'Mortgage starvation' stunts recovery

Flickr photo by sandman.

Long-term rates jumped this week, and the 10-year T-note rose to 3.6 percent from 3.28 percent at last week's low, the principal push delivered by a 500-point surge in the Dow.

Mid-summer is the "silly season," when a shortage of serious news elevates "Man Bites Dog" to the front page. This stock rally was short-covering, and bonds are on constant selling edge because of runaway deficits. New data could be read as green-shoot or L-shaped non-recovery, but none were trend-changers.

Housing permits and starts rose a bit above forecast, to the high-500,000 annual range from high-400,000 in last winter's pit, but housing is going nowhere, loan applications flat. Total retail sales improved in June only because gasoline cost more.

Some silly-season items this year are downright strange.

Since 1971 Freddie Mac has surveyed mortgage rates early each week and reported on Thursdays. By 1980 mortgages began to move with bonds in real time, but not Freddie, which yesterday announced that mortgages fell again, to 5.14 percent. They rose again, of course, Jurassic Freddie deftly catching another early-week dip.

FHFA (Federal Housing Finance Agency), the renamed agency (ex-OFHEO) governing the mortgage GSEs, has set new standards for irrelevance. For no-content ego-bloviation, nothing beats its July 9 "Five-Year Strategic Plan." Might have included some thinking about an adequate supply of mortgage credit? Not at FHFA, with Bush-holdover James B. Lockhart III the immovable proprietor.

On July 15, Johnnie-on-the-spot FHFA released its monthly self-congratulatory report on foreclosure prevention -- for April. No telling what has happened since, but the relentless rise in 90-day-plus delinquencies had continued across 30 million loans -- 1.05 percent in April '08, 3.03 percent in April '09. Might be worse now, but who would know?

On July 1, FHFA published its advice to underwater households: Refinance up to a new 125 percent LTV limit with shorter, higher-payment loans, that way to pay down to break-even equity sooner. FHFA's nifty chart says with a new 25-year loan you can pay your way to zero equity in only eight years, instead of 11 on a 30-year (I am not making this up). A 15-year loan? Only four super-payment years to no equity! ...CONTINUED

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