Economy Watch: President Unveils New Mortgage Program, Chides Congress

As expected, President Obama introduced a change in federal mortgage policy on Monday. Insurance regulators in Arizona seized the main subsidiary of mortgage insurer PMI Group Inc. And the Chicago Fed said its National Activity Index rose in September.

October 25, 2011
By Dees Stribling, Contributing Editor

As expected, President Obama introduced a change in federal mortgage policy on Monday, which serves a double purpose of offering help to underwater-mortgage-holders, as well as being a salvo across the bow of Congress. That first shot, against the House especially, shows that he will be running against that body in the upcoming election as much he will face off against any official Republican nominee. Speaking in Las Vegas, the president said that the Federal Housing Finance Agency “is announcing a series of steps to help responsible homeowners refinance and take advantage of these low mortgage rates.” (He also called Congress “increasingly dysfunctional.”)

Among other things, the FHFA is being directed to lower fees on refinancing Fannie- or Freddie-associated mortgages, and to get rid of rules that barred homeowners who owed more than 125 percent of the homes’ current value from refinancing. That would include a lot of people in the metro Las Vegas area, for example.

How many homeowners will be able to take advantage of the new rules? The administration says “millions.” Other estimates put the total at a million or so, which would indeed be more than the roughly 800,000 who have been able to refinance or modify their mortgages under programs created in 2009, but still only a fraction of all of the underwater homeowners. Last month, CoreLogic put that number at 10.9 million, or 22.5 percent of the nation’s mortgage borrowers.

Mortgage Insurance Company Seized by Arizona

Less noticed than the president’s maneuvering, but also at the core of the mortgage malaise, insurance regulators in Arizona seized the main subsidiary of mortgage insurer PMI Group Inc., PMI Mortgage Insurance Co., over the weekend. Beginning on Monday, the company will be paying 50 percent of claims, with the rest deferred.

PMI Mortgage Insurance dealt in the kind of private insurance that borrowers who borrow more than 80 percent of a home’s value are generally required to take out (to protect the lender, not the homeowner). In case of default, the insurer reimburses the lender, a system that works reasonably well in more normal times — something the housing and mortgage markets haven’t seen since those long-ago times before 2007. PMI had been paying roughly $1.5 billion in claims a year, much of it to major mortgage investors that include the GSEs and Wells Fargo & Co., and the company recently ended its second quarter with a policyholders’ position well below the minimum required by Arizona law.

The company’s problems hint at more trouble in the private mortgage insurance business due to fallout from the housing crisis. A number of other mortgage insurance companies have stopped selling new policies since the beginning of the crisis, while others, including the largest mortgage insurance company — MGIC Investment Corp. — is only selling policies because waivers from Fannie Mae and state regulators allow it for now.

Chicago Fed Activity Index Improves in September

The Federal Reserve Bank of Chicago said on Monday that its National Activity Index gained ground in September to -0.22 after slumping in August to -0.59. The less volatile three-month moving average rose to -0.21 from -0.28 during September. The reading still means that the economy is growing below historic trend, just not as much below.

Leading growth in September were increases in industrial production, manufacturing production and manufacturing capacity utilization, according to the Chicago Fed. Employment-related indicators were slightly positive, but housing remained negative at -0.30.

Wall Street started the week on Monday in a chipper mood, with the Dow Jones Industrial Average gaining 104.83 points, or 0.89 percent, while the S&P 500 rose 0.3 percent. Nasdaq gained a whopping 2.35 percent, despite Netflix taking a sound stock-price beating for a poor quarterly report in the wake of some ham-fisted moves. The S&P 500 now remains the only major index lower than where it started 2011.