Buying Wachovia was strategically astute but financially messy “TOGETHER we’ll go far.” Wells Fargo’s corporate slogan is a pledge to its customers, but it might just as well reflect the San Francisco banking giant’s optimism about its takeover of Wachovia, a teetering rival it snatched from under Citigroup’s nose last October. Losses from the acquisition are “still in the same zip code” as the sum envisaged at the time, says John Stumpf, Wells’s chief executive. In another sign of self-confidence, Kovacevich will step down as chairman at the end of the year, a move that would be hard to imagine if the bank’s hands-on former boss were worried about the future. Others are less convinced, suspecting Wells of understating Wachovia’s loan losses and questioning its accounting. Fuelling these worries, says Bove of Rochdale Securities, is “extraordinarily poor” communications and disclosure. Alone among big banks, Wells does not hold a quarterly call for analysts. ...

The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said. The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.

Existing Home Sales totaled 5.1mm annualized, 250k less than expected and down from 5.24mm in July. The chief economist placed some blame for the shortfall in closings relative to expectations on “rising numbers of contracts entering the system, with some fallouts and a backlog contributing to a longer closing process.” The NAR said 30% of buyers were 1st time, where many took advantage of the tax credit, and 31% of sales were distressed. The median price fell 12.5% y/o/y and 2.1% m/o/m. The positive within the data was months supply which fell to 8.5 from 9.3 and is the lowest since Apr ‘07. The two key hurdles the industry must now face is an inevitable increase in foreclosures as many 1st half moratoriums have come to an end and the uncertain destiny of the tax credit which the industry is certainly begging but has become an expensive subsidy from the rest of us.

Leaders from Group of 20 countries will meet for the third time in less than a year this week in Pittsburgh to address the global crisis. The world economy and financial markets are finally showing signs of emerging from the worst slump since World War II, but the leaders are expected to vow to resist complacency and maintain measures to support growth, while starting to formulate exit strategies. In addition, deals still have to be hammered out on curtailing excessive bank compensation practices, raising bank capital standards and reforming international financial institutions. Here’s a progress report on major pledges G-20 leaders made in April when they last met in London: Fiscal stimulus to restore growth: The G-20 countries are pumping a lot of government spending into their economies. Discretionary stimulus is estimated at 2% of gross domestic product this year and 1.6% in 2010, according to the International Monetary Fund. The focus now is how and when to pull back on spending. Central banks to maintain expansionary policies, but debating when to phase out emergency programs: Many central banks are holding steady as they evaluate the strength of the recovery. The U.S. Federal Reserve has kept rates at a record-low near zero, but it’s gradually reining in a major Treasury-purchase program. The Bank of England’s policy-setting panel is also holding pat. After increasing the size of its bond-buying program in August, the BOE this month kept the bond program and its key interest rate unchanged. The European Central Bank this month also left its rate policy in tact. Repair financial sectors: While some government rescue measures have proven successful, others - such as those designed to help banks grapple with the toxic assets - have drawn little interest. In the U.S. the “stress tests” regulators conducted on large banks helped boost confidence. Moves in the U.S. and Europe last fall to inject cash into banks have been credited with helping to stem the crisis. Still...

Posted By: Before you build something, you get an architect. House, school, office building, apartment building, whatever, and that's why I find the Architectural Billings Index, from the American Institute of Architects, so very interesting. This index measures billings from AIA member-owned firms and reflects the approximate nine to twelve month lag time between billings and construction spending. Topics: | | Sectors: | MEDIA:

NEW YORK (Reuters) - Nearly one in five prospective first-time U.S. home buyers said a possible extension of an $8,000 tax credit would be the primary influence on their decision to purchase a home before the end of 2010, according to a survey by a real estate website.

So how can the Dow Jones Industrial Average be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they’re worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save. Even more curious, how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed “takeover” of health care, autos, housing, energy, and finance? Their anguished cries of “socialism” are almost drowning out all their cheering over the surging Dow. The explanation is simple. The great consumer retreat from the market is being offset by government’s advance into the market. Consumer debt is way down from its peak in 2006; government debt is way up. Consumer spending is down, government spending is up. Why have new housing starts begun? Because the Fed is buying up Fannie and Freddie’s paper, and government-owned Fannie and Freddie are now just about the only mortgage games remaining in play. Why are health care stocks booming? Because the government is about to expand coverage to tens of millions more Americans, and the White House has assured Big Pharma and health insurers that their profits will soar. Why are auto sales up? Because the cash-for-clunkers program has been subsidizing new car sales. Why is the financial sector surging? Because the Fed is keeping interest rates near zero, and the rest of the government is still guaranteeing any bank too big to fail will be bailed out. Why are federal contractors doing so well? Because the stimulus has kicked in. In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression...

submits: Just saw about a downgrade of a recent Re-REMIC issue by Standard & Poor’s. Re-REMIC’s are repackaged mortgage-backed securities of a supposedly more secure pedigree as they were to have been constructed of securities identified to be of better quality and thus less likely to default. Now, just 4 months after the issue of these securities, S&P has downgraded them citing “significant deterioration in the performance of the loans backing the underlying certificate” and referring to said deterioration as “severe”. How in the world are these ratings guys staying employed? More importantly, how in the world are the investment bankers finding buyers for these issues?

WASHINGTON (Reuters) - The number of mass layoffs by U.S. employers rose by 533 in August from July, with the manufacturing sector the hardest hit, Labor Department data showed on Wednesday.

The global financial crisis is likely to leave long-lasting scars on the world economy, but governments can act to stimulate a quicker revival and counter output losses, according to a new IMF study.

Statement Regarding Purchases of Agency Mortgage-Backed Securities and Agency Debt

“There’s going to be a flood of bank-owned homes listed for sale at some point.” -John Burns, a real-estate consultant based in Irvine, Calif. > Yes, there certainly will be. Burns estimates there will be a “large numbers of foreclosures” that will drive home prices down 6% next year. Analyst Ivy Zelman pegs the number of coming foreclosures at three million to four million homes over the next few years. All of the voluntary foreclosure moratoriums have slowed “the flow of properties headed toward foreclosure sales” regardless of deep in distress borrowers are. These delays only work to prolong the mortgage crisis and prevent prices from falling to more natural levels. Thus, it creates a “growing ’shadow’ inventory of pent-up supply that will eventually hit the market.” Here’s the excerpt from the : “The size of this shadow inventory is a source of concern and debate among real-estate agents and analysts who worry that when the supply is unleashed, it could interrupt the budding housing recovery and ignite a new wave of stress in the housing market . . . Analysts who track the shadow market have focused primarily on the gap between the number of seriously delinquent loans and the number of foreclosed homes for sale by mortgage companies. A loan is considered seriously delinquent, which typically means it is headed to foreclosure, if it is 90 days or more past due. As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages. Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure...

From Ruth Simon and James Hagerty at the WSJ: ... Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. ... some analysts believe the delays are ... creating a growing "shadow" inventory of pent-up supply that will eventually hit the market. ... Ivy Zelman ... believes three million to four million foreclosed homes will be put up for sale in the next few years. The question is whether the flow of these homes onto the market will resemble "a fire hose or a garden hose or a drip," she says. ... "We are going to see a spike from now to the end of the year in foreclosures as we take people out of the running" for a loan modification or other alternatives, says a Bank of America Corp. spokeswoman. Foreclosure sales had dropped to "abnormally low" levels in response to government efforts to stem foreclosures, she adds. The foreclosures are coming. How many and when is the question. But based on the comments from the BofA spokeswoman, it sounds like foreclosures will "spike" in Q4.

Fannie Mae continually reviews its risk appetite, eligibility requirements, mortgage insurance options, and pricing. As a result of the most recent review, Fannie Mae will implement a number of changes, including Desktop Underwriter® (DU®) Version 8.0, changes to credit score requirements, and mortgage insurance coverage levels.

Back in April, we mentioned the of MERS — the Mortgage Electronic Registration Systems. MERS is the firm that (technically) holds 60 million US (securtitized) mortgages on behalf of the actual buyers. They were created by a consortium of lenders in part to save money (on paperwork and recording fees) every time a loan changes owners. In the era of securitization, these savings amounted to billions of dollars. But MERS also acts as a shield, making it all but impossible for many borrowers to deal directly with whoever happens to be holding their mortgage at the moment. As the , it has “made life maddeningly difficult for some troubled homeowners.” Now, the Kansas Court of Appeals has called foul. In , 2009 Kan. LEXIS 834, the Kansas Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. (Other than , I have yet to see any MSM coverage of the issue). The Court stated that MERS’ relationship is not that of a true party possessing all the rights given a buyer. Hence, the court ruled: “By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose , unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust .” (emphasis added). What does this mean for the 60 million people...

Federal Reserve officials are trying to resolve a key concern as they conclude a two-day policy meeting today: How does the central bank scale back its involvement in the market for mortgage-backed securities without disrupting a recovering housing sector? The Fed is likely to complete its full announced purchase of $1.45 trillion in mortgage-backed securities and debt issued by Fannie Mae and Freddie Mac, despite a minority view among policymakers that the full amount might not be necessary. And it’s likely to taper the final purchases, stretching them past the end of the year to allow a more orderly pullback — rather than a sudden withdrawal — after serving as the buyer for more than four-fifths of new mortgage-backed securities. When it will do both of those is less clear. Announcing a tapering in this afternoon’s statement, after the Federal Open Market Committee meeting, would indicate that Fed officials want to give markets more notice to evaluate the central bank’s eventual withdrawal (and give the Fed more time to evaluate the market reaction). But it could also surprise some traders who expected the Fed to wait until the November meeting, when the housing market and overall economy are likely to have stabilized even more. The Fed embarked on the program over the past year in order to lower mortgage rates, spur more housing activity and in turn help stabilize the overall economy. It achieved those goals by bringing activity to a market that was barely functioning. Still, some policymakers have voiced concerns about the Fed’s support for a particular sector of the economy. Others now worry about the implications of the central bank’s overpowering force crowding out private activity. Now, they must decide how to pull back the Fed’s heavy hand — and replace it with private investors — without derailing the housing recovery. Fed officials expect some increase in mortgage yields when they reinforce that the central bank will no longer be the major buyer of mortgage...

NEW YORK (Reuters) - Wells Fargo & Co said on Tuesday former Chief Executive Kovacevich will retire as chairman on January 1 and current Chief Executive John Stumpf will take on the added role.

submits: The banking system is still suffocating under the weight of bad loans, and it’s well known that the FDIC doesn’t have enough cash to deal with the problem. What to do? According to a plan floated in the , FDIC may borrow from the banks themselves in order to replenish its Deposit Insurance Fund.

Bill King points out that the “LEI, which has increased for five straight months, is heavily weighted to monetary indicators and the stock market. Its predictive value for the stock market has been poor due to over-used monetary stimulus.” > chart courtesy of Bill King, Ramsey Securities > The LEI trended lower from 1997 to 2000 as US stocks bubbled. It declined from 2004 to 2008 as the monetary medication carried a diminishing effect on the real economy. notes a related pet peeve: We’re in a phase change where the economic relationships, proportions, leads and lags do not operate as they did in the past. So any mathematical model that’s based on this sequence is going to be junk mathematics. The last time we had junk mathematics we had the big financial crises that we’re bailing out today.

A Tale of Seven Cities The CS-20 MSA Index and its sub indices for the month of June 2009 led much of the financial marketplace to conclude the deterioration in home prices has come to an end. As we pointed out in our report of August 20, 20091, there is still a reasonable likelihood that the housing market is only 75% of the way towards ultimate stability. The Q2 data, especially the seasonally unadjusted June month-overmonth data for various cities and for the national index, highlighted what was a very regionally-based improvement in the volume of sales (in favor of those markets that have declined in price the most, relative to peak bubble values), while possibly masking considerable softness and the prospects for continuing price deterioration in other regions and for the nation as a whole. Seven of the 20 MSA’s surveyed in the contributed disproportionately to the positive results and saw significant increases in sales volume from the period one year earlier, while the remaining 13 saw decreased sales. Not surprisingly, the seven included the cities that bubbled nearly twice as much as all the others in the index and have come down most in price from the bubble’s peak in 2006. The following table sets for the tale of these seven cities, and the others. The table should be useful in helping to track future data over the coming months. Click for