Five Things You Need to Know: Fannie Mae Tightening Credit Standards?
It's somehow fitting Fannie Mae is headed back from whence it came - to full taxpayer ownership.
Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. New Home Sales Decline, As Expected
Sales of new homes fell 1.8% in February, the Commerce Department reported. The headlines noted that this brings new home sales to their lowest level in 13 years, but the report was basically in-line with expectations. Given sales are down almost 30% year-over-year, one can imagine just how grim expectations were to begin with.
Still, as with yesterday's Existing-Home Sales report, the real gory details were to be found in the median pricing data. Prices declined 2.7% year-over-year. As well, supply remains heavy with 9.8 months' worth represented at the current pace of sales. That's the largest supply of homes since 1981 for those keeping track at, er, home.
On a related note, check out this David Leonhardt piece in the New York Times on homeowners' reluctance to lower prices. "For both economic and psychological reasons, there is no asset more conducive to hopeful overvaluation,' he writes. "That means real estate slumps tend to grind on for years, until sellers submit to reality and reduce their prices. This week's batch of economic reports suggest that the adjustment is finally starting to happen."
2. Durable Goods Decline
Orders for durable goods – expensive items such as dishwashers, cars and airplanes – fell 1.7% in February, an unexpectedly sharp decrease. Even more ominous, orders for nondefense capital goods excluding aircraft (what economists follow to track capital spending) fell more than expected, down a whopping 2.8%, that after falling 1.8% in January.
Bottom line: the data makes it increasingly difficult to deny we are in recession.
3. Clear Channel Deal Near Collapse
Yesterday after the close The Wall Street Journal reported that the planned $19 billion privatization of the largest radio broadcast company in the U.S., Clear Channel Communications (CCU) is on the brink of collapse due to... anyone?... anyone?... the financing terms of the deal, the latest casualty of ongoing credit market issues.
According to the Journal, the deal by Thomas H. Lee Partners LP and Bain Capital Partners LLC to acquire Clear Channel for $19.4 billion - and take on $7.8 billion of its debt - is souring as the talks between the private equity firms and the banks financing the deal reach a standstill.
The banks involved include Citigroup (C), Morgan Stanley (MS), Deutsche Bank (DB), Credit Suisse Group, Royal Bank of Scotland PLC and Wachovia (WB).
"Right now, there is no credit agreement. And without a credit agreement, we have no deal," the Journal reported one person close to the deal said.
4. Fannie Tightening Credit Standards?
Perhaps Fannie Mae (FNM) hasn't been listening. How else to explain the fact the company which, as Bloomberg notes, "was created by Congress to expand homeownership by increasing mortgage financing," has actually tightened certain credit standards?
According to Bloomberg, Fannie Mae will no longer allow homeowners to refinance loans it either owns or has packaged into bonds at typical loan-to-value ratios in areas with falling home prices if they're going to use proceeds to pay off a second mortgage.
Essentially, Fannie is tightening an exception to a policy reinstated four months ago that requires lenders to boost by five percentage points the required size of down payments
or borrower equity on new lending, according to Bloomberg.
We think Fannie Mae is underestimating the risk of foreclosures and delinquencies in the portfolio of mortgages the company guarantees. In fact, by tightening the lending standards for these types of loans they are basically guaranteeing they are underestimating them.
Regardless, this company was created at the tail-end of the Great Depression as a government agency. It was privatized in 1968. Now, 40 years later, amid the worst housing crisis since, yes, the Great Depression, it's only somehow fitting that the company is headed back from whence it came - to full taxpayer ownership.
5. Good News, More Jobs!
The good news is at least one financial institution isn't laying off workers, it's looking to hire new workers. The bad news is the workers are being hired to handle an expected wave of bank failures.
The Federal Deposit Insurance Corp. (FDIC) wants to add 140 workers to bring up staff levels in the division that handles bank failures, according to the Associated Press. There have been just five bank failures since February 2007, the article noted. By comparison, during the last deep recession, 1990-91, there were 502 bank failures.
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