The world is understandably preoccupied with the fate of Wall Street, and the City of London, and Iceland, and German banks, and Swiss banks, and - you get the picture.
But there are still significant problems in the market that started this all - US housing.
As Bank of America points out in a note this morning,
…the widening in mortgage spreads recently has brought mortgage rates back above 6%, unwinding the initial benefit following the nationalization of the GSEs and the expansion of the Treasury MBS purchase program.
The potential cause could be increasing relative attractiveness of bank debt in light of the expanding government role to support that sector.
That may require even greater Treasury support to bring mortgages back in line with the required issuance pushing the yield increases potentially into term Treasury yields.
And here’s the chart in support of that argument:
The rate on a 30-year fixed mortgage jumped 46bps over the last week to 6.28 per cent, according to data from bankrate.com. Rates on ARMS and jumbo mortgages have also been rising steadily.
Still, it would be unfair (and inaccurate) to argue that the US administration has ignored the US homeowner. More than a year ago, the government launched a $300bn program to help distressed homeowners refinance into cheaper mortgages. A host of other, similar schemes targeted at different sections of the housing market are also in operation.
And of course, Paulson also massively bailed out Fannie and Freddie, the linchpins of the US mortgage market.
These programs are working, albeit slowly - loan modifications have increased substantially, and the government-backed “Hope Now” alliance helped prevent more than 2m foreclosures in the US last year.
Still, nearly 80 per cent of those mortgage borrowers most in need of help are not on track for a loan modification or help to avoid foreclosure, a recent study by banking regulators showed.
Some efforts are stymied by the existence of second-lien mortgages, while persistent falls in home prices (and therefore, rising negative equity) further complicate matters. The fact that ’subprime’ and ‘foreclosures’ have been knocked off the front pages by ‘Tarp’ ‘CPFF’ and a host of other acronyms doesn’t help either.
But it is important not to forget the homeowner, and not just because - as Thorold Barker argued presciently last September, US homeowners have long held the key to any rescue of Wall Street, and in turn, of the economy.
Related links:
In search of a floor: Is America’s house price crash at last bottoming out? - FT
Good-credit borrowers a growing problem for servicers - Housingwire.com
