Economy Watch: Home Starts Hit New Lows
Single-family home starts saw a big drop in December; the FDIC chairman calls for a foreclosure claims commission; and the SEC begins to implement Dodd-Frank.
By Dees Stribling, Contributing Editor
U.S. home starts dropped in December by 4.3 percent to an annualized rate of 529,000 units, according to the U.S. Department of Commerce on Wednesday. Most of the drop was in the single-family sector, which saw a 9 percent decline in starts.
Building permits were up, however: 16.7 percent in December, to an annualized rate of 635,000 units. During December 2009, the annualized permitting rate was 681,000 units.
Does the spike in permits bode well for the industry, since it’s a leading indicator? Maybe. But at least some of the demand for permits was to beat pending changes in state building codes that took effect on Jan. 1. California in particular saw a significant change at the beginning of this year with the implementation of the new California Residential Code. Among other things, the new code mandates fire sprinklers for all new houses.
Bair proposes foreclosure claims commission
Sheila Bair, chairman of the Federal Deposit Insurance Corp., popped up in the news again for a couple of proposals she made regarding mortgages. One was to swat down a suggestion kicking around the lending industry that 30 percent be the new standard for mortgage down payments, rather than the longstanding 20 percent. Such a sales-killing idea probably doesn’t have all that much traction, but nevertheless Bair said on Fox Business Network that the 20 percent standard has “worked really well” for decades and should not be jettisoned.
Separately, the FDIC chairman called for the creation of a claims commission, funded by the lending industry, to compensate consumers harmed by mistakes in the foreclosure process. “We need to provide remedies for borrowers harmed by past practices,” Bair said in speech at a Mortgage Bankers Association’s Summit on Residential Mortgage Servicing for the 21st Century on Wednesday.
“The fact is, every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them–and the rest of us–even more,” she asserted. “A foreclosure claims commission, modeled on the BP or 9/11 claims commissions, could be set up and funded by servicers to address complaints of homeowners who have wrongly suffered foreclosure through servicer errors.”
SEC mulls new securitization rules
Reuters reported on Wednesday that the Securities and Exchange Commission is poised to adopt new rules, as mandated by the Dodd-Frank financial industrial reform law passed last year, to require more disclosure about what exactly underpins an asset-backed security. A little more transparency among bundled mortgages, say, would be a good thing, the thinking goes.
Among other things, this draft of the rules now includes a minimum standard requiring “issuers to do an appropriate and reasonable review to ensure information is accurate,” the report says, citing anonymous sources. An earlier draft of the rules had not provided for minimum standards.
Wall Street retreated on Wednesday, with the Dow Jones Industrial Average dropping 12.64 points, or 0.11 percent. The S&P 500 lost 1.01 percent and the Nasdaq declined 1.46 percent.