Wednesday, December 26, 2012

Today's links

1--Administration Planning to Use Fannie and Freddie to Provide More Stealth Stimulus, naked capitalism

From the Wall Street Journal:
Under the proposal, Fannie and Freddie would be allowed to charge higher rates to borrowers in order to compensate for the risk of guaranteeing refinanced loans that are underwater and more likely to result in default. Some economists argue that those borrowers could be relatively good credit risks because they have been paying their mortgages through the financial crisis, and that Fannie and Freddie could turn a profit on such mortgages while helping the housing market.

But industry officials say such a program would work only if banks were given immunity from having to buy back any loans they refinance that subsequently default, and that such a shield would boost the risk for the taxpayer-backed companies

2---A Conservative Case for the Welfare State, NYT

3--More on QE, Big Picture

Federal Reserve Board Chairman Ben Bernanke said Thursday that a controversial $600 billion bond buying plan has contributed to a stronger stock market. “Our policies have contributed to a stronger stock market just as they did in March 2009 when we did the first iteration of this program,” Bernanke said at a Federal Deposit Insurance Corp. forum on small businesses. “A stronger economy helps small businesses more than larger businesses. Interest rates are higher but that’s mostly because the news is better. It has responded to a stronger economy and better expectations.”...
What Will The Federal Reserve Do?
In Septmber we noted that the median expectation in a survey of primary dealers calls for $500 billion of additional purchases heavily tilted toward mortgage-backed securities. If the purpose of QE is to push stock prices higher, then the Federal Reserve has to deliver at least $500 billion in purchases. Otherwise it will disappoint risk markets.
Despite promises by the US leadership, the Guantanamo Bay detention camp is still operating.
People are kept there without trial – in shackles and chains just like in the Middle Ages,” Putin remarked and now, he continued, people “who opened secret prisons and legalized torture during investigations” point out Russia's shortcomings.
U.S. holiday retail sales this year were the weakest since 2008, when the nation was in a deep recession. In 2012, the shopping season was disrupted by bad weather and consumers’ rising uncertainty about the economy.
A report that tracks spending on popular holiday goods, the MasterCard Advisors SpendingPulse, said Tuesday that sales in the two months before Christmas increased 0.7 percent, compared with last year. Many analysts had expected holiday sales to grow 3 to 4 percent.

In the end, even steep last-minute discounts weren’t enough to get people into stores, said Marshal Cohen, chief research analyst at the market research firm NPD Inc.

“A lot of the Christmas spirit was left behind way back in Black Friday weekend,” Cohen said, referring to the traditional retail rush the day after Thanksgiving. “We had one reason after another for consumers to say, ‘I’m going to stick to my list and not go beyond it.’

6---Americans Miss $200 Billion Abandoning Stocks, Bloomberg

7---Canada's real estate on shaky ground, globe and mail

8---Everything You Need To Know About the Economy in 2012, in 34 Charts, Atlantic

9---The push and pull of Canada's housing market, globe and mail
2004 to 2007

During this period the rules governing mortgage insurance were relaxed, making it easier to get a mortgage.

• Consumers were allowed to take more money out of their homes when they refinanced; up to 95 per cent of its value, up from 85
• Zero-down insured mortgages were allowed
• Lengths on insured mortgages were extended from 25 years to 40

After the U.S. subprime crisis takes its toll, Finance Minister Jim Flaherty starts tightening the rules. On July 9, he announces that effective Oct. 15:
• the maximum length of insured mortgages is cut to 35 years
• the minimum downpayment on insured mortgages is raised to five per cent

But the collapse of Lehman Brothers in September threatens to hammer bank lending and the economy. To keep it going, Flaherty announces the Insured Mortgage Purchase Program on Oct. 10. The program sees the government, via CMHC, buy nearly $70-billion worth of mortgage pools from the banks through 2009 and early 2010, so that they can lend more.

Flaherty gets back to tightening the rules, saying that while “there’s no clear evidence of a housing bubble,” he wants to be prudent and prevent one.

On Feb. 16, he announces that effective April 19:
• cuts the maximum amount that consumers can take out when refinancing their mortgages to 90 per cent of the value of the house
• tells banks to ensure that variable rate borrowers could effectively afford a fixed rate
• toughen up the rules for obtaining mortgage insurance on speculative investment properties


Further tightening. On Jan. 17, Flaherty announces that as of March 18:
• the maximum length of insured mortgages will be cut to 30 years
• consumers will only be able to borrow up to 85 per cent of the value of their homes when refinancing.

And, effective April 18:
• the government will no longer back mortgage insurance for home equity lines of credit, which had been skyrocketing.


The tightening continues. On June 21, Flaherty announces that as of July 9:
• Ottawa will no longer back mortgage insurance on homes that cost more than $1-million
• the maximum length of insured mortgages is cut to 25 years
• consumers can only borrow up to 80 per cent of the value of their home when refinancing

No comments:

Post a Comment