Fed’s Brainard for Treasury Secretary?


Federal Reserve Governor Lael Brainard, who started her public career in the 1990s as an economic advisor to President Bill Clinton, is the leading candidate for Treasury secretary if former Vice President Joe Biden usurps President Donald Trump in the Nov. 3 election, according to Bloomberg.

“Democratic presidential nominee Joe Biden’s search for a Treasury secretary is widely seen as focusing on Lael Brainard of the Federal Reserve, a choice that would keep both Wall Street and progressives in line,” the Bloomberg story said on Thursday, citing nine unnamed sources.

“The more provocative choice of Sen. Elizabeth Warren hasn’t been ruled out but is far less likely, and other possible names are being discussed for the top finance job if Biden wins November’s election,” the story said.

If Brainard moves from the central bank’s Washington D.C. headquarters to the Treasury building a mile away, it would put her back in familiar surroundings. She was Treasury’s under secretary for international affairs from 2010 to 2013 and a counselor to Treasury Secretary Tim Geithner in 2009 as he grappled with the financial crisis in the early years of the Obama administration.

Brainard, if Biden chooses her, would be the first woman to lead the Treasury.

“The former vice president wants to make a historic choice for the job that has always been held by a White man,” the Bloomberg story said. “But he also wants a Treasury pick who would be universally accepted and Brainard, a member of the Fed’s Board of Governors, could fit that bill. She wouldn’t upset Wall Street or progressives.”

Brainard was an economics professor at the Massachusetts Institute of Technology’s Sloan School of Management from 1990 to 1996. She received a master’s degree and a doctoral degree in economics in 1989 from Harvard University.

Brainard started her career in the private sector at McKinsey & Co., providing strategic guidance to companies.



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Average U.S. 30-year mortgage rate rises from all-time low


Average mortgage rates for a 30-year fixed mortgage increased slightly to 2.87% this week, the second-lowest on record, rising one basis point from last week’s all-time low of 2.86%, while the less-popular 15-year rate fell to a new low of 2.35%, Freddie Mac said on Thursday.

The 30-year rate has broken records nine times since March because of a Federal Reserve bond-buying program that has poured about $1 trillion into the mortgage markets. The central bank resurrected a program it first used during the financial crisis a dozen years ago to create competition for bonds and cause the yields that influence mortgage rates to shrink.

The Fed issued a statement on Wednesday after the end of a two-day meeting that said it would likely keep its benchmark overnight lending rate near zero through 2023, and would continue purchasing mortgage-backed securities “at least at its current pace” for as long as necessary.

Mortgage lending volume this year is likely to break records as homeowners refinance and new buyers scramble to take advantage of some of the cheapest financing costs history, Fannie Mae said in a forecast on Tuesday.

Originations this year are expected to reach an all-time high of $3.9 trillion, boosted by $2.4 trillion in refinancings, the highest level since 2003 and more than double the volume seen in 2019, the mortgage giant said.

“We continue to believe that a low-rate environment will support refinance demand over the forecast horizon,” Fannie Mae said in the forecast. “At the current interest rate of 2.86%, we estimate that nearly 69% of outstanding first-lien loan balances have at least a half-percentage point incentive to refinance.”

The annual average U.S. rate for a 30-year fixed mortgage will be 3.1% in 2020 and 2.7% in 2021, the forecast said, matching Fannie Mae’s prior monthly projection. Both would be the lowest annual averages on record.



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Mortgage forbearances drop 22% from May peak


There are 3.7 million U.S. homeowners with mortgages in forbearance this week, down 22% from May’s peak of 4.7 million, Black Knight said in a report on Friday.

The total weekly drop was 66,000 loans, a slower pace than the decline of 150,000 in the prior week, the report said. Measured as a share of all mortgages, 7% of home loans are in forbearance, down from 7.1% in the prior week, Black Knight said.

The forbearances rate for mortgages backed by Fannie Mae and Freddie Mac, known as government-sponsored enterprises, is 5% this week, down from 5.1% last week, the report said.

The rate for home loans in Ginnie Mae securities, primarily mortgages backed by the Federal Housing Administration or the Veterans Administration, is 11.3%, down from 11.5%. The forbearance share for mortgages held in bank portfolios or in private-label bonds is 7.4%, down from 7.5%.

“We’re seeing a bifurcation in the numbers, with GSE forbearances lower than the rates for the Ginnie space and the private-label space,” said Walt Schmidt, FTN Financial’s head of mortgage strategy.

The overall number of mortgages in forbearance has dropped as the jobs market gained, Schmidt said.

The unemployment rate in August was 8.4%, the lowest level since March. In April, the rate reached 14.7%, the highest in a Labor Department data series that goes back to 1948.

While the economy has added 10.6 million jobs since April, it’s not even halfway toward replacing the 22.2 million jobs lost between February and March, according to government data.

Most economists are predicting the soft jobs market will persist into 2021. Fannie Mae Chief Economist Doug Duncan forecasts the unemployment rate will average 8.8% in 2020 and 7.1% next year.

The CARES Act passed by Congress at the end of March gave mortgage borrowers the option of suspending their monthly payments for up to 12 months because of the pandemic. Borrowers just have to attest to their mortgage servicer that they have experienced a financial loss because of the health crisis.



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Spike in lumber prices boosts construction costs


The COVID-19 pandemic has caused lumber prices to skyrocket more than 160% since April after a spike in home renovation by cooped-up Americans, according to the National Association of Home Builders.

Higher prices are adding about $16,000 to the cost of a new house, said Robert Dietz, NAHB’s chief economist.

“As people started nesting in response to the pandemic, they started undertaking all sorts of home renovation projects,” Dietz said. “At the same time, sawmills started shutting down and have only partially reopened because of social distancing concerns.”

The lumber industry lost 6,000 jobs as a result of the pandemic, and has gained back – on a net basis – only half of those, he said.

“Growing demand for lumber met insufficient supply, and the result has been escalating prices,” Dietz said.

While the lumber industry has only partially reopened, imports from Canada, which supplies about a third of the lumber used in the U.S., are still being hit with 20% tariffs put in place by President Donald Trump three years ago.

“One thing that would help is if the Trump administration would temporarily suspend tariffs on lumber coming from Canada,” Dietz said.

The U.S. and Canada in 2006 signed a trade pact, the Lumber Softwood Agreement, that expired in 2015 without a replacement.

In 2017, Trump imposed tariffs on Canadian lumber imports as part of his “America First” economic policy aimed at reducing trade deficits. Subsequent tariff hikes were aimed at goods coming from China, South Korea, and other countries.

Trump, a self-proclaimed “tariff man,” has often said the countries manufacturing the goods pay the tariffs, and that American consumers aren’t getting hit with the bill. But, the tariffs are collected by U.S. Customs and Border Protection agents from importers when goods enter the country, who usually pass on the cost to consumers.

Another word for a tariff is a tax. Traditionally, Republicans have been opposed to tariffs, saying they interfere with free trade.

“The cost of getting lumber with that tax, combined, makes it very expensive,” Dietz said.



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Why is the housing market thriving in a pandemic?


The deadliest pandemic in more than a century has failed to derail the housing market because of the lowest mortgage rates ever recorded coupled with a shift in how people use their homes.

“The buyers are coming in because of the low interest rates – that’s the No. 1 reason,” said Lawrence Yun, chief economist of the National Association of Realtors said in an interview with HousingWire. “The secondary demand is coming from the work-at-home phenomenon that has people looking for bigger homes and caring less about commuting time.”

People now see their home not only as a place to live, but as a shelter during a national health crisis, Yun said. It’s also an office and, for families with children, often a part-time school.

Mortgage rates began tumbling in mid-March after the Federal Reserve announced it would buy mortgage bonds and Treasuries to keep credit flowing amid the pandemic. It was similar to a fixed-asset program it created during the financial crisis a dozen years ago.

The average U.S. rate for a 30-year fixed mortgage has been under 3% since late July, as measured weekly by Freddie Mac. When Fed Chairman Jerome Powell announced in March the Fed would purchase bonds, it was 3.65%.

Existing-home sales jumped 25% to a seasonally adjusted annual pace of 5.86 million in July, NAR said in an Aug. 21 report. It was the highest sales level since 2006 and the biggest monthly increase on record. The prior record for a monthly gain was the 21% jump seen in June, according to NAR data.

The supply of homes on the market was the lowest for any July since NAR started tracking the data about five decades ago, Yun said.

In the first months of the pandemic, Yun projected home sales in 2020 would see a 15% decline. After the Fed’s actions began driving down mortgage rates, he changed the estimate to a 7% decline.

Last week, Yun issued his latest monthly forecast that said existing home sales in 2020 likely will total 5.4 million, a gain of 1.1% from last year. Sales of new houses probably will rise 17% to 800,000, Yun said.

“We missed the spring buying season because of the pandemic, but the second half of the year looks quite dazzling,” Yun said.



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Housing cliff meets fiscal cliff with COVID-19 relief delayed


The so-called housing cliff, referring to the expiration of programs in the CARES Act keeping people in their homes, is about to meet the government-funding cliff, as the Sept. 30 end of the federal fiscal year sometimes is called.

White House Chief of Staff Mark Meadows said Wednesday he is not optimistic about reaching a new coronavirus relief deal before the end of September, predicting House Speaker Nancy Pelosi will use the government funding cliff at the end of next month as leverage to strike a deal on pandemic aid,” a Politico story said.

The House of Representatives passed the Heroes Act at the end of May to provide funding to states overwhelmed with pandemic costs, extend the eviction moratorium in the CARES Act, and continue providing jobless Americans with a $600 a week enhancement to unemployment benefits to keep them current on bills such as mortgage and rent.

The Senate ignored the House’s $3 trillion act, proposed a $1 trillion bill of its own that never made it to the floor to be debated because it lacked Republican support, and then went on its August summer vacation without passing anything.

“It’s really been Speaker Pelosi really driving this train as a conductor more so than really anybody,” Meadows told Politico. “And I think privately she says she wants a deal and publicly she says she wants a deal, but when it comes to dealing with Republicans and the administration, we haven’t seen a lot of action.”

President Donald Trump signed an executive order and three memorandums in a ballroom of the Trump National Golf Club in Bedminster, New Jersey, on Aug. 8 that he said would give Americans the help that Congress had failed to provide.

But, the executive order he signed, touted as an extension of the eviction moratorium in the CARES Act that expired in July, only directed various federal departments and agencies to “consider” and “review” ways to keep renters in homes using existing government programs.

Another directive the president signed would provide a $300 a week extra payment for people receiving unemployment benefits – originally, it was $400 with the requirement that states kick in $100, but that provision was later walked back. The money is coming from a Federal Emergency Management Agency fund intended for hurricane relief.

FEMA has approved about 35 states to offer the “lost wages assistance” that amount to half the $600 a week aid in the CARES Act that expired July 31. Fewer than half a dozen states have completed the rejiggering to their benefits systems required so they can send the checks from the FEMA fund.

Pelosi has said the way to reach a compromise between the House’s $3 trillion bill and the Senate’s $1 trillion proposal is to split the difference: Pass a $2 trillion bill. At a press conference on Thursday, she said the Senate’s proposal lacked enough funds for schools dealing with the pandemic, housing, and other needed aid.

“We have said to them, `We’re willing to meet you in the middle.’” Pelosi said. “We have a pandemic, and they’re coming in with an eyedropper.”



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GSE risk-fee rush, then delay, reveals election pressure


The last two times Fannie Mae and Freddie Mac instituted an adverse-market fee to compensate for a riskier lending environment, during the run-up to the financial crisis more than a dozen years ago, lenders got plenty of warning.

The announcements came more than two months before the implementation dates, giving mortgage brokers and loan officers lots of time to adjust their pricing. Back then, the first fee was a quarter of a percentage point, and a few months later it was doubled as the economic threat became clearer.

This time, the initial announcement gave lenders less than two weeks. That wasn’t enough time to change the pricing for loans that were already locked, meaning some lenders would be paying the fee themselves instead of passing it on to consumers, resulting in millions of dollars in unexpected costs.

Then, on Tuesday, a second announcement came: The Federal Housing Finance Agency said it was postponing the implementation of the fee to Dec. 1. Some lenders will have to reverse the extra cost out of deals that aren’t already locked. For some borrowers, it’s just too late. The average cost for consumers is $1,400, according to the Mortgage Bankers Association.

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Fed purchases of agency MBS total $892 billion


Five months after restarting a bond-buying program last used in the financial crisis, the Federal Reserve has purchased about $892 billion of agency mortgage-backed securities, according to a Fed blog post on Thursday.

The asset-buying has helped to drive mortgage financing costs to the lowest level ever recorded, with the average U.S. 30-year fixed rate hitting new lows eight times so far in 2020, according to weekly data from Freddie Mac. When there is competition for mortgage bonds, investors have to take smaller yields, which translates into lower interest rates for consumers.

Mortgage rates dropped to an all-time low of 2.88% in the first week of August, according to Freddie Mac. The rate has inched up since then, reaching 2.99% this week as investors worried about a protracted recession following a worsening of the COVID-19 pandemic.

In mid-March, when the Fed began buying bonds, the 30-year fixed rate as measured by Freddie Mac was 3.65%.

The Fed bought about twice as many Treasuries as MBS, according to the blog post’s tally. Cumulative purchases of Treasuries between March 13 and July 31, the same period used for the MBS total, amounted to $1.77 trillion. Treasury yields are used as benchmarks for MBS investors, so those purchases would have put downward pressure on home-loan rates, as well.

In March, the markets for Treasuries and agency MBS became “severely impaired” as investors reacted to the onset of the pandemic in the U.S., Lorie Logan, a Federal Reserve Bank of New York vice president, said in a July speech cited in Thursday’s blog post. If the Fed hadn’t responded “quickly and decisively” the credit markets would have seized up, she said.

“Given the importance of these markets, continued dysfunction would have led to an even deeper and broader seizing up of credit markets and ultimately worsened the financial hardships that many Americans have been experiencing as a result of the pandemic,” Logan said.

At the Fed’s June meeting of the rate-setting Federal Open Market Committee, policymakers committed to continuing the purchases at a level of about $80 billion per month in Treasuries and about $40 billion per month, net of reinvestments, in MBS.

“Although market functioning has improved markedly since the period of extreme stress in mid-March, uncertainty about the course of the pandemic makes it prudent to protect against further shocks,” Logan said. “Purchases over coming months will help mitigate risks of renewed stress and sustain continued smooth market functioning.”



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Fannie, Freddie fee hike may become an election issue


Fannie Mae and Freddie Mac, the two largest mortgage financiers in the world, on Wednesday night announced they would impose a 0.5% fee on every refinanced mortgage starting Sept. 1. Look for it to become an issue in the campaign.

The new fee “exposes President Trump to charges that he is trying to tax housing at the height of the economic crisis,” said Jaret Seiberg, managing director of Cowen Group, a Washington D.C. research firm. “That is a political liability for the president. We expect Democrats will exploit this.”

For borrowers refinancing their mortgages, the new fee probably will cost them about $1,400 per loan, according to the Mortgage Bankers Association. That’s money that could have gone toward bolstering the economy in the form of consumer spending, which accounts for about 70% of the nation’s GDP.

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Average U.S. mortgage rates rise from record low


Average U.S. mortgage rates for a 30-year fixed rose to 2.96% this week from an all-time low of 2.88%, Freddie Mac said in a report on Thursday.

The average 15-year rate rose to 2.46% from 2.44% last week, according to the mortgage financier.

“Even with this week’s uptick, very low rates are providing a significant boost to the housing market that continues to hold up well during this time of uncertainty,” said Sam Khater, Freddie Mac’s chief economist.

Mortgage rates have tumbled during the COVID-19 pandemic, bolstered by Federal Reserve purchases of Treasuries and mortgage-backed securities.

U.S. existing-home sales rose 21% in June, the biggest monthly gain on record, and the median home price rose 3.5% from a year ago, the National Association of Realtors said in a July 22 report.

Cheaper interest rates are making more Americans eligible to purchase a home because lenders qualify applicants by comparing monthly mortgage payments to income. When financing costs go down the payment shrinks. That also means borrowers find they qualify for larger mortgages, which means they can pay more for a property they want.

“Homebuyer demand remains strong, especially for those in search of an entry-level home where the improvement in affordability via lower mortgage rates has a material impact,” said Khater.

Rates are expected to remain low through 2021 as the U.S. struggles with the economic fallout from the pandemic, according to a forecast from Fannie Mae.

The average 30-year fixed rate likely will be 3.2% this year and fall to 2.8% in 2021, the mortgage giant said in a forecast last month. In 2019, the average rate was 3.9%.



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