TEAM EMPOWERMENT CHATTER: Dec. 23: ARM Disclosures; 6 repay TARP funds, Home Sales

“For here we are not afraid to follow the truth wherever it may lead…”
— Thomas Jefferson

The Federal Reserve, approved an interim rule that will require mortgage lenders to disclose examples of how a mortgage loan’s interest rate and monthly payment may change. The Fed has given us plenty of lead time: beginning on October 1, 2011, banks and lenders must alert borrowers to the risk of payment increases before they agree to take out mortgage loans with variable rates or terms, otherwise known as adjustable-rate mortgages. “They will be required to include a payment summary in the form of a table, including the initial rate, maximum rate that can occur in the first five years, and the “worst case” rate possible over the life of the loan, along with corresponding monthly mortgage payments.” The rule also clarifies which mortgage types are covered by the special disclosure requirements, including loans with minimum payment options that cause the loan balance to increase, such as teaser rates and negative amortization loans.

Economists make their living off of forecasting the future, or explaining why their earlier predictions were incorrect. But by then, most have forgotten the earlier prediction, or at least, I usually do. Rarely do traders base decisions on what an economist will say, but in the mortgage banking arena, predictions by the MBA, Freddie, and Fannie carry a little more weight. (For example, in October the MBA announced its prediction that mortgage originations could be 30% lower in 2011 than in 2010.) Per Fannie Mae, the fourth quarter will not wind up being a memorable time for housing sales. Fannie has projected that existing sales will increase slightly, but that new home sales will drop significantly. Fannie expects 2010 housing sales to be down 7% from last year, and with slightly lower median prices across the nation. But it expects things to pick up in 2011.

Taxpayers will find $2.7 billion in their stockings after news broke that six regional banks have repaid TARP funds. Can you believe that it has been two years since our government invested $389 billion in the financial system? “Hats off” to companies who have already repaid the money.

Yesterday we learned that according to the NAR, Existing Home Sales rose 5.6% to a seasonally adjusted annual rate of 4.68 million in November from October, but are about 28% below late 2009’s levels. MBS prices finished the day roughly unchanged, and the 10-yr closed at 3.35%. The market opened up slightly better bid overnight and into the New York open aided by a weaker than expected GDP (2.6% versus an expected 2.8%), but then gradually faded throughout the day.

Today is a new day, and we finish the business week with Durable Goods, Personal Income and Consumption, Jobless Claims, and New Home Sales, along with the announcement of next week’s auction sizes for the 2-year, 5-year, and 7-year note auctions. Durable Goods, always volatile, was -1.3% in November, but ex-transportation it was strong. Jobless Claims came in at 420,000, down from a revised 423k. Personal Spending was +.4% in November, and Personal Income was +.3%. After the initial spate of news, the yield on the 10-yr is at 3.38% and MBS prices are roughly unchanged, maybe slightly worse.