Posts Tagged ‘Montgomery County’
March 23 (Bloomberg) — U.S. Treasury Secretary Timothy F. Geithner said the government should end the “ambiguity” over its involvement in mortgage finance companies Fannie Mae and Freddie Mac.
“Private gains can no longer be supported by the umbrella of public protection, capital standards must be higher and excessive risk-taking must be appropriately restrained,” Geithner said in testimony prepared for the House Financial Services Committee that was obtained by Bloomberg News. The hearing is scheduled for today at 10 a.m. in Washington.
Geithner said the Treasury Department and the Department of Housing and Urban Development will issue a request for comment by April 15 on how to overhaul the U.S. housing-finance system and its regulatory structure. The government needs to make sure there is “no ambiguity over the status or allowable activities of any private entity which enjoys any benefits or protections from the government,” he said.
At the same time, Geithner pledged that the Obama administration would seek to avoid disruptions in the market for Fannie Mae and Freddie Mac’s debt and mortgage-backed securities. He said investors should not doubt the U.S. government’s commitment to backstop the obligations of the two companies, which have been in conservatorship since 2008.
Sufficient Capital
“It should be clear that the government is committed to ensuring that the GSEs have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations,” Geithner said. “The administration will take care not to pursue policies or reforms in a way that would threaten to disrupt the function or liquidity of these securities or the ability of the GSEs to honor their obligations.”
The testimony expands on Geithner’s call yesterday for a “fresh, cold look” at the government’s role in housing. In a speech at the American Enterprise Institute in Washington, the Treasury chief said he is “looking forward to reforming” the government-sponsored enterprises — or GSEs, as Fannie and Freddie are known — even though that process has been put off while the Obama administration focuses on priorities including a financial regulatory overhaul.
The administration’s delay in offering its plan for Fannie and Freddie has drawn criticism from Republican lawmakers who are already critical of President Barack Obama’s approach to toughening financial oversight.
‘No’ Strategy
Representative Jeb Hensarling, a Republican from Texas, said yesterday that the administration should explain why it has “no exit strategy” from its 2008 takeover of the two mortgage- finance companies.
Geithner said in his prepared testimony for today’s hearing that the government had “few viable alternatives” to its extensive support of Fannie Mae and Freddie Mac because the two companies are so central to the housing market. Private capital isn’t available in sufficient strength to fund the mortgage market and make credit widely available, he said.
Before the government stepped in, the two companies guaranteed more than $5 trillion in residential mortgage-based securities, or almost half of the U.S. residential mortgage market, Geithner said. They also had more than $1.7 trillion in outstanding debt, held equally by foreign and U.S.-based investors, he said.
Treasury Backstop
The Treasury in December said it would provide as much support to the GSEs as needed over the next three years. At that time, the Treasury also eased its requirements for the two companies to shrink their portfolios.
Geithner said the Treasury is still “firmly committed” to shrinking the firms in the long run. He also reiterated that the two companies are unlikely to exceed previous projections on government assistance.
“Neither company was near the previous $200 billion per institution limit in December, and neither is likely to exceed those caps even under a range of very conservative assumptions,” Geithner said.
The Treasury secretary laid out broad objectives for weighing how to change Fannie Mae and Freddie Mac, along with other housing organizations such as the Federal Home Loan Banks and the Federal Housing Administration. He said there are “a variety of mechanisms” the government could use to promote stability and also provide subsidies to parts of the market.
New Incentives
The housing finance system needs to have incentives that are aligned to encourage the mortgage industry to work toward long-term health instead of short-term gains, Geithner said. Private gains shouldn’t be allowed when the public bears the brunt of losses, and mortgage finance companies should be required to hold sufficient capital and avoid abusive practices.
Mortgage products should be standardized and support a liquid secondary market, with a broad base of investors and “accurate and transparent pricing,” Geithner said. Government housing policy should aim to promote widely available mortgage credit, financial stability and affordable housing options for lower-income households, he said.
“Action is needed to ensure that markets are more stable, consumers are protected, credit is widely accessible and important housing policy objectives, such as affordable housing for low and moderate income families, are administered effectively and efficiently,” Geithner said. “Government has a key role to play in that new system, but its role, and the role of the GSEs in particular, will be fundamentally different from the role played in the past.”
To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.netPhil Mattingly in Washington at pmattingly@bloomberg.net;
Bank-regulation bill headed for Senate fight
By Jim Kuhnhenn
Associated Press
WASHINGTON – Republicans abandoned their effort to alter Wall Street regulatory legislation in a key Senate committee yesterday, leaving the fight for the full Senate, and clouding prospects for a bipartisan bill.
Republicans had offered more than 300 amendments to legislation proposed by Senate Banking Committee Chairman Christopher Dodd, but they withdrew them over the weekend. That cleared the way for a quick party-line vote yesterday: The committee approved Dodd’s bill, with the 13 Democrats in favor and the 10 Republicans opposed.
The surprise development by the committee’s Republicans did nothing to mend the partisan fissures over the legislation and adds more uncertainty to Congress’ ability to pass a sweeping rewrite of financial regulations this year. The full Senate would take up the bill in April at the earliest.
“You’ll have Easter recess, and that’s when, I guess, over the course of the next several weeks . . . the real negotiations will be taking place,” said Sen. Bob Corker (R., Tenn.), a member of the committee who had held negotiations with Dodd.
Dodd unveiled his bill on March 15, 18 months after Wall Street’s failures helped plunge the U.S. into the worst recession since the 1930s. The legislation would give the government unprecedented powers to split up firms so large that they are considered a threat to the economy, put together a council of regulators to watch for risks in the financial system, and create an independent consumer watchdog.
With more than 300 Republican amendments and nearly 100 Democratic changes, committee members had prepared themselves for a long and arduous week of debate and votes on the bill.
Dodd did accept 25 Democratic amendments, including one sought by Federal Deposit Insurance Corp. chairwoman Sheila Bair that she said would prevent unintended bailouts of large financial institutions.
Democrats and Republicans are split over the need for an independent consumer entity. But other issues also divide the parties, including how to regulate complex trading instruments, such as derivatives, and what firms should be exempt from new rules. (Derivatives, securities whose value is based on underlying assets, were at the root of the financial system’s 2008 meltdown.)
Industry lobbyists said the decision to move swiftly through committee made it much more difficult to predict what the full Senate would ultimately do with the legislation.
Corker suggested that the bill, the subject of months of negotiations by Dodd and members of his committee, needed a new environment.
“It’s probably true that we have a better opportunity with a different cast of characters, the full Senate, to do something that is sound policy-wise,” Corker said.
In Phila. area, home prices still stable
By Alan J. Heavens
Inquirer Real Estate Writer
Sometimes, owning a house in a really dull real estate market isn’t such a bad thing: When price bubbles don’t inflate wildly, neither do they burst painfully.
Take the metropolitan Philadelphia area’s median home price, which was just $1,000 higher at the end of last year, to $228,300, than it was when real estate values began bubbling nationwide in the fourth quarter of 2005, according to a new report by IHS Global Insight of Lexington, Mass.
(The median price is the middle value; half the houses sold for more, half for less.)
Local-market observers think stable prices are likely to continue in this region in the near term.
“I don’t think house prices in the Philadelphia eight-county area will be going anywhere fast in the next six to 18 months,” said Mark Zandi, chief economist at Moody’s Economy.com in West Chester. “There is still plenty of inventory as more foreclosure and short sales are in train; the job market is soft, albeit soon to be improving; and mortgage rates are likely to drift higher.”
The moment of truth will come, experts say, when the home buyers’ tax credit ends April 30.
“If home prices don’t resume their downward slide, then we can pretty much say we’ve hit our bottom,” said Kevin Gillen, vice president of Econsult Corp. in Philadelphia. “I wouldn’t expect any sharp rebound, but I wouldn’t expect any further big declines either.”
Art Herling, regional vice president for Long & Foster Real Estate, believes a lot depends on whether interest rates remain below 5.5 percent when the Fed stops buying mortgage-backed securities next week. Most experts say rates are unlikely to rise sharply in the near term.
What makes Philadelphia so stable, when other areas aren’t?
Part of it is the local job market, “with the largest employers colleges, hospitals, and pharmaceutical companies,” said Herling. “We don’t gain as many jobs, so we can’t lose as many.
“Philadelphia people grow up and stay here,” he said. It doesn’t have the comings and goings of more “glamorous” cities such as Los Angeles or Las Vegas – both of which saw huge spikes in home prices, then even-greater drops.
IHS Global Insight’s look at this region’s home-price trends over 16 quarters yielded the following information:
In 2005′s fourth quarter, the median price was $227,300.
In 2006′s fourth quarter, the median was $237,900, reflecting the belated housing boom here.
Prices continued to rise modestly into the 2007 fourth quarter, to $239,800.
The median slid to $229,800 in fourth-quarter 2008, then to $228,300 in the final three months of 2009.
In 2005, IHS Global Insight considered the region’s median price overvalued 17 percent; today’s price is undervalued 1.1 percent, though the difference is only $1,000.
“Our approach to determining statistical normal house values,” said senior economist Jeannine Cataldi, “considers not only house prices and interest rates, but household incomes, population densities, and other, less important factors.”
By examining 330 metropolitan areas and looking at prices from 1985 to 2008, the analysis determines what prices “should be,” she said.
Interest rates for fixed-rate mortgages were near 6 percent in 2005; today, they are less than 5 percent, for example, so that would be one factor in pushing slightly higher prices closer to “fair value.”
Econsult’s Gillen said the Philadelphia area showed up later to the boom than most, with housing prices actually peaking in the fourth quarter of 2007 instead of in 2006.
But lateness was not as important as “smallness.”
“We are essentially an underperforming city,” Gillen said. House prices began rising in most urban areas in 1998; here, it was 2002. Increases averaged 172 percent in most large U.S. cities; here, it was 100 percent.
Philadelphia’s total housing stock increased only 2 percent in the last decade, compared with nearly 30 percent in the Sun Belt cities, 10 percent nationwide, and 9 percent in this region’s suburbs.
That 2 percent – 13,000 units – was the largest increase since the post-World War II boom, Gillen said.
“This last statistic is the most damning one,” he said, “since that is driven by the city’s own fundamentals, whereas the price increases were largely driven by the national factors of easy credit and consumer euphoria over homes.”
In Philadelphia proper, the typical home is still valued below its replacement cost an average of 28 percent, Gillen said. Even with a doubling in the level of home prices, “our prices still aren’t sufficient to cover our high cost of construction – fourth highest in the country.”
“Other cities experienced a housing boom,” Gillen said. “We experienced a housing nudge.”
Rates on 30-year mortgages edge up, but remain below 5 percent as Fed prepares exit
WASHINGTON (AP) — Mortgage rates held below the 5 percent threshold for the third straight week as the Federal Reserve prepares to end a program that has kept rates at or near record lows.
The average rate on a 30-year fixed rate mortgage edged up to 4.96 percent this week from 4.95 percent a week earlier, the mortgage finance company Freddie Mac said Thursday.
Rates dropped to a record low of 4.71 percent in December and have hovered around 5 percent since, kept down by the Fed’s $1.25 trillion program to buy up mortgage securities issued by Freddie Mac and sibling company Fannie Mae.
The Fed said this week that this program would end on March 31, as expected. But some analysts fear that once the program ends, mortgage rates could rise. That could weaken the fragile recovery in housing and the overall economy. Still, the Fed has left the door open to extending the program if the economy weakens.
The central bank has been the dominant buyer of mortgage securities over the past year. Without the Fed’s participation, “it may take a few weeks for the market to sort out whether there’s enough demand to soak up the supply,” said Greg McBride, senior financial analyst with Bankrate.com.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day, often in line with long-term Treasury bonds.
This week, the average rate on a 15-year fixed-rate mortgage was 4.33 percent, up from 4.32 percent last week, according to Freddie Mac.
Rates on five-year, adjustable-rate mortgages averaged 4.09 percent, up from 4.05 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.12 percent from 4.22 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.
The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 of a point for 30-year loans and 0.6 of a point for the other loans in Freddie Mac’s survey.
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