Interest Rate Roundup

Wednesday, September 17, 2008

Housing starts tank ... AIG gets bailed ... mortgage apps soar

When it rains, it pours. And this week, it's like a monsoon out there. So much is going on, I'm struggling to keep up. So let me try to digest the biggest developments as I see them now ...

* Housing starts plunged another 6.2% in August, falling to 895,000 from 954,000 in July. That was far below the average forecast of 950,000 and the lowest level since January 1991. Single-family starts were down 1.9%, while multi-family starts tanked 15.1%. Starts overall are down 33.1% YOY.

Building permit issuance also fell sharply, by 8.9% to 854,000 units at a seasonally adjusted annual rate from 937,000. That too was below expectations for a reading of 927,000. Single family permits were off 5.1%, while multifamily permits were down 15%. Permit issuance is off 36.4% from a year earlier.

* American International Group -- AIG -- got its bailout after all. A quick recap from the New York Times on the deal:

"Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.

"The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

"With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.

"What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe."

* Mortgage applications are surging as rates come down. The strength is largely in refinance loan apps. They jumped 88% in the week ended September 12. The purchase index, by comparison, rose just 2.4%.

1 Comments:

  • Mike,

    I think a lot of the surge in loan applications is that the borrowers are applying to several companies because they are having trouble getting approved for a loan.

    The question is how many are closing???

    By Anonymous RU Kidding Me, at September 17, 2008 at 3:59 PM  

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