Mortgage Lending Overly Tight
In the fall of 2012, Federal Reserve Chairman Ben Bernanke said that mortgage
lending standards appeared to be “overly tight.” A new survey of officers
released by the Federal Reserve on Monday showed banks remain unwilling to
loosen mortgage standards. Bernanke said surveys show that lenders began
tightening mortgage credit standards in 2007 and standards have not seen any
significant easing, since that time. Housing recovery has been driven by cash
buyers and investors. For the housing recovery to continue, potential buyers
need access to mortgages.An important factor restraining residential real estate
loans as reported by a large majority of loan officers, “risk-adjusted
profitability of the residential mortgage business relative to other possible
uses of funds”. Risk that insurers and mortgage buyers would force banks to buy
back bad loans, added to the retrained lending factor. Smaller banks are
indicating the unlikelihood of booking a mortgage loan with a FICO score of 620,
depending on the down payment. Potential buyers with a FICO score of 720 and a
20% down payment had more chance for an approved mortgage application. Mortgages
insured by the Federal Housing Administration with FICO scores of 580 or 620
have slim chance of approval. the Fed said.
Allegations that Bank of America (BAC) and Wells Fargo (WFC) violated terms of a
mortgage settlement signed last year, is resulting in a $26 billion National
Mortgage Settlement in a law suit from New York State. Reportedly, office of New
York Attorney General Eric Schneiderman documented 210 violations of the new
rules by Wells Fargo and 129 violations of the new rules by Bank of America. The
suit is between state attorneys general and five banks including a new set of
mortgage servicing standards for dealing with underwater homeowners.
The Conference Board reported on Monday that employment trends index edged up
0.1% to 111.68 in April as five of its eight components saw an increase. Despite
weak economic activity, the employment trends index is still signaling moderate
job growth in the coming months," said Gad Levanon, director of macroeconomic
research at the Conference Board, in a statement.
Shares of First Solar (FSLR) - developer of solar farms for power companies -
were higher by 4% during aftermarket trading session on Monday after reporting
Q1 earnings. First Solar reported sales above consensus at $30 million; profit
for Q1 of $59.1 million or 66 cents a share; an increase in sales by 52% to $755
million and backed its 2013 financial forecast.
Overall market action on Monday was sluggish. While the S&P 500 ended the
session at another record close above 1600, Dow Jones Industrial Average was
lower by little over 5 points and NASDAQ tacked on a gains of 14 points.
Investors appear to be a bit squeamish here, as the potential for a sell off
appears to be, imminent. The question is, when will the correction take effect
and, just how much of the recent gains will be cashed in.
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May 6, 2013