding with antitrust regulators over asset sales it will have to make to gain approval for its merger with BJ Services (BJS). Baker Hughes will need to divest certain assets used to perform sand control services in the U.S. Gulf of Mexico, but the divestitures are not expected to have a material impact on the combined company. The company said it's working with regulators to finalize the proposal, which must then receive court approval before the deal can close. Shareholders from both companies will vote on the merger today.
China may adjust yuan policy. China may adjust its exchange rate system next month, according to Chinese media reports, possibly allowing the yuan a more flexible exchange rate by widening its narrow daily trading band. A policy change next month could preempt the possibility the U.S. Treasury will label China a "currency manipulator" in a report due April 15. Separately, taking a stance opposed to that of the U.S., a high-profile World Bank official rejected claims that the yuan is undervalued and warned that "a yuan appreciation, if it happened soon, would destroy Chinese exports, push up property prices and accelerate the inflow of hot money into China."
China rolls out new trading tools. China launched its trial program today for margin trading and short selling, part of its effort to introduce risky alternative-investment tools to its stock market. Though the initial impact of margin trading and short selling is expected to be limited, the two options are meant to better prepare investors for the April 16 launch of stock-index futures, a product that is both more complicated and riskier.
Mutual funds score win on fees. The mutual fund industry won a key Supreme Court case yesterday on the fairness of fees. The court ruled in favor of an earlier legal standard that gave funds considerable leeway in setting their investment adviser charges. The ruling reduces the potential that lawmakers or lower courts could try to force the industry to lower the roughly $90B in fees collected annually.
Bank of Ireland plans to raise capital. Bank of Ireland (IRE) reported a net loss of €1.46B ($2B) for the last nine months of 2009, due to bad debts related to real estate, and said Q1 trading conditions remain "challenging." However, the bank also said today that it's working with a "syndicate of major international investment banks" to help raise the €2.7B of capital it needs by the end of the year, potentially making it the only participant in Ireland's "bad bank" plan to avoid a fresh bailout. IRE +12.3% premarket (7:00 ET).
Astellas extends tender offer. Japan's Astellas Pharma extended its tender offer for U.S. drugmaker OSI Pharmaceuticals (OSIP) to April 23. The offer was set to expire today but only 37,858 OSI shares had been tendered for sale to Astellas as of yesterday, representing just 0.06% of OSI's outstanding shares. Astellas had previously decided to freeze its takeover attempt, but may ultimately make a new offer for OSI pending the tender offer extension and a review of OSI's non-public information.
Blockbuster drops like a ton of blocks. Beleaguered Blockbuster (BBI) fell more than 10% again in trading yesterday, to just $0.25, following Monday's announcement that it's not in compliance with NYSE listing requirements regarding minimum market value. Blockbuster, which earlier this month said it may need to file for bankruptcy, plans to submit a plan to NYSE to demonstrate its ability to regain compliance within 18 months, and will ask shareholders to vote in May on a reverse stock split.
Redwood may test market for unbacked MBS. Redwood Trust (RWT) is reportedly trying to jumpstart the market for mortgage-backed securities that aren't backed by the government. Sources said Redwood may launch an offer next week of at least $200M of securities backed by newly-originated "jumbo" mortgages, loans that are too big for government backing. If successful, it would mark the first such sale in more than two years and the first step in the return of the private-label mortgage securities market.
Novell wins Unix copyright case. A federal court ruled that Novell (NOVL), not SCO Group Inc., is the rightful owner of two key Unix copyrights. The decision may mark the end of much of the copyright case that SCO filed against Novell in 2004, and could affect another Unix-related lawsuit that SCO filed against IBM (IBM) in 2003.
Terra Firma restarts EMI licensing talks. Private-equity firm Terra Firma has reportedly restarted talks to license the North American rights to its EMI music unit to Universal Music Group (VIVDY.PK). The licensing deal would generate an estimated $300M over five years. Sources said Terra Firma is pushing to secure a deal, and an upfront cash payment, ahead of a key banking covenant test today.
Confidence still struggling for altitude. Three data points released yesterday showed that while consumer and investor confidence have seen some minor gains, uncertainty still reigns. The ABC Consumer Comfort Index dropped one-point to -45. There was an increase in those rating the national economy positively, but positive ratings of personal finance slipped. Conference Board's Consumer Confidence Index came in at 52.5 vs. 51 expected and 46.4 prior, but "consumers continue to express concern about current business and labor market conditions. And, their outlook for the next six months is still rather pessimistic." The State Street Investor Confidence Index rose to 108 from a revised 102.6, but the breakdown saw a large jump in Asian confidence, a small increase in North American confidence and a fall in European confidence.
by SA Editor Rachael Granby
Macarthur rebuffs Peabody offer. Peabody Energy (BTU) made an unsolicited A$3.3B ($3B) offer for Australia's Macarthur Coal, but was rebuffed this morning. Macarthur's board said the "highly conditional proposal" doesn't represent "the best interests of shareholders" and undervalues the company's growth prospects by offering just a 7.5% premium to Macarthur's recent closing price. Peabody is still open to a deal and is in talks with Macarthur's three largest shareholders. BTU -1% premarket (7:00 ET).
Baker Hughes agrees on conditional asset sale. Baker Hughes (BHI) said yesterday that it reached a general understanding with antitrust regulators over asset sales it will have to make to gain approval for its merger with BJ Services (BJS). Baker Hughes will need to divest certain assets used to perform sand control services in the U.S. Gulf of Mexico, but the divestitures are not expected to have a material impact on the combined company. The company said it's working with regulators to finalize the proposal, which must then receive court approval before the deal can close. Shareholders from both companies will vote on the merger today.
China may adjust yuan policy. China may adjust its exchange rate system next month, according to Chinese media reports, possibly allowing the yuan a more flexible exchange rate by widening its narrow daily trading band. A policy change next month could preempt the possibility the U.S. Treasury will label China a "currency manipulator" in a report due April 15. Separately, taking a stance opposed to that of the U.S., a high-profile World Bank official rejected claims that the yuan is undervalued and warned that "a yuan appreciation, if it happened soon, would destroy Chinese exports, push up property prices and accelerate the inflow of hot money into China."
China rolls out new trading tools. China launched its trial program today for margin trading and short selling, part of its effort to introduce risky alternative-investment tools to its stock market. Though the initial impact of margin trading and short selling is expected to be limited, the two options are meant to better prepare investors for the April 16 launch of stock-index futures, a product that is both more complicated and riskier.
Mutual funds score win on fees. The mutual fund industry won a key Supreme Court case yesterday on the fairness of fees. The court ruled in favor of an earlier legal standard that gave funds considerable leeway in setting their investment adviser charges. The ruling reduces the potential that lawmakers or lower courts could try to force the industry to lower the roughly $90B in fees collected annually.
Bank of Ireland plans to raise capital. Bank of Ireland (IRE) reported a net loss of €1.46B ($2B) for the last nine months of 2009, due to bad debts related to real estate, and said Q1 trading conditions remain "challenging." However, the bank also said today that it's working with a "syndicate of major international investment banks" to help raise the €2.7B of capital it needs by the end of the year, potentially making it the only participant in Ireland's "bad bank" plan to avoid a fresh bailout. IRE +12.3% premarket (7:00 ET).
Astellas extends tender offer. Japan's Astellas Pharma extended its tender offer for U.S. drugmaker OSI Pharmaceuticals (OSIP) to April 23. The offer was set to expire today but only 37,858 OSI shares had been tendered for sale to Astellas as of yesterday, representing just 0.06% of OSI's outstanding shares. Astellas had previously decided to freeze its takeover attempt, but may ultimately make a new offer for OSI pending the tender offer extension and a review of OSI's non-public information.
Blockbuster drops like a ton of blocks. Beleaguered Blockbuster (BBI) fell more than 10% again in trading yesterday, to just $0.25, following Monday's announcement that it's not in compliance with NYSE listing requirements regarding minimum market value. Blockbuster, which earlier this month said it may need to file for bankruptcy, plans to submit a plan to NYSE to demonstrate its ability to regain compliance within 18 months, and will ask shareholders to vote in May on a reverse stock split.
Redwood may test market for unbacked MBS. Redwood Trust (RWT) is reportedly trying to jumpstart the market for mortgage-backed securities that aren't backed by the government. Sources said Redwood may launch an offer next week of at least $200M of securities backed by newly-originated "jumbo" mortgages, loans that are too big for government backing. If successful, it would mark the first such sale in more than two years and the first step in the return of the private-label mortgage securities market.
Novell wins Unix copyright case. A federal court ruled that Novell (NOVL), not SCO Group Inc., is the rightful owner of two key Unix copyrights. The decision may mark the end of much of the copyright case that SCO filed against Novell in 2004, and could affect another Unix-related lawsuit that SCO filed against IBM (IBM) in 2003.
Terra Firma restarts EMI licensing talks. Private-equity firm Terra Firma has reportedly restarted talks to license the North American rights to its EMI music unit to Universal Music Group (VIVDY.PK). The licensing deal would generate an estimated $300M over five years. Sources said Terra Firma is pushing to secure a deal, and an upfront cash payment, ahead of a key banking covenant test today.
Confidence still struggling for altitude. Three data points released yesterday showed that while consumer and investor confidence have seen some minor gains, uncertainty still reigns. The ABC Consumer Comfort Index dropped one-point to -45. There was an increase in those rating the national economy positively, but positive ratings of personal finance slipped. Conference Board's Consumer Confidence Index came in at 52.5 vs. 51 expected and 46.4 prior, but "consumers continue to express concern about current business and labor market conditions. And, their outlook for the next six months is still rather pessimistic." The State Street Investor Confidence Index rose to 108 from a revised 102.6, but the breakdown saw a large jump in Asian confidence, a small increase in North American confidence and a fall in European confidence.
Monday, March 29, 2010
Monday's Economic Calendar
Monday's Economic Calendar
8:30 Personal Income and Outlays
10:00 Treasury: 'Women in Finance Symposium'
10:30 Dallas Fed Manufacturing Outlook
8:30 Personal Income and Outlays
10:00 Treasury: 'Women in Finance Symposium'
10:30 Dallas Fed Manufacturing Outlook
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Geely buys Volvo. China's Geely Holding Group agreed to buy Ford's (F) Volvo unit yesterday for $1.8B, completing 18 months of negotiations and marking the largest overseas acquisition by a Chinese automaker. It's also the first time a Chinese company is in charge of a major global car brand, a reflection of China's rise in the post-crisis world. The companies expect to complete the deal in the third quarter. F +1.3% premarket (7:00 ET).
Rio employees sentenced to up to 14 years. The four Rio Tinto (RTP) employees that were on trial in China have been sentenced to seven to 14 years in jail for accepting bribes and stealing commercial secrets. The case has garnered broad international attention, reflecting foreign investors' concerns over China's legal system. The employees are considering an appeal of what Australia has called a "very tough sentence," while Rio Tinto has terminated the employment of the employees because of "deplorable" conduct that was "at odds" with Rio's ethical culture. RTP +2.7% premarket (7:00 ET).
CIT Group may sell Aussie unit. CIT Group (CIT) confirmed it may sell its Australia and New Zealand vendor-finance unit to Bank of Queensland as part of the lender's reorganization. Bank of Queensland, an Australian regional bank, will begin conducting exclusive due diligence for a potential takeover of the unit.
FDIC, JPMorgan face off on tax benefit. The FDIC has reversed its earlier support for a $1.4B tax break benefiting JPMorgan (JPM). The tax benefit is a result of JPMorgan's acquisition of Washington Mutual; the failed bank's parent company filed a bankruptcy plan on Friday that would allow JPMorgan to claim the sum from an FDIC receivership, and the FDIC's support for the plan was notable missing. It appears the FDIC first became concerned over the potential windfall after meeting with WaMu bondholders who oppose the deal, and after media reports appeared last week with details of JPMorgan's plan. Moreover, TARP specifically excludes companies such as JPMorgan that received government aid from being eligible to receive the tax benefit.
Sinopec taps into upstream assets. Sinopec's (SNP) Hong Kong unit is buying a 55% stake in upstream assets in Angola from parent company China Petrochemical Corp. Sinopec said the $2.46B deal is meant to be the first of many, as more such deals could protect the company from the high oil prices that hurt margins in the fourth quarter. In addition to purchases of more upstream assets from China Petrochemical, analysts said Sinopec could also look for assets in North Africa, the Caspian Sea and Latin America. The transaction will raise Sinopec's proven reserves of crude oil by 3.6%, and will increase its daily crude oil production by 8.8%.
Morgan Stanley to underwrite Citi sale. Morgan Stanley (MS) has reportedly been chosen from a strong competitive field to be the underwriter and adviser in the government's sale of its Citigroup (C) stake. The bank will oversee the "dribble out" sale of the government's 27% stake, a process that could take the rest of the year. Sales are likely to begin after Citigroup's quarterly earnings report on April 19.
Taiwan Semi wants SMI stake. Taiwan Semiconductor (TSM) formally submitted an application to Taiwan authorities to take a stake in Semiconductor Manufacturing International (SMI). Taiwan Semiconductor, the world’s largest custom-chip maker, is looking for up to a 10% stake.
Bank tax efforts pick up steam. The U.S. and European governments are working to build consensus over plans to tax large banks in order to cover the costs of any future bailouts. Germany and Sweden want to use the money to create a "resolution authority," France wants to collect the fees after a crisis has already passed, and the U.S. is split, with Congress favoring a resolution authority and the White House leaning towards a post-crisis option. Despite the differing approaches, the concept of a bank tax has picked up so much momentum that officials expect it to be on the agenda at the G-20 meeting in June.
Toyota supplies hybrid tech to Mazda. Toyota (TM) reached a deal to supply Mazda (MZDAF.PK) with hybrid technology. Mazda plans to launch a car using the hybrid system in Japan by 2013. Separately, Toyota said today that its global production jumped 83% in February from the year before. However, it will be virtually impossible to sustain this pace as the comparison was against a particularly weak February 2009 and Toyota is still reeling from the fallout of its recent recalls.
Friday's failures. Four more bank failures on Friday brought this year's total to 41. The closures in Florida, Arizona and Georgia (I, II) will cost the FDIC's insurance fund an estimated $320.3M. However, the FDIC said it would cut the amount of losses it shares with buyers of failed banks, moving away from taking a 95% share of potential losses. An 80-20 split is expected to become the new norm for the entire loan portfolio.
by SA Editor Rachael Granby
Geely buys Volvo. China's Geely Holding Group agreed to buy Ford's (F) Volvo unit yesterday for $1.8B, completing 18 months of negotiations and marking the largest overseas acquisition by a Chinese automaker. It's also the first time a Chinese company is in charge of a major global car brand, a reflection of China's rise in the post-crisis world. The companies expect to complete the deal in the third quarter. F +1.3% premarket (7:00 ET).
Rio employees sentenced to up to 14 years. The four Rio Tinto (RTP) employees that were on trial in China have been sentenced to seven to 14 years in jail for accepting bribes and stealing commercial secrets. The case has garnered broad international attention, reflecting foreign investors' concerns over China's legal system. The employees are considering an appeal of what Australia has called a "very tough sentence," while Rio Tinto has terminated the employment of the employees because of "deplorable" conduct that was "at odds" with Rio's ethical culture. RTP +2.7% premarket (7:00 ET).
CIT Group may sell Aussie unit. CIT Group (CIT) confirmed it may sell its Australia and New Zealand vendor-finance unit to Bank of Queensland as part of the lender's reorganization. Bank of Queensland, an Australian regional bank, will begin conducting exclusive due diligence for a potential takeover of the unit.
FDIC, JPMorgan face off on tax benefit. The FDIC has reversed its earlier support for a $1.4B tax break benefiting JPMorgan (JPM). The tax benefit is a result of JPMorgan's acquisition of Washington Mutual; the failed bank's parent company filed a bankruptcy plan on Friday that would allow JPMorgan to claim the sum from an FDIC receivership, and the FDIC's support for the plan was notable missing. It appears the FDIC first became concerned over the potential windfall after meeting with WaMu bondholders who oppose the deal, and after media reports appeared last week with details of JPMorgan's plan. Moreover, TARP specifically excludes companies such as JPMorgan that received government aid from being eligible to receive the tax benefit.
Sinopec taps into upstream assets. Sinopec's (SNP) Hong Kong unit is buying a 55% stake in upstream assets in Angola from parent company China Petrochemical Corp. Sinopec said the $2.46B deal is meant to be the first of many, as more such deals could protect the company from the high oil prices that hurt margins in the fourth quarter. In addition to purchases of more upstream assets from China Petrochemical, analysts said Sinopec could also look for assets in North Africa, the Caspian Sea and Latin America. The transaction will raise Sinopec's proven reserves of crude oil by 3.6%, and will increase its daily crude oil production by 8.8%.
Morgan Stanley to underwrite Citi sale. Morgan Stanley (MS) has reportedly been chosen from a strong competitive field to be the underwriter and adviser in the government's sale of its Citigroup (C) stake. The bank will oversee the "dribble out" sale of the government's 27% stake, a process that could take the rest of the year. Sales are likely to begin after Citigroup's quarterly earnings report on April 19.
Taiwan Semi wants SMI stake. Taiwan Semiconductor (TSM) formally submitted an application to Taiwan authorities to take a stake in Semiconductor Manufacturing International (SMI). Taiwan Semiconductor, the world’s largest custom-chip maker, is looking for up to a 10% stake.
Bank tax efforts pick up steam. The U.S. and European governments are working to build consensus over plans to tax large banks in order to cover the costs of any future bailouts. Germany and Sweden want to use the money to create a "resolution authority," France wants to collect the fees after a crisis has already passed, and the U.S. is split, with Congress favoring a resolution authority and the White House leaning towards a post-crisis option. Despite the differing approaches, the concept of a bank tax has picked up so much momentum that officials expect it to be on the agenda at the G-20 meeting in June.
Toyota supplies hybrid tech to Mazda. Toyota (TM) reached a deal to supply Mazda (MZDAF.PK) with hybrid technology. Mazda plans to launch a car using the hybrid system in Japan by 2013. Separately, Toyota said today that its global production jumped 83% in February from the year before. However, it will be virtually impossible to sustain this pace as the comparison was against a particularly weak February 2009 and Toyota is still reeling from the fallout of its recent recalls.
Friday's failures. Four more bank failures on Friday brought this year's total to 41. The closures in Florida, Arizona and Georgia (I, II) will cost the FDIC's insurance fund an estimated $320.3M. However, the FDIC said it would cut the amount of losses it shares with buyers of failed banks, moving away from taking a 95% share of potential losses. An 80-20 split is expected to become the new norm for the entire loan portfolio.
Friday, March 26, 2010
USDA Push
LGI Homes
A house for sale at Canyon Crossing, priced around $145,900.
At the Canyon Crossing community in southwest San Antonio, buyers can still get into a $135,000 four-bedroom home for no money down.
It’s possible thanks to a program from the Department of Agriculture’s rural development division, which offers no-money-down loans in certain parts of the country for low- and middle-income borrowers. The Single-Family Housing Guaranteed Loan Program is likely to run out of funding next month, just as a surge of buyers are expected to ink deals before the federal tax-credit expires April 30.
Originally crafted to encourage home buying in rural areas, it’s become quite popular in some exurbs that have seen rapid development in recent years. Some developers have even created entire communities catering to USDA-backed borrowers.
Builders are worried what happens when the program exhausts its fiscal-year funding. Last month, all of Canyon Crossing’s 13 closings came from buyers tapping the USDA program, said Eric Lipar, chief executive of Texas-based LGI Homes. “It’s going to have a substantial impact on sales,” he said. The company has an entire section of its Web site dedicated to “No Money Down,” but said that it won’t tout the deals after April 1.
The housing downturn has fueled the program’s popularity in recent years. Pre-crash, the USDA typically issued $3 billion in loans for each fiscal year ending Sept. 30, said Jay Fletcher, an agency spokesman. That number has more than quadrupled.
Once lenders, fearing more foreclosures, stopped offering zero-down deals, buyers have flocked to the USDA guaranteed-loan program created in 1991. Lenders consider the loans a safe bet because the USDA guarantees a percentage of the principal amount, up to 90%, meaning they’ll pay should the borrower default. Last fiscal year’s foreclosure rate on USDA loans was 1.72%, far below the Federal Housing Administration’s 3.32%, Fletcher said. Borrowers also can’t make more than 115% of a county’s median income, curbing supersized loans: The average USDA loan is $112,000.
In 2009, the USDA spent a record $16.2 billion to guarantee 115,981 loans. This year, Congress set aside $12 billion and there was $1.1 billion carried over from last year’s economic stimulus. (The 2011 allotment, which would be released Oct. 1, hasn’t been determined.)
With buyers moving beyond their post-crash paralysis, the money is nearly depleted. Some have been rushing to take advantage of low interest rates and falling prices, while others are tapping the federal tax credit for first-time buyers - main users of the USDA program.
There’s an industrywide push - both Chase Home Lending and the National Association of Home Builders are active - for Congress to authorize more funds or find a way to keep the program going until new money becomes available in October. (See the National Association of Home Builders’ letter to Senators Herb Kohl and Sam Brownback). But with leaders focused on health care and the money quickly dwindling, public and private builders nationwide are worried, given they’ve increasingly counted on sales from the obscure offer as the residential downturn drags on.
“These are loans for low- and moderate- income families,” said Tom Kelly, a spokesman for Chase, the nation’s largest originator of such loans. “It’s important to extend it.”
The funds are first-come, first-served - and 1,900 lenders nationwide participate - so anyone with USDA “loans in the pipeline is going to be working fast and furious getting those closed” before the money runs out, said Lisa Marquis Jackson with John Burns Real Estate Consulting. Losing a deal, “that’s a catastrophe, almost, for a builder who has a sale sitting there waiting.”
A house for sale at Canyon Crossing, priced around $145,900.
At the Canyon Crossing community in southwest San Antonio, buyers can still get into a $135,000 four-bedroom home for no money down.
It’s possible thanks to a program from the Department of Agriculture’s rural development division, which offers no-money-down loans in certain parts of the country for low- and middle-income borrowers. The Single-Family Housing Guaranteed Loan Program is likely to run out of funding next month, just as a surge of buyers are expected to ink deals before the federal tax-credit expires April 30.
Originally crafted to encourage home buying in rural areas, it’s become quite popular in some exurbs that have seen rapid development in recent years. Some developers have even created entire communities catering to USDA-backed borrowers.
Builders are worried what happens when the program exhausts its fiscal-year funding. Last month, all of Canyon Crossing’s 13 closings came from buyers tapping the USDA program, said Eric Lipar, chief executive of Texas-based LGI Homes. “It’s going to have a substantial impact on sales,” he said. The company has an entire section of its Web site dedicated to “No Money Down,” but said that it won’t tout the deals after April 1.
The housing downturn has fueled the program’s popularity in recent years. Pre-crash, the USDA typically issued $3 billion in loans for each fiscal year ending Sept. 30, said Jay Fletcher, an agency spokesman. That number has more than quadrupled.
Once lenders, fearing more foreclosures, stopped offering zero-down deals, buyers have flocked to the USDA guaranteed-loan program created in 1991. Lenders consider the loans a safe bet because the USDA guarantees a percentage of the principal amount, up to 90%, meaning they’ll pay should the borrower default. Last fiscal year’s foreclosure rate on USDA loans was 1.72%, far below the Federal Housing Administration’s 3.32%, Fletcher said. Borrowers also can’t make more than 115% of a county’s median income, curbing supersized loans: The average USDA loan is $112,000.
In 2009, the USDA spent a record $16.2 billion to guarantee 115,981 loans. This year, Congress set aside $12 billion and there was $1.1 billion carried over from last year’s economic stimulus. (The 2011 allotment, which would be released Oct. 1, hasn’t been determined.)
With buyers moving beyond their post-crash paralysis, the money is nearly depleted. Some have been rushing to take advantage of low interest rates and falling prices, while others are tapping the federal tax credit for first-time buyers - main users of the USDA program.
There’s an industrywide push - both Chase Home Lending and the National Association of Home Builders are active - for Congress to authorize more funds or find a way to keep the program going until new money becomes available in October. (See the National Association of Home Builders’ letter to Senators Herb Kohl and Sam Brownback). But with leaders focused on health care and the money quickly dwindling, public and private builders nationwide are worried, given they’ve increasingly counted on sales from the obscure offer as the residential downturn drags on.
“These are loans for low- and moderate- income families,” said Tom Kelly, a spokesman for Chase, the nation’s largest originator of such loans. “It’s important to extend it.”
The funds are first-come, first-served - and 1,900 lenders nationwide participate - so anyone with USDA “loans in the pipeline is going to be working fast and furious getting those closed” before the money runs out, said Lisa Marquis Jackson with John Burns Real Estate Consulting. Losing a deal, “that’s a catastrophe, almost, for a builder who has a sale sitting there waiting.”
Thursday, March 25, 2010
Thursday's Economic Calendar
8:30 Initial Jobless Claims
9:10 Fed's Pianalto: Market Pulse event
10:00 Hearing: Unwinding Emergency Federal Reserve Liquidity Programs
10:30 EIA Natural Gas Inventory
11:00 KC Fed Manufacturing
1:00 PM 7-Yr Note Auction
1:30 PM Hearing: Treasury International Programs
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
9:10 Fed's Pianalto: Market Pulse event
10:00 Hearing: Unwinding Emergency Federal Reserve Liquidity Programs
10:30 EIA Natural Gas Inventory
11:00 KC Fed Manufacturing
1:00 PM 7-Yr Note Auction
1:30 PM Hearing: Treasury International Programs
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
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