The Homeowner Affordability and Stability Plan Unveiled (sort of)

The Homeowner & Stability Plan (HASP), courtesy of USTreas.gov:



Treasury's Executive Summary (PDF)

Section 1, the part about low cost refinancing, is still unclear. Apparently 3 to 4 million homeowners could benefit, but they still haven't said how. Details of the details are forthcoming, I guess :-)

A Perspective Behind The FED's Plan To Lower Mortgage Rates, aka The MBS Bailout

In his most recent post, Brad Setser doesn't specifically address the FED's recent action in the Agency MBS market (remember the FED's $500b MBS purchase program?), but he does provide some great analysis of the numbers that are behind the FED's move.

From one of my new favorites, Brad's Follow The Money blog:

This is what a crisis looks like in the balance of payments data, 12/15/08

[Agency - Fannie, Freddie, Ginnie Mae]

"So much for talk that central banks are always a stabilizing presence the market. They clearly have destabilized the Agency market. The fall in demand for Agencies over the past three months — and most Agency demand has come from central banks until recently — has been sharper than than the fall in demand for US corporate bonds (think securitized subprime mortgages, the category “corporate bonds” in the BoP data includes asset-backed securities) after the crisis of last August."

"The Agency market is a rather important market. Increased lending by the Agencies offset the fall in demand for “private” mortgage-backed securities after the crisis last August. More recently, the absence of a “central bank bid” has kept
Agency spreads wide even after the US Treasury bailout of Freddie and Fannie. And that in turn has pushed the US to adopt other measures to bring down long-term mortgage rates. The Fed and the Treasury are literally now buying the Agencies that foreign central banks are selling. Action, reaction …"

Earlier in the same post, Brad points out "[foreign investors added] $400 billion in demand for safe dollar denominated assets [T-bills, T-bonds]. If that kind of monthly inflow is annualized it is a shockingly large number. It allowed foreigners to reduce their holdings of Agencies by close to $75 billion (including a $25 billion fall in short-term Agencies), their holdings of long-term corporate bonds by $13 billion and their holdings of US equities by $6 billion without causing any strain on the dollar."

According to Brad, that's $75b just in October. I'm sure numbers like these make the FED and Treasury nervous.

Bair's On Board With Obama

This morning's story on Bank.com's blog:

Sheila Bair Encouraged By Barack Obamas Foreclosure Ideas

"The chairperson of the FDIC, Sheila Bair, has been pushing an aggressive plan, modeled off of what was tried when IndyMac went under, to help stop foreclosures. Her efforts, though, have been running into opposition from the Treasury Secretary, Henry Paulson, as well as other prominent members of the Bush Administration. The current administration seems reluctant to fund such a comprehensive plan aimed at helping individual homeowners. Now, though, it seems as though she can bide her time and wait for a Barack Obama administration. Maybe Timothy Geithner will be a more compatible and understanding Treasury Secretary."

Bair has been standing out on a limb for some time now with her forward thinking ideas about mortgage modifications. As we discussed in an August post, Indy Mac's failure and quick takeover by FDIC in August provided Bair and team an opportunity to do things her way. The success or failure of the modification program is yet to be seen, but I'd be very surprised if President-elect Obama didn't keep her on board to see it through (and possibly help implement it with other banks/lenders).

MBS Market Rallies, Mortgage Rates Set To Improve

10:20am



I guess this is what happens when the Federal Reserve announces a plan to purchase $500b MBS from Fannie Mae and Freddie Mac. Here's today's Bloomberg article about the plan.

And here's the Treasury's announcement to purchase $200b in additional asset backed securities.

Looks like the Administration is directly targeting mortgage rates.

I expect rates to be ~.25% better this morning, and wouldn't be surprised to see the 30yr fixed in the low to mid 5% range this week.


FNMA 30yr 5.5 coupon
up 130bps at 10:15am

Better than BOGO for Genworth

What's better than "buy one, get one" free? How about "buy one, get more" free. That's the kind of deal Genworth Financial is looking for.

On Sunday the Richmond, VA based Fortune 500 company announced that they were applying to the Office of Thrift Supervision to become a savings and loan. Genworth isn't a bank or a thrift but a self proclaimed "financial security" company. And one of their main businesses is mortgage insurance - they are, in fact, the spinoff of GE's mortgage insurance unit.

So why does the company want to be a federally regulated bank? Because it wants to qualify for government assistance through the TARP (Troubled Assets Relief Program). As you can imagine the mortgage insurer hasn't been doing well lately, after an abysmal 3rd quarter and recent credit rating downgrade. I would guess that management is depending on government funding to stay afloat. And they know they they need to get in the handout line ASAP.

But in order to get money they need to spend money. In the same press release they announced that they have reached an agreement to buy a bank. Specifically, they're going to purchase Interbank FSB of Minnesota, which has $1b in assets.

At this point the sales price has not been disclosed and we don't know how much Genworth would receive (if any) from the US Treasury. But I doubt that they would go through the trouble just to break even.

Here's the Bloomberg story.