Wells Fargo closes 704,000 loan mods over past two years

In the past two years, Wells Fargo (WFC: 24.20 -4.08%) offered more than 4.4 million homeowners new low-rate loans and did more than 704,000 loan modifications for mortgages in its servicing portfolio, the bank said this week.

About 85% of its loan modifications were completed through Wells Fargo programs, while 105,404 modifications were handled through the government's Home Affordable Modification Program.

As of the second quarter, 93% of home loans in the company's servicing portfolio were current on payments. Fewer than 2% of owner-occupied loans in the  servicing portfolio proceeded to foreclosure sale in the past year.

During July, 404,000 distressed borrowers received some type of counseling, with 10.9 million borrowers underwater, or owing more than the property is worth, nationwide, according to the Obama administration's August housing scorecard.

The government cited statistics showing prime mortgages with a delinquency rate of 4.5%, compared to 33.2% among subprime loans and 12.2% for FHA loans. About 3.65 million existing homes were on the sales block in July.

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Bernanke Faces Greater Scrutiny After Republican Election Gains

This is something to be followed.  The Fed was trying to push interest/mortgage ever downward.  The GOP may stop these plans and rates may float again with supply and demand which probably means higher rates.

“There’s certainly going to be more hearings and more pressure,” said Mark Calabria, a former Republican Senate Banking Committee aide who is now director of financial- regulation studies at the Cato Institute, a policy research group in Washington that favors free markets.

One new Fed opponent in Congress is Kentucky Senator-elect Rand Paul, who has criticized the Fed for imposing “the sneakiest tax of all -- inflation.” He joins South Carolina’s Jim DeMint, an advocate for Tea Party candidates who backed an unsuccessful bill to subject the Fed’s monetary policy to congressional audits.

 A lot of politicians were critical of bailout and loans to AIG, Fannie Mae, and Freddie Mac.

Bernanke argued that audits of monetary policy would compromise the independence of the central bank. A letter he sent to DeMint in May warned that audits would “seriously threaten monetary policy independence, increase inflation fears and market interest rates, and damage economic stability and job creation.”

Darrell Issa, who would take over as the chairman of the House Oversight and Government Reform Committee and be the Republican’s chief inquisitor of administration, already has the Fed in his sights. This year, he’s pressed the central bank for documents related to the AIG rescue and demanded Bernanke explain his role in authorizing payments to the insurer’s counterparties, calling him an “unindicted co-conspirator” in the bailout.

Scrutiny of the central bank will continue, Issa pledged in an interview last month, saying that Congress must “look in- depth behind the curtain, rather than simply have the Fed chairman come up and lecture us.”

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Dollar Depreciation and the Higher Cost of Living

This leads to higher mortgage costs which will put pressure on housing prices.

In turn, dollar-denominated commodities have surged. Since August 27, when Bernanke first suggested that the Fed might consider another round of QE at his Jackson Hole speech, the price of gold has jumped 9%; the price of copper is up 12%; the price of crude oil has increased by $7.49; and soft commodities like wheat, cotton and corn have all shot higher.

Strategists like Gluskin Sheff's David Rosenberg have questioned what this currency debasement will now mean for your friends and neighbors. Rosenberg recently argued that, with oil back over $80 per barrel and US gasoline prices at the pump heading back above $3 per gallon, we will come to think of this dollar depreciation as a source of restraint for the consumer.

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Harvard Professor to Fed you can't grow the economy by printing money

If it was that easy wouldn't we print money every year to grow the economy?  What people like him are worried by printing money the Fed will cause inflation with high unemployment, like in the 1970's.  This means higher mortgage rates and pressure on home prices.

More Fed purchases of financial assets is "good for the bank," says Jeffrey Miron, a Harvard economics professor and a senior fellow at the Cato Institute. "But I don't see it having a very big affect in tricking down in terms of getting more investment, more lending."

And criticism on the Obama Administration

Policy Missteps: Like many conservatives, Miron believes the Obama administration is more focused on "redistributing the pie" vs. growing the pie. "You never hear ‘we need to do things like keep tax rates on capital income low,' and other incentives to keep people productive," he says. "That's part of what the private sector is missing and why we're not going to see growth for a while."

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Will the Fed cause higher interest/mortgage rates?

Generally, when interest rates increase, so do mortgage rates.

The Federal Reserve is planning to purchase more bonds and mortgages on November 3rd.  They do this by printing money and this can lead to interest rates.

Higher rates could lead to a host of problems, like making business and consumer loans more expensive. And it would hurt the value of the Fed's huge asset holdings.

"When the Fed buys long-term government debt from the private market, it shifts interest rate risk from bondholders to taxpayers," Minneapolis Fed President Narayana Kocherlakota warned last week.

 And why interest rate will increase...inflation.

So lowering rates feeds the risk of inflation down the road without solving the problem today.

"We are following policies that unless changed will eventually lead to lots of inflation down the road," said Warren Buffett at Fortune's Most Powerful Women Summit Tuesday. "We have started down a path you don't want to go down

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It's time for mortgage rates to rise: Housing Wire

 This is completely opposite of what I posted a few minutes ago.  Where the Fed wants to lower interest and mortgage rates. 

 Additionally, keeping rates low may keep housing more affordable, but it's clearly to the detriment to the private-label secondary market.

Consistently maintaining low costs to the borrower is not encouraging home sales, as an article in USA Today notes. But keeping mortgage rates low does reduce any chance of profitability in the RMBS market.

Further, Dodd-Frank prohibits pre-payment penalties. However, these penalties serve as a risk hedge in private label RMBS. Pinto also suggested that these fees should be reinstated to help ensure the 30-year mortgages take 30-years to amortize

Basically, he saying that mortgages rate are below ability to private industry to make money. by reselling the loans.  In addition, Federal government through FHA and GSE are the mortgage the market. 

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Will the Fed try to lower interest/mortgage rates in November?

It's call qualitative easing, and it's nicknamed QE2 and this would take place maybe on November 3rd (after election day).  The Fed is running out a ways to simulate the economy and this might be considered a risk way of doing it.

Basically, you are printing money to purchase US Treasuries to lower interest rates.  However, if you do it wrong you can trigger inflation or really stagflation.  It would be similar to the 1970's of high unemployment and high interest rates.

Exit Question: Are people really going to purchase homes when inflation kicks in?  Will there be as many households to support a recover?  What will the impact be with home owners with ARMs and Option ARMs?

It's not light reading, but here is the article.

Survey show Fed to keep Interest rates low

From Bloomberg

By a 59-4 count, economists expect the Fed to leave unchanged at 0.25 percent the interest rate it pays on banks’ reserve deposits with the central bank.

Home owners with HELOC's and ARMs get another breather, for a while.  Also Fed is planning maintain the current of assets, bascially the Fed is trying to keep interest rates low to spur the economy.

Bernanke, in an Aug. 27 speech in Jackson Hole, Wyoming, said the “preconditions” for higher 2011 growth are “in place.”

At the same time, he outlined the pros and cons of three policy tools to boost growth if the outlook worsens: asset purchases, changes to the low-rate pledge and reducing the rate on reserve deposits. A possible downside of asset purchases is reduced public confidence, “even if unjustified,” in the Fed’s ability to exit from its unprecedented expansion of credit.

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More possible FOMC involvement in the housing market

One member objected and said making the change could complicate the Fed's eventual exit from its period of aggressive credit easing, which began more than two years ago as the country plunged into a deep recession.

Here